Consoles have long occupied the premium end of the games market. However they increasingly have complicated ambitions. They are hubs for ecosystems, avenues for digital content, and their sustainable software prices are well below what you might consider premium. In an accelerated and digital world, an unchanging technical spec makes them look ordinary, and so their platform story has become vague.
Manufacturers seem to have realised this, and they are releasing hardware more often, with more individual features. Their focus is moving away from selling the console-as-media-hub to the more joined-up game experience offered by a Kinect or a Wii Fit. Manufacturers seems to care more about hardware-dependent games, less about catalogue depth, and the premium space is increasingly turning into one of single-use game peripherals designed to provide one experience really well.
The question is whether the central component of those experiences, the console, is actually necessary. Will it always act as the hub through which more specialist peripherals such as cameras or instrument sets operate, or will it make more sense for the peripherals to become single-use game systems in their own right and sidestep frumpy consoles altogether?
Of Hubs and Guitars
When I worked in Game in Dublin, 17 years ago, peripherals were considered the also-ran component of gaming. Light guns, Thrustmaster joysticks, the Mega CD and similar devices were always at the back of the store and would only sell on an irregular basis. Even for big releases like Time Crisis the number of guns sold tended to be on the low side, and the build quality was always pretty flimsy.
While 16-bit game machines were pretty specific in what they did and how they did it, the PlayStation sparked the idea that a console could do more: It could play your music, and that function wasn’t an add-on to be sold separately. Consoles started to branch out from their gaming roots to try and capture more of a cross-media presence. They acquired the ability to play DVDs, connect to the internet, browse the web, take photos and be used for instant messaging.
This was the era of console-as-hub. The long term ambition from Sony, and later Microsoft, was that the console would act as the beach head for what was termed the ‘battle for the living room’. The ultimate frontier seemed to be to own the television space, so almost every technology company tried to own their piece of the pie. Game consoles had to match functionality with cable TV, DVR, laptops and more to try and become some sort of ur-vendor of all media.
However the battle for the living room has turned out to be unwinnable. There are too many entrenched competitors and it is too complicated to explain to customers why they should actually care.
Consoles have become jacks-of-all-trades but masters of none. They each have some partnerships with some media providers, but not others. Some exclusive games, but many common ones. Some functionality in some regions, but absent in others. Their user interfaces have become way too complicated, and many of their hub features (such as the Xbox 360’s movie selection) are essentially dead on the vine. The overall experience of using them is riddled with cruft.
Customers are more attracted by peripheral-style toys than complicated console hubs because they make more sense. Dance mats, cameras, guitars and motion controllers became more prominent and profitable because customers could immediately understand their appeal. Nintendo, always dubious on the idea of the console hub to begin with, were best placed to lead the charge and did so. They truly spanked their competitors in the process.
Customers seem to like to swing their arms, play guitar and practise yoga using their gaming time. The peripheral has become more important for manufacturers because it tells an uncomplicated story of innovation rather than tech specs. Customers seem reasonably content to buy into the idea that their console is a port for several devices, but at what point will they want a Wii Fit that doesn’t need the hassle and expense of a Wii attached?
Is the Console Really Necessary?
Microsoft have sold over 10m Kinects since launch, which is very impressive. But why did Kinect need to bound up with the Xbox 360? The immediate answers that come to mind are that the Kinect is actually just a sophisticated camera, and the Xbox 360 provides:
- Processing power
- Disk drive
- Video output
That is largely how all peripherals have been built. By offloading the major functions to a different piece of hardware the cost of making the peripheral is drastically lowered. So it becomes a highly profitable product rather than a loss leader. Kinect costs $180 or so, much of it profit for Microsoft, and also sells some bundled games like Kinectimals. So as a business strategy this makes eminent sense.
But from the customer’s perspective it’s not so simple. To the guy that already has the Xbox 360, Kinect does indeed cost $180. However to the mom that is not an Xbox owner, Kinect actually costs $400. The mom has to understand that she needs multiple pieces of equipment to make a Kinect work, and that there is a difference between a Kinect game and Xbox game. It seems complicated, and that’s off–putting.
This places Kinect well beyond the reach of many could-be customers, and fundamentally is why the peripherals business has always been an extension of the core brand. EyeToy was essentially restricted to people who already owned a PlayStation 2 for the same reason. Games like Rock Band, Steel Battalion and Singstar have also needed to sell themselves to existing audiences because of the additional cost of a console as well as the physical peripheral needed to run the game.
While peripherals have traditionally been created and sold in this way, I can see less and less reason why this needs to be the case. We’re not quite there yet, but each of the five reasons for why peripherals need to be bound to consoles are fading away.
