Wired Misinterprets the Market Failure in Console Gaming

Wired had an article recently about the new Xbox One announcement. The Xbox One announcement has been really, really panned, and for a whole lot of good reasons. I won't get into the details of all the criticisms, such as the fact that you may have to pay a subscription service to MSFT to play your pre-existing subscription cable, or that it is an 'always-on' service, etc. etc. However, I will talk about the fact that it seems that the Xbox One it isn't really for gamers. Wired's Chris Kohler notices this, but draws the wrong conclusions, stating that:

It’s not hard to figure out what the gaming-first crowd wants: a super-powered box that connects to the TV, has a handheld controller and has a huge library of games from the biggest-budget epics to the breakout indie hits. They don’t want a PC because they don’t want to mess with settings and deal with crashes; they want a standard platform that Just Works. It can do other things, sure, but games are the meat and everything else is somewhere between the gravy and the pepper shaker.
Hey, that sounds like an awesome product! Tuned precisely to our very needs. Say, do you know how many companies — in the entire world — currently offer such a product?
From there basically goes on to say that the above must be either impossible to do properly or not be worthwhile financially. He hypothesizes:
There may be no way to make money selling a bleeding-edge $500 games-only box with $60 games anymore. The expense of producing it all may be well out of whack with what players are willing to spend to get it.
This smacks of speculation, because no one is even bothering to try to implement that business model. And the frank reality is that the systems that are currently being produced are vastly overpowered - you can still get really great graphics out of consoles that are not nearly as beefy as the latest releases. Further, because so much groundwork has been laid into the development of gaming engines, it is cheaper to produce games now, and millions are willing to pay good money to play them. Just ask Gabe Newell

So, Kohler has missed two important points.

First off, the actual lesson is that there is a current market failure: up until a decade ago, Sony was raking in the money in console video games - I don't think those consumers all died, rather, I think they are older and probably have more purchasing power, economic downtown notwithstanding. I'd argue that Sony's failure to capitalize on this same market is because it is pushing bloated multifunction set-top boxes focused on media into the market, and has lost focus on its core audience of gamers and gaming consoles. In other words, as demonstrated by the above historical console sales, there is a demand and no one is delivering.

Second, the point to take is that MSFT and Sony are both "out" of the gaming game and are in the middle of huge media plays. Right now they are trying to use their consoles as a way to shoehorn their media businesses into the living room, directly in competition with Apple. In fact, Sony's entire electronics division is losing money, while it is making most of its profits in media and insurance. Microsoft, in the meantime, has hired a former CBS executive, set up its own studio, and has signed a deal with the NFL. So the problem is that MSFT and Sony are competing with cable companies, HBO, Apple and Hollywood with this new generation of consoles, rather than competing with Nintendo and targeting gamers. Nintendo itself may have stumbled with the WiiU, because it is also crammed with distracting features, but the 3DS is doing fine and I'm sure the WiiU will hit its stride.

Currently, it seems that Sony and MSFT are more interested in getting your parents to watch the latest episode of Real Housewives of Microsoft, your siblings to watch HaloTV, the whole family to enjoy a movie from a wholly owned subsidiary, or the guys to socialcast their fantasy stats while they watch football, than to make a play at the core gaming audience once serviced by millions upon millions of, PSs, Xboxes, PS2s, and Xbox360s.

So fundamentally, where I see market failure and a big demand, Kohler has taken the fact that a) the market is being flooded with devices that intentionally address a totally different market segment - casual media consumers - to mean that b) that it is impossible to create a product that gamers do want, either because gamers aren't there or because it isn't profitable. Quite simply, b) does not follow from a).

I suspect the pendulum will swing back the other way, and not too long from now either. 


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