Sunday, May 27, 2007

Sony, PS3, Blue Ray….what’s happening??!

There has been significantly important information circulated recently on Sony’s PS3. First, Sony’s is discontinuing the 20GB version of the PS3 and introduced an 80GB for Korean market only. Then the rumor mills are churning with that Sony plans to cut prices of PS3. Is this a natural product evolution cycle or a defensive move that may relate to sales?

Sony operates like any other company; they abide by the manufacturing and industry rules. The rules of the gaming industry was defined almost 15 years ago when Sony unveiled its PS1. Consoles were sold below cost but good margins made on software. As production capacity increased, consumers enjoyed further price cuts on the console. This was obviously made possible by reduction of key production material costs.

Industry rules are generally driven by product roadmaps and component costs. Both new and End-Of-Line(EOL) models are decided in advance taking into consideration market demands, competition and component roadmaps. Manufacturers negotiate with suppliers in advance to secure production materials suppliers at low prices. Finally, various components and price combinations are evaluated to determine the one that best suits the market and consumer needs whilst preserving a profit margin for the company.

The question then arises as to why new models are being introduced 6 months after the first.

During the launch of PS3 in Europe, Sony announced that 600,000 units were sold in 2 days. This was view as a disappointing launch from a event perspective (source: TF1, LCI, Launch of Playstation 3 in France). If sales to do meet expectations, it is crucial for manufacturers to make quick decisive measures based on market needs. In this case, consumers opted to purchase the 60GB version of PS3 as the price difference with the 20GB unit was $100 only. The 60GB unit came equipped with Wifi capabilities as well. We can safely assume that the entry-level unit was meant to drive people to stores.

Another possible factor is the contract between Sony and its hard drive suppliers. Component issues or shortages would mean Sony has to review its product roadmap. Sony announced that the demand for its 60GB unit is much higher and they are assessing how best to address the consumer needs. However, the fact that the 20GB units are discontinued is not good news at all.

PS3 is one of the best and most powerful gaming unit in the market today. The question is whether Sony has found its right audience. Microsoft’s XBOX is continuously increasing its presence in the market. I am not referring to market shares but ‘love shares’ and ‘technological shares’. Their games are getting better and providing new experiences for the consumers. GRAW II and Halo III is an example. It has even introduced the HD DVD and an Elite edition XBOX 360 with HD support. In addition, they are now binding the console with Home Theater, taking the fight full on with Sony. More recently, they announced linking XBOX with Windows Live Messenger, which is definitely a good way to attract additional audiences.

Let not overlook Nintendo’s Wii. Nintendo continues to produce great games for gamers. They focus less on technology compared to its competitors. They fight on a different front. Nintendo survived with its GameBoy while many of competitors folded or faded away. Lynx from Atari, GameGear from Sega and the fantastic portable PC Engine from NEC are now all defunct. Nintendo continues with its success on Nintendo DS and now Wii is making heads turn and raking up the cash register. This is despite they fact that Wii has nether great games nor HD or Blue Ray support. It does have, however, games that entertain.

So where does Sony fit into all of this? The Blue Ray battle that has started on the Home Theater market will be fierce but Sony using the PS3 as a primary advantage to promote its format. By introducing entry-level units, it is enticing consumers to take up its format. Discontinuing the 20GB unit, may displace Sony from some markets. Unless Sony immediately introduces a higher capacity PS3 model at a lower cost.

Some of the more recent announcements seem to suggest that Sony is taking greater defensive actions. Though PS3 may not be as successful as they anticipated, it appears the new PSP model will help strengthen its dominance. Sony has to continue to innovate to survive. It cannot afford to lose the battle in the HD format as they did in the Betamax many years ago.

We can probably expect Sony to react aggressively in the coming months and years. The PS3 is just one of its ammunition from the arsenal. Hang on, sit tight…the battle is getting interesting.

Friday, May 25, 2007

PSP Remote functionality

One new feature of the Sony PS3-PSP ecosystem is called PSP Remote.

As you could imagine, it is a way to control your PS3 through your PSP. Imagine that you could have all the content of your PS3 on your PSP. This is exactly what offers you the PSP Remote feature.

So, how does that work ? First you need to download the lastest firmware on both PS3 and PSP. Then, you have to 'pair' the two units together using an USB cable. After selecting the PS3 Remote option on the main unit, you just have hook up your PSP on any free access WiFi hotspot and select the same option.

Automatically, the PSP will then go on line, and granted you accedd to the PS3 interface.

