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Thread: Excellent article on market position of big 3 makers

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    Default Excellent article on market position of big 3 makers

    http://www.buzzcut.com/article.php?s...05053122342247

    I really enjoyed this and agreed with a lot of it. There's a link for part 2 at the end of part 1.

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    That was an excellent read as were some of the articles linked within. Really though, just confirms what many people should already know.

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    Where's Part 2 ?

    I couldn't find it, nor anything that suggested there even is a Part 2.
    "A 'Radical Centrist' ??? Isn't that like being a Take-No-Prisoners Pussy? " - Stephen Colbert
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    The points about Nintendo making smart business decisions in the direction of profitability are good. But the insinuation that Sony and Microsoft will fight themselves to death and out of the gaming business has little-to-no basis in fact or the history of this industry. They may not reach the profitability of Nintendo for some time (if ever), but there is no realistic reason to expect that the industry cannot support two major players as it has in the past. If anything, as it stands today Nintendo is most at risk for an exit from the home console market, due to their extremely limited market share and the fact that they derive far more profit from their handheld products. Not that I think that will happen, but it's more plausible than the scenario offered in this article.

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    Quote Originally Posted by petewhitley
    But the insinuation that Sony and Microsoft will fight themselves to death and out of the gaming business has little-to-no basis in fact or the history of this industry. They may not reach the profitability of Nintendo for some time (if ever), but there is no realistic reason to expect that the industry cannot support two major players as it has in the past. If anything, as it stands today Nintendo is most at risk for an exit from the home console market, due to their extremely limited market share and the fact that they derive far more profit from their handheld products. Not that I think that will happen, but it's more plausible than the scenario offered in this article.
    Here's a first. I have to agree with this. Nintendo is the one that is risking more right now. If Nintendo survives this generation either Microsoft or Sony will be there for the next fight and the next and next.
    All my meseta if you can guess what CMTZ stands for.

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    Quote Originally Posted by petewhitley
    The points about Nintendo making smart business decisions in the direction of profitability are good. But the insinuation that Sony and Microsoft will fight themselves to death and out of the gaming business has little-to-no basis in fact or the history of this industry. They may not reach the profitability of Nintendo for some time (if ever), but there is no realistic reason to expect that the industry cannot support two major players as it has in the past. If anything, as it stands today Nintendo is most at risk for an exit from the home console market, due to their extremely limited market share and the fact that they derive far more profit from their handheld products. Not that I think that will happen, but it's more plausible than the scenario offered in this article.
    Did you not read the whole thing? Every aspect of their business is profitable, simply because it's not as profitable as another portion of the business is absolutely no grounds to remove it. That simply doesn't make sense.

    They make an assload of money on pretty much everything they do, and all they have to do is keep doing what they're doing. Market share is completely unimportant if you remain profitable. I don't understand why people can't get that.

    As for Sony and MS fighting themselves to death, the analogy is valid. Sony and MS spending huge dollars to oust the other is a great way for Nintendo to quietly get some advertising, and for free no less. They certainly won't go so far as to oust themselves from the business, ever, but it's a smart move on Nintendo's part to just stay out of the way.

    Ever play an FPS game online and see two people fighting, and hesitate for a few seconds to let them whittle eachother down and then try to kill them both? Except Nintendo isn't trying to kill either of them. Same concept, but look at it like this: One of those two players is dead, the other is wounded, and you're at full health. Thus, they remain profitable and are no worse for the wear. They didn't take the chance and they continue to make money hand over fist, while both of their major competitors are forced to market and advertise aggressively.

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    I do and don't agree. Sure, nintendo's got some risk of being pushed out, I guess, and that part of the equation is not well explored in the article. But his whole point in writing the article was that Nintendo is reported as being in a much weaker position in the marketplace than they actually are. Are they subject to risks? Sure, all three makers are. But to say that a war between microsoft and sony has little or no basis in fact is to ignore what's already in front of you. Microsoft's losing money to try to take sony's market share as we speak.

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    I agree with hezeuschrist, you must have missed the part in the article that said Nintendo was making money, Just because they don't make as much withe the cube doesn't mean they don't turn a profit. And no company would axe a money making proposition. Personally I would say that that Microsoft is in the biggest trouble in the home console market. Why? Well the original didn't make money, if the 360 doesn't make money then what? How long will stockholders allow a company to continue to lose money? 2 generations? 3? 4? There has to be a limit to it, until the stockholders decide to sell and Microsoft is forced out of the market. Now if the 360 turns a profit this generation or can offer "intangible" benefits, well then I't s different story but this generation is probably make or break time for Microsoft.

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    well said hezeus.

