The Console Market's Dirty Little Secret

Published: 09/27/2014, Last Updated: 09/27/2014

I'm always baffled by double standards; and with what's occurred in the Console industry over the past few years has been no exception. 

Typically I'd make a comparison between the Console and PC gaming markets but this time around will forego that to keep this topic a bit more focused and succinct. So what am I referring to?  In short: there's been a pretty devastating vacuum left by Nintendo amongst the big 3 Console Mfg's over the past few years with their release of the WiiU.  Yet... we hear little to nothing about the 'Death of Console Gaming'.  So why is this?

When you dissect the information that's out there, both publicly available, cross-checked with other research analysis, I've come to the following conclusions, & or theories as applicable.

  1. There are 3 Big Console Manufacturers (Mfgs) being of course: Microsoft, Nintendo, & Sony.  I believe the biggest competition isn't just merely between each other; but also against the previous generation.  In other words - it's critical for them to re-cannibalize their pre-existing user base.  Not an entirely easy thing to do if there's little to no differentiation occurring in the games that warrants any type of an upgrade.
  2. More players getting in on the game?  So Amazon just released their Console, we have the Ouya, etc that from all appearances don't seem to be revolutionizing the market....yet.  However; can something like Oculus also be construed as yet another Console-like platform to support? At the end of the day there are only so many developers out there, and finite amounts of marketing budgets.  It'll be interesting to see what impacts, if any, these other platforms will have over time.  Also; in some circles, some people view Valve's Steam Machine as being more 'Console' than 'PC'; so it'll be interesting when that also hits the market in force as everyone vies for mind/dollar-share in the Living Room & beyond.
  3. What happened to all those Wii/WiiU users install base?  My personal theory is that a ton of these users migrated over to gaming on Tablet form factors. (iPads, & Android based Tablets)((Yes.. SmartPhones might also be playing a big part; but I believe that's had a more 1:1 impact on the existing HandHeld Gaming Market)).  The significance of all this is pretty huge given that in the 7th Gen Console race Nintendo was easily 1/3rd or more of the "Console Users Install Base".  When something like ~100m Wii's have sold, yet barely an estimated ~5m WiiUs, something is definitely going on.  Those users definitely went somewhere; and judging by the current sales #'s of the 8th Gen Consoles (PS4, & Xbox One), they certainly haven't stayed in the Console Market.  Those dollars, and mindshare, have gone elsewhere.

Some other potential culprits for the exodus occurring away from Consoles to other gaming platforms also comes down to the following:

  1. Consoles by their nature are the antithesis of being an 'Agile' platform. 
  2. Consoles struggle in industrializing, and emerging markets primarily because of 1) Cost, and 2) as a Consumer Electronics Device - they are quite limited.  Often merely being a 1 or 2 trick pony in overall functionality.  So what's the point? Why waste your money?
  3. Piracy is on the rise in big ways on Consoles.  <-- Another dirty little secret of the Console industry. 
  4. Due to the smaller volumes, and unit sales #'s of Consoles relative to PC's, they will never be able to match the scale of economy necessary in order to truly take advantage of the Free To Play business models in meaningful ways.  You need massive scale to pull that off appropriately.
  5. Consumers have become more 'mobile' over time and are increasingly choosing compute devices that are easier to travel with.
  6. Developers are becoming less enamored with Consoles over time and paying the exorbitant royalty fees.

So there you have it.  Some of my thoughts about what's going on in the Console industry. Nintendo has left a huge vacuum; and its still very speculative that a Console lifted ban in China will do much for either Microsoft or Sony.  Especially given the performance of Consoles in markets like S. Korea.  Not to mention that there's already been a long time black market for Consoles in countries like China already.  So do they really net much?  I for one believe it needs some closer cross examination. I'll even go so far as to say that we really ought to start thinking beyond 'fixed function' type devices like Consoles, as it can often imperil those same companies that produce them.  The sunk cost fallacy of dumping billions of shareholder dollar value for such a limited device seems a bit more short sighted, if not antiquated in thinking. 

Curious to get your thoughts on the matter!



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