Processing Power: Ten years ago a graphics card was a significant piece of kit that you installed in a PC to play Quake 3. Today you can play it on your smartphone. Raw processing power’s importance declined as it reached a point where the apparent difference to players was negligible, and this has led to a wave of miniaturisation and portability rather than further quests for brute force. It is conceivable that a set of drums for a Rock Band style of game could also contain the processors that run the game, and the game itself installed on firmware. If you can make Guitar Hero work on an iPhone, why exactly do you need the hulk and bulk of a Playstation 3? Why not cut out the middleman?
Storage: Just as processing is cheaper, so too is storage. Smartphones increasingly have 32GB of storage that is purely internal to the phone. You can purchase a 2TB drive for $80 (and 4TB for the same price next year), a 16GB USB stick for $15, and you can get 100GB of online storage for less than $10 a month. Storage is cheap and getting cheaper, so it is not an issue in stand-alone game systems. A Wii-style balance board could easily store all of its game data on a chip on the board itself.
Disk Drives: The digital market is here to stay, and increasingly it’s the preferred choice of customers. Whether it’s Zynga’s cloud-hosted games, smartphone apps or Steam sales, game makers know that there will eventually come a time when physical disks cease to be the primary means of acquiring games. Bandwidth costs will fall, WiFi will continue to propagate, and the idea of paying $60 for a disk copy of any game without some premium merchandise thrown in will seem ludicrous.
In such a future, physical media for consoles will become as irrelevant as it is in portable music. Games will simply be downloaded, and this frees single-use game hardware from needing the console to load data.
Connectivity: Connectivity in general has many other upsides. Microsoft’s Xbox Live is accessible from the Xbox 360, but also from mobile devices and the desktop in a limited fashion. iTunes is not device-reliant, and other services from Nintendo and Sony are similarly starting to take advantage of device agnosticism. What this means is that the connected games machine of tomorrow can still act as a link into the ecosystem of the platform’s choice. It just doesn’t need a physical console box to do that.
Video Output: Televisions do not yet have the general ability to receive video signals over the air, so even the most modern sets have a blizzard of connectors and cables that most customers dread. The technology exists to overcome this problem but it does not yet have widespread adoption. However that can only be a matter of time. When devices are capable of transmitting content to the television without cables it will remove the last major impediment to dozens of devices in the home being able to patch in. Then the console will truly have no real reason for acting as an intermediary.
VTech’s Toy Business
VTech is a Chinese company that specialises in single-use computers. Every Christmas, it produces a slew of advertisements selling pretend laptops, Buzz Lightyear learning computers and fake video cameras. They are toys for children, intended to let them enjoy the fantasy of pretending to be grown-ups or to learn the alphabet, and they have little function beyond their limited range.
VTech has no hub strategy. All of its products work independently of one another, all consist of both with software and hardware melded together, and so from a user perspective they are uncomplicated. VTech is very much in the business of selling objects and its proposition to customers is very simple as a result.
In a sense, the future business model of premium games is slowly turning into a high-end version of the VTech business. A stand-alone Kinect, for example would be a game system which connected directly to a television and the internet. It would have its default game stored in the hardware and allow users to buy further software over Xbox Live. It would process and store game content by itself, and so be a simple proposition to players looking for a premium gaming experience. Forget the console, the trappings of a hub and the hundreds of baubles that come along with it. Just plug in, tune in and play.
A guitar which also contained a Rock Band-style game and which could connect to the internet to buy more music tracks is another example. A first person shooter controller which connected to a Call of Duty service is another. It would transmit to your television and yet also be portable enough to bring to parties and establish a local network between other similar controllers.
You get the idea. The future of premium games seems tied up with devices rather than hubs. They are more physical and more valuable as a result and more easily explained to users. They fit more with a manufacturing model that needs ever-more-frequent stories to tell its users and new ways to bring them into their cloud, and they are less prone to piracy because the experience is the thing itself, not the software on the thing.
Tangibility is the key.
That Premium Feeling
Would Nintendo really want to replace their razors-and-blades business model with something that is more device reliant? Would EA really want to get into the manufacturing business by making their own Rock Band set that also processes the game and connects to the internet?
Games have clung to their cartridges, DVDs and Blu-Ray disks like children with a blanket for two reasons. Firstly, the footprint of many games is considered to be too large for broadband transfers. Secondly, the perceived value of a tangible object (like a cartridge) is higher than that of a file. So if you want to charge customers more, selling them atoms rather than bits is always a good idea.
However, of course, these reasons are falling apart. Steam happily sells games which are multi-gigabyte in size, as do Microsoft when selling back catalogue editions of Xbox and Xbox 360 games. Broadband speeds are often more than adequate for even huge games, and still increasing.
Secondly, the market does not really buy into the tangibility argument for average game discs. An average game disc comes in generic cheap packaging. It does not feel special enough, not in the same way that a dedicated piece of gaming hardware does. Second hand sales and rental are booming as cheap ways to get at these games because in the market’s estimation most of them are not really worth what the publisher thinks they should be worth (because the publisher thinks content has value, which it doesn’t).