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    Quote Originally Posted by crazyjackcsa
    I agree with hezeuschrist, you must have missed the part in the article that said Nintendo was making money, Just because they don't make as much withe the cube doesn't mean they don't turn a profit. And no company would axe a money making proposition. Personally I would say that that Microsoft is in the biggest trouble in the home console market. Why? Well the original didn't make money, if the 360 doesn't make money then what? How long will stockholders allow a company to continue to lose money? 2 generations? 3? 4? There has to be a limit to it, until the stockholders decide to sell and Microsoft is forced out of the market. Now if the 360 turns a profit this generation or can offer "intangible" benefits, well then I't s different story but this generation is probably make or break time for Microsoft.
    I think ms might have one generation beyond this one to prove profitability. But you're absolutely right, Bill's only going to put up with it for so long.

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    Quote Originally Posted by NoahsMyBro
    Where's Part 2 ?

    I couldn't find it, nor anything that suggested there even is a Part 2.

    http://nintendoinsider.com/site/EEEZuAypVuTuOJPzyb.php

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    I doubt even that. If the Xbox Division isn't turning profits by 2009, they'll axe it.

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    Very well written, with many good points.

    Im going to sound like a fanboy, but knowing Nintendo's history (even before they got into videogames) I wouldnt be surprised if what he said about then leading the next generation in 10 or so years became true.

    Sony seems to be at an odd point on all of its fronts now, although their products are still quality, the "Its a Sony" tagline of the past doesnt seem to cut it like it used to.

    Maybe its just me, but Microsoft always seemed like the Roman Empire to me. Theyre incredibly powerful, but I can honestly see them come to ruins unless they change something. I realize my being a mac user makes this seem like a fanboyish statement. Dont get me wrong, we owe a lot to microsoft as far as modern computer usage goes.

    Good Read.
    Welcome to Macintosh.


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    Quote Originally Posted by hezeuschrist
    Did you not read the whole thing? Every aspect of their business is profitable, simply because it's not as profitable as another portion of the business is absolutely no grounds to remove it. That simply doesn't make sense.

    They make an assload of money on pretty much everything they do, and all they have to do is keep doing what they're doing. Market share is completely unimportant if you remain profitable. I don't understand why people can't get that.

    As for Sony and MS fighting themselves to death, the analogy is valid.
    Actually, I don't think you understood my post. I'm NOT saying it's realistic to expect Nintendo to exit the home market; I'm simply saying that of the three Nintendo is in the more precarious position when it comes to the home market (something in direct contrast to the scenario the author presents). Market share is in fact important if you remain profitable, as the gross profits you bring in are in direct proportion to the amount of market share you have. If Nintendo's market share in the home console market continues to shrink, at some point the expenditure of resources would be better spent in the handheld market, especially in terms of profitability.

    The analogy of Sony and Microsoft fighting themselves to death is not valid, as it does not have any historical basis nor is either company even remotely close to doing so.

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    Quote Originally Posted by hezeuschrist
    I doubt even that. If the Xbox Division isn't turning profits by 2009, they'll axe it.
    This is unlikely as well, as Microsoft in particular is unique in that they expend serious money in a variety of directions that are not profitable, if only to ensure that they are not squeezed out of potential future technological markets. As the leading tech company in the world, they have a huge vested interest in having their fingers in as many pots as possible. Even at the risk of losing money. Microsoft has a track record of doing this, and I don't know why anyone would expect them to change.

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    I don't see how anyone can think that anyone but Microsoft is not in the most "make or break" situation for their company (strictly game speaking). If the 360 doesn't perform well enough or capture as much of a market, or the market doesn't grow as much as they're banking on, they continue to lose money and will most assuredly axe the Xbox program. A percentage of that share instantly goes to Nintendo, no matter how you look at it.

    Sony isn't in any major trouble, they just need to keep riding on their success and the fanboys will prevail.

    And no, Nintendo's profitability is not in direct contrast to their market share. Would they be making MORE money if they had more market share? Sure. Would they be making less money if they had less market share? Sure. But would their net margin decrease, or increase? Not likely. The numbers will be different but the percentages will stay the same. Nintendo is likely the most business savy of the three in the market, and considering this they will be able to adapt to whatever the Revolution brings them, they'll be able to continue to turn a dime on it, especially considering they're not fighting the technological supremecy race.

    As for fighting to the death, it happens all the time in every market, ever. In every facet of life, there's always someone waiting to capitalize on a weakend foe.

    Further, you watched as Sega bet the farm on the Dreamcast and lost. You understand the opportunity and risk of ambition.
    And then Sony ate them.

    Thats the exact position Microsoft is in right now. They've bet the farm on the 360, and if it can't turn a buck for them right now then they're screwed, and Xbox goes the way of the dodo.

    Now why the hell would Nintendo want to take a bunch of financial risks right now and risk losing a portion of their profitability when Microsoft is in the need of being the aggressor to gain market share?

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    Personally, I see the Nintendo strategy as the smartest. If the revoultion comes in way cheaper than the PS3 and the 360 (as its rumoured to) Then I can see Nintendo gathering a huge market share as the second system in the house. In two system households a lot of people I know have an Xbox and a Gamecube, or a PS2 and a Gamecube but not a lot of people have a PS2 and an Xbox.

