Wii, PlayStation 3 Waging Next-Generation Console War

By Daniel Longo

SYRACUSE, N.Y. — For the past several months Sony and Nintendo, two of the world’s most popular game makers, have battled over a pool of consumers that could ultimately make or break each company’s short-term success. Sony, which released the new PlayStation 3 late last year, fell short of expectations when put up against Nintendo’s latest model, the Wii.

In the third quarter of this fiscal year, which ran from Oct. 1 to Dec. 31, Sony reported a 5.3 percent drop in net income compared to the same period last year. Meanwhile, Nintendo’s net income exceeded last year’s by 43.1 percent.

The majority of revenue that Sony reports still comes from its other consoles, the PSP and PS2, rather than the newly-released PS3. Likewise, although their new console has been outperforming Sony’s, Nintendo’s profit generally comes from products other than the Wii. "Nintendo DS hardware has been the fastest rising game platform ever in the Japan market, and in addition, has sold well in overseas markets," a consolidated financial report published by the company said.

"In the console business, Wii hardware (launched at the end of last year) got off to a favorable start, and Wii software titles such as ‘The Legend of Zelda: Twilight Princess’ enjoyed brisk sales as well." John Falcone, senior editor at cnet.com, a technology review Web site, pinned the Wii’s success on its originality. "Because the Wii is focused on game play with a unique motion sensor controller, people have embraced it," he said.

The PS3, he said, is not as inviting as the Wii, even with its improved graphics and multimedia capabilities. For example, while the PS3 has a photo viewer and can play CDs, DVDs and Blu-ray discs, in addition to playing video games, the Wii looks so different that people quickly forget about the PS3. More people may be prone to buying the Wii for a more obvious reason than its look — the price.

Currently the Wii is worth $249.99 while the PS3, sold in two different models, can be bought for $499 or $599. With the PS3, the consumer must pay for the extra features, like it or not. Despite the Wii’s popularity, Falcone does not see the console staying in the limelight for as long as some think. It lacks a diverse supply of games, and its requirement for physical activity could discourage traditional gamers, he said. "There’s a ‘what next?’ factor after the novelty wears off," he said. "And in some regard, Wii may be too innovative for its own good."

From a more strategic standpoint, Nintendo won its bid as an industry superpower because, unlike Sony, it has employed its resources to tap into a "blue ocean market." Blue ocean markets are those in which competition does not exist, and the potential for demand is great, whereas other markets become "red oceans," as competitors kill each other off to earn a larger part of the consumer population.

"Instead of competing head-on with Sony or Microsoft by improving the video game itself, Wii has created a new playing field for video games by focusing on the console, not the video game," said Dr. Minet Schindehutte, associate professor of entrepreneurship and emerging enterprises at Syracuse University. "Wii effectively owns this new market space in which it makes the rules. It is one in which neither Sony nor Microsoft can play the game and one in which the leaders’ competitive advantages have been wiped out."

Moreover, Nintendo’s new console offers the consumer a better experience as opposed to a better product, she said. Because of the emphasis on the gaming experience, the Wii created a blue ocean strategy that effectively put it in a class of its own. The PS3 is an improvement upon its predecessor, but it falls short in delighting the gamer with something unexpected, said Schindehutte.

Some of the Wii’s success could also come from the audience to which it is advertising. Nintendo is trying to capitalize on the "casual gamer phenomenon," Falcone said, appealing to people who play less frequently than hardcore gamers. The PS3 targets its classic audience of young adult males. "This round would end with Sony taking a hit in the short term," he said.

Some people, like Brian Fuller, would disagree. Fuller, a game advisor at EB Games in New Hartford, N.Y., said customers ask him about the Wii on a daily basis. "They’re wildly popular," he said. "Every time we get them, they’re sold in minutes." Fuller said the store receives shipments about every two weeks.

Given the way consumers have embraced the Wii, experts doubt the hype will fade. "This is every marketer’s dream," Schindehutte said. "The buzz created around this ‘must-have’ item has propelled Wii into a different orbit in customers’ perception of its desirability. This will give the Wii a halo effect that will linger until the next new thing in the video game industry comes along."