Iterative Consoles, Hardware Sales, and Installed Bases

ZhugeEX, who has been a good source of video game market and sales information, just posted a massive blog post about why he thinks the game console market needs to switch to an evolutionary model. It touches on some of the same points I did in my recent post, but adds some numbers to back it up. I think it highlights two things that are happening to the console market.

First, if Sony and Microsoft are indeed going this route (neither has actually announced anything at this point, but there’s a lot of smoke), one reason is to bump hardware sales back up, or in fact increase them beyond where they would have normally been without incremental hardware upgrades. I’m not 100 percent sure on ZhugeEX’s assertion that the console market overall is declining compared to where it was six years ago or a decade ago, but I’ve always had this feeling it was a bit stagnant. That is, consoles aren’t growing in-pace with rising production costs of games or the growth of mobile and PC gaming. The user base isn’t growing fast enough, and thus the number of people buying new hardware isn’t growing fast enough to keep up with costs.

You can see iterative hardware as a way to convince some users to spend more money on hardware. It’s sort of the same thing that’s happened with DLC and microtransactions: Sony, Microsoft, and third party publishers can’t grow the user base enough to keep up with growing costs, so they have to figure out how to get more money out of the same base of consumers.

I especially agree with ZhugeEX’s comparison to the slim models of consoles we’ve seen ever since the NES era. Manufacturers have always repackaged consoles to lower costs or bump sales up. Nintendo’s handhelds are probably the most persistent and widely-known example, and it’s known for upgrading the hardware in its handhelds with some of these revisions. All this however brings up a major point that I think some critics of iterative consoles miss.

On twitter and forums, a lot of the criticism I see comes from the perspective of early adopters: people who bought a PS4 at launch and expected to get five years of undivided attention from developers before buying a PS5 at launch. Here’s the problem with this: that’s not how most people buy hardware.

Buying a console isn’t really a guarantee of five or six years of developer support because that’s not how much most people even experience. Console sales keep going throughout a generation because most people buy consoles mid-generation. Casual consumers don’t care that a better one might come out in two years or that the current one is three years-old. They just want the machine that’s currently right for them. These are the people who bought slim models in the past, or bought the Kinect Xbox 360. In a sense, they’re still getting those “five years” of games because they can still buy all the ones that came out earlier. They’re not just  buying into a platform for the software that’s currently and still to be released for it. They’re buying into it for all the existing software.

I gave up on being an early tech adopter years ago, but even when I was all about it I didn’t buy at launch all the time. I didn’t buy a PS2 until I got a slim model in 2005 — a year before the PS3 came out, and I still thought it was a great decision because of the immense back catalog of games the PS2 had amassed. Even better, I had never owned a PS1, so there was also that huge back catalog which I’m still investigating to this day.

The other thing Sony and Microsoft will probably try to do with upgraded console models is consolidate their user bases. I touched on this a bit in my previous post, but doing iterative models for the foreseeable future instead of resetting the platform makes the consumer base less volatile and more reliable. iOS customers are “set in” because they’ve invested in their iCloud and iTunes accounts as well as all their iOS software. Sony probably wants the same kind of system where when people think about upgrading to a new gaming system, they think about getting the one that still plays all the games they bought and still get’s the benefit of the PlayStation Plus service they pay for. Meanwhile, a lot of stuff for the new hardware model can still support the old hardware model if they share a platform. ZhugeEX points out how messy the cross-generation transition was circa 2013 and 2014 — publishers trying to manage the PS3, PS4, Xbox 360, and Xbox One versions and user bases of Destiny or Call of Duty or PlayStation Plus or what other kind of game service. Having multiple models share a platform probably makes all that a lot simpler.

And those examples bring up the point that iterative consoles could help create the larger, stable audience that certain types of games need like free-to-play games. ZhugeEX didn’t point it out, but the generational resets and stagnant consoles are also probably the reason most MMOs historically haven’t targeted consoles. An MMO like World of Warcraft needs a big potential audience that persists longer than five years to be viable.

Picture it like this: If the PS5 or whatever is just coming out and only starting to build its userbase, but it’s a more significant iteration on the PS4 and “PS4.5,” a publisher trying to make an MMO or free-to-play game or other kind of service-based game doesn’t have to worry about separately supporting the people who bought the PS5. They can just make the game once hand it’s available to the users of all those models (if the base PS4 isn’t too old by then). It’s about combining the user bases of multiple pieces of hardware into one platform.

One thing that’s worth asking though is whether this will actually increase the overall number of people buying game consoles, or will it just recycle the same current users and funnel them into a more stable base. How will an iterative model attract the people who’ve gone to mobile and low-end PC gaming? As time goes on will it eventually open the door for super-cheap slim legacy hardware to support more mass-market games? That sounds like a possibility to me, but it’s more long-term thinking.

BULLETS:

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