However premium editions of games do sell. Editions that include tangible extras, such as nicer box packaging, a DVD of extras, a poster, an included book of concept sketches and so on sell. Customers like tangible things that feel premium, and they want that special relationship over a same-old same-old generic package that means nothing to nobody. A package that says ‘this is just data on a disc’ gets treated like what it is, which is a simple commodity.
Joined-up products (where hardware and software combine) can be a much more powerful kind of marketing story. The packaging, interface, game software and so on that make up the whole product sell not just content, but a whole fantasy. Well made tangible products look and feel more premium than digital ones, and so they can charge higher prices and get paid in a way that mere disc data increasingly cannot do.
A manufacturer like Sony or Nintendo needs to exist in that premium space because they really cannot get small enough to compete with Rovio. The only option that they have is to keep making physical things, and in a world of cloud computing and digital distribution, the form and function of that physical thing can no longer be generic. It has to be a part of the marketing story and sell the signature game as well.
The console business has been gradually turning vertical for a long time. If it makes more sense from a sales perspective to release a cool device with a few cool games, but which is inherently more disposable than a platform, then that’s the business that the manufacturers should and will be in. Tying the console to the heart of all of that is anachronistic and actually getting in the way.
But What About the General Case?
The counter-argument is that specialist hardware dilutes the opportunity for independent software. If you have a first person shooter specialist controller as the sum total of your gaming machine, then where is the next Castle Crashers supposed to come from?
That’s a perfectly valid point. The VTech model is trapped by being single-use based, which means that VTech are reliant on its own in-house teams to make (or license) the software that its products need. However isn’t that exactly what Nintendo does? Haven’t you noticed that Sony and Microsoft publish the bulk of all the big selling games on their platforms? Outside of perhaps 10 franchises across all third party publishers, isn’t it apparent that the manufacturers pretty much run the table now?
While it might be a valid point, the opportunity for independent software is a lesser concern to the platform makers. It takes a lot of effort, relationships and guidance and the results are usually pretty disappointing. Outside of a few key relationships (such as Grand Theft Auto, Final Fantasy or FIFA Soccer) the bulk of third party software only performs incrementally at best and the games press gets much more lathered up for a hardware story than for just another game.
As Nintendo have recently made a snafu in admitting publicly, the independent development community doesn’t actually do that much for the premium games business. It’s more of a going concern and profit maximising opportunity, and the developers in that community are clamouring for less restrictions, more of an iTunes-like relationship and a better royalty cut. These are all good things to clamour for, but for a vertical business that needs to make new toys every year, like Nintendo, it stands at odds with their focus.
The console business is vertical, not horizontal like smartphones and tablets. It’s specialised and bespoke because it needs high value returns, and having effectively ceded the lower value ARPU customers to the Web, Android and iOS, its main path to profit in the future is bespoke. The console manufacturers and bigger publishers can offer something that general platforms can not, bespoke experiences, and they can find a great deal of value in essentially selling connected toys rather than overly complicated hubs.
Living in the Clouds
However this does not necessarily equate to a ‘consoles are dead’ argument. Formats don’t tend to die off nearly as quickly nor dramatically as tech blogs might have you believe. Instead, they simply quieten down. Game consoles will certainly be around for a long time even if they may have passed into their red giant phase.
They won’t retain their position as the seat of premium gaming however, and that’s the important distinction. When all other concerns such as graphic quality and storage are effectively no longer an issue, then tangibility and bespoke experience are all that remain.
The real battle is not for the living room, but rather for the cloud. Customers never needed nor wanted to bind their digital identities solely to one company. Nobody wants to be told that they can be a member of one club but not the other. They want to buy a stand-alone Kinect and use Xbox Live to purchase games through it while also having an iPad that downloads music.
Rather than trying to tie customers into failed ecosystem plays that offer no real value, what works better for customers is interconnected clouds. My stand-alone Kinect would work with Xbox Live and I would buy software through it, but would be able to send video messages to my wife’s iPad. My Rock Band stand alone guitar set would be able to patch into my iTunes Ping or my Last.FM and help improve my music recommendations. And so on.
In the world of bespoke devices offering unique experiences, the play is not to try and hold onto every one of the customer’s interactions as hubs tried and failed to do. It is instead to hook into as many services as possible. The marketing story for the device then spreads in unexpected and pleasing directions, and everybody wins.
These needs for openness and connectedness are the problems that today’s manufacturers will face over the next decade. They are culturally so used to trying to hold on to everything, but it isn’t working. For the premium business to make the transition that it is trying to make, it needs to engage in both joined-up thinking and cloud connectivity at the same time, and that’s going to be pretty complicated to handle.
But what future isn’t?