I was able to watch trailers and preloaded video on my PSP directly from the PS3. This is a great option if you want to use your PSP as a media player while your PS3 is used as a media server. You can as well shop on the Sony PlayStation Store.

Unfortunately, I was not able to play preloaded games (even the arcade games) nor was I able to stream DVD.

I have to admit I was quite positively surprised. Sony is trying to engage consumers both from a mobility and living room prospective and it is about to succeed.

Wednesday, May 23, 2007

Wii-volution your life

Wii-volution your life

When the gaming industry was buzzing with the launch a new revolutionary entertainment device from Nintendo, I view it with some skepticism. After all, I was left slightly disappointment with the release of recent gaming console. It was not because they were not were not good but more due the hype played out in the industry.

In fact, when Nintendo finally released Wii, I became even more skeptical even after some of my friends kept raving about how cool and fun it was. While passing through an IT mall, I watch a demo and decided to risk buying a set for myself. Mind you, I did this with as much skepticism.

This skepticism has been replaced with a greater amount of admiration for Nintendo. Over the last decade, Nintendo has continued to innovate and differentiate itself while others compete for technology supremacy.

Each gaming product tried to convince you that it was the right entertainment for you. However, they focused on technology rather than the real customer needs. What we got were mobile gaming devices with possibly color screens with 3D capabilities but were subjected to poor battery life spans and limited games. Nintendo understood this and survived with its GameBoy and successor products.

Nintendo’s Wii is not only cheaper than other major gaming consoles but comes with a gesture-control motion sensor. For those not familiar, it means that instead of controlling a character on the screen through a game pad, you physically perform the action in front of the screen. You can probably understand the reason for my skepticism now. Amazingly, Wii really works as claimed. The magic is not the technology but more in how Nintendo has applied. They have introduced a completely new level of excitement and fun to gaming.

It is only in recent time times that gaming has become a family entertainment activity. In the past, many considered it to be disruptive as the traditional approach was where you either played alone or with a virtual body online.

Go try a game like Rayman. You will have so much fun with your friends trying to throw a cow or dance to the rhythm of Kill Bill music that it will generate new feelings, new emotions and most importantly you will have a great time.

Trust me…. Nintendo will Wii-volution your life.

Thursday, May 3, 2007

Creative Zen Stone : can it renew to success ?

How to succeed against Apple ? How to come back to profitability ? What product should a company create in order to try to bring its sales closer to the 10 000 000 iPods shipped during last quarter ?

When Apple stock sky rocket to $100.40 , reaching his highest level for the past 10 years, Creative stocks falled from $31.75 in March 2000 to $5.91. The market sanction is tough, the lesson to learn tougher. However, one should acknowledge the number 2 position of Creative Labs in terms of sales.

Manufacturing an MP3 player is easy. Technology becomes affordable, design shop houses are opening at every corner of the street to propose the 'iPod killer' design to any manufacturer, software is know. So , why is it so difficult to find the iPod, why is it difficult to get profitable on that market ?

First of all, more than on any other market, margins are tight, really tight. Accurate distribution process, strict inventory control, proper component prices are some of the key elements that can turn your 'gold mine' products into a financial disaster for your company. For a product sold at $99, it is not rare to have a margin around 5%. When you have to consider the taxes, import duties, shipment and retail margin, any swing in market price, key component, inventory is extremely dangerous. Driving profitable MP3 sales is becoming a exercise close to driving an F1 formula.

A key success element comes through your product creation. However, companies like Creative Labs need to make choices. How to you want to fight Apple ? Choose your battle and strategy and stick to it. When you have an opponent as strong as Apple in front of you, the direct and frontal attack rarely succeeds. It might hurt from time to time, disturb you but it is unlikely it is going to win over the long run.

Trying to fight Apple can be assimilated to a judo fight. Use your opponent strength against him. If your opponent is stronger and heavier, be faster and smoother. Make him swing until he falls on the floor.

Apple does not succeed only because iPod is better designed, integrated with iTunes or properly supported by the music industry. iPod is becoming a generic name, an icon. People want to buy an iPod regardless of your technology or your price.

It is not because you will offer a $10 cheaper product than iPod that you will sell it. It is not because you offer an higher capacity product than the iPod that you you will sell more. The result will only be a drop in your margin.

Creative new product Zen Stone is a nice designed product. However, will it capture the iPod shuffle product market ? It will certainly capture some sales and take some market shares from other competitors but will not shuffle the iPod supremacy.