Paul Sylvestre's Business Strategy and Marketing Blog

Friday, August 05, 2005

Sony's PS3 Strategy Against Microsoft's XBox 360

Sony may wait until 2007 to launch its next-gen PlayStation, depending on the success of Microsoft's XBox 360, According to the Analyst team at Wedbush Morgan Securities.

Gamespot reported that Wedbush senior analyst Michael Pachter set up the following scene for a delayed PS3 launch. It starts with the current-generation Xbox being priced down to $99 post-Xbox 360 launch, but no lower. Concurrent with that situation--an Xbox 360 at an unspecified price and the Xbox at $99--Sony would drop the price of the PlayStation 2 to $99.

The key point in Pachter's argument weighs heavily on what sort of showing the 360 has at launch. If the 360 tallies significant sales early, Sony would need to fire on all cylinders and get the PS3 into the channel ASAP. However: "Should Microsoft fail to garner sufficient software support to gain an insurmountable lead, we think that there is a possibility that the PS3 launch will slip into early 2007."

Pachter stated, "We believe that Sony will attempt to disrupt the Xbox 360 launch with a price cut, and as a result may succeed in diverting attention away from the higher-priced next-generation console." The redesigned PS2 carries a manufacturing cost of less than $99. At $99, the PS2 can be sold for profit. Consoles are usually sold at a loss, and that money is made back (and then some, hopefully) by game sales. So, Sony with its streamlined manufacturing and large game library could sit back and collect profits while building up a cache of PS3s for a later launch.

Ars Technica's Ken "Caesar" Fisher added to this analysis. Ken emphasized the importance that Wedbush also sees a potential for Microsoft launching without adequate title support. According to Ken, "All the console sales in the world can't make a popular platform, and a weak title list at launch can suck the air out of a room in a hurry". Furthermore, Ken reported that a delay in the PS3 could allow Sony to address a few other key issues. Sony is in the same boat as Microsoft as regards the difficulty of developing games for these next-gen consoles. More time should translate into higher quality games, and if Sony can afford to wait, they should. And Sony was embarrassed last year when they couldn't meet demand for the PS2. If Sony debuts the PS3 next year only to see more supply and demand problems, they'll lose customers to Microsoft.

Looks like a win-win situation for Sony. The PS2 is still a very capable system with a ton of really cool games. It still has a lot of life left in it and could easily throw a monkey wrench into Microsoft's plans for the Xbox360, which is vulnerable in the market due to its higher price and small game library. And waiting a bit would let Sony get its house in order. If it plays out this way, get ready for a PS3 launch in 2007 that is out of this world.