    And I agree that Microsft is willing to dump a lot of money into the Xbox name just to keep the door open on future profits, but they won't do it forever. If the 360 loses money on every front without offering any benefit, ie, increased exposure of Microsofts software, hardware or brand, they will eventually dump it. Maybe not completely, maybe they will intergrate the Xbox name more and more into the exsisting "Media Center" Strategy, but already I think you can see that Live is becoming less about Games and more about "Entertainment" and "Community"

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    Quote Originally Posted by petewhitley
    Actually, I don't think you understood my post. I'm NOT saying it's realistic to expect Nintendo to exit the home market; I'm simply saying that of the three Nintendo is in the more precarious position when it comes to the home market (something in direct contrast to the scenario the author presents). Market share is in fact important if you remain profitable, as the gross profits you bring in are in direct proportion to the amount of market share you have. If Nintendo's market share in the home console market continues to shrink, at some point the expenditure of resources would be better spent in the handheld market, especially in terms of profitability.

    The analogy of Sony and Microsoft fighting themselves to death is not valid, as it does not have any historical basis nor is either company even remotely close to doing so.
    The precedent is there in alot of other industries -- look at the airline biz for one example. Most of the major airlines in the US are in business now due to goverment bailouts -- they consistently expand to markets where they can't make a profit, price their products to keep market share, but lose money, etc... Look who does make money in the airline biz -- Southwest? Continental? Not exactly the largest airlines in the country -- in fact, I think the number 5 and 7 airlines. But they are profitable, because they have a strategy that is safe and generates consistent revenues, while the big boys flail at each other to try drive each other out of business.

    But Nintendo would only need to consider leaving the home console market if and when their gross profits start to slip below their gross revenues. Considering they were profitable throughout this generation with a console that was a) largely ignored by 3rd party developers b) cost 30-50% less than it's competitors c) only had a ~10% market share, it would be hard to imagine what further conditions they would have to endure to not be profitable. Only things I can see are either not making a quality product anymore or taking a huge financial risk on a higher-cost console. But if they keep to their current strategy it's hard to imagine how they won't succeed.

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    Quote Originally Posted by smork
    The precedent is there in alot of other industries -- look at the airline biz for one example ...

    But Nintendo would only need to consider leaving the home console market if and when their gross profits start to slip below their gross revenues.
    The airline industry is so vastly different in terms of structure and federal regulations you simply cannot compare it to the gaming industry. Not to mention your example is one of smaller companies being profitable; is anyone in this discussion even arguing that? I'm not, let's drop it. And I can't speak for Nintendo, but it makes perfect business sense to abandon a product with a smaller following to focus resources on a product with a larger following, even if both are profitable. But again, I don't see it happening. You guys are talking like I'm of the opinion Nintendo is going out. The point is that they're closer to leaving the home market than Microsoft or Sony for any reason at this point. This is something that's been discussed on these very boards a multitude of times to at least some consensus. It's amazing how quickly people forget.

    Quote Originally Posted by hezeuschrist
    Thats the exact position Microsoft is in right now. They've bet the farm on the 360, and if it can't turn a buck for them right now then they're screwed, and Xbox goes the way of the dodo.
    C'mon man; Microsoft has the money and the drive to ride out the console wars for multiple generations. It's astonishing to me that you think this would be their swansong, when they've shown with both actions and words that they are in the console race for the long haul.

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    first off i just want to say what an interesting debate this has become.

    secondly i just want to raise a few points for consideration here:

    MICROSOFT:
    Microsoft is here for the long term, people don't realize how determined they are to bring sony down, the xbox isn't just a game machine to steal market share, it's also a way for them to springboard different products into the consumer market.

    this is the same company that has 95% of the PC OS market. xbox media center, xbox live, friends list, msn integration with xbox live, and other things which will no doubt further benefit windows in future products. not to mention peripherals that will compete with other household brands such as the hd-dvd add-on.

    their greatest weakness right now is assembly line blues, they need to get as many systems out there as possible to soften the blow the other two will no doubt bring, and they desparately need the Japanese market to do it.

    NINTENDO:
    it's been 10 years since Nintendo held the #1 spot, the Revolution is a major risk that they hope will pan out like the DS has. the vast majority of Nintendo's profits come from handheld sales, putting a new console out that breaks tradition signifies their hunger for a bigger chunk of the market, they won't stand by while sony quadriples them in sales again. Iwata himself said if the Revolution doesn't sell more than the gamecube they will consider it a failure.

    just because profits are up doesn't mean everything is peachy. if they can't expand their marketsize they'll stagnate and shareholders will lose confidence and their stocks will plummet. Nintendo is the one who needs a big turnaround the most, and their online service for the Revolution will either make or break them. Microsoft and Sony can back out gracefully and continue with their other products, but Nintendo's future depends on the gamng industry.

    SONY:
    myself like many others have already seen the signs that sony has gotten lazy, "it's lonely at the top" so they say, what they are doing now Nintendo did those 10 years ago when they rode on the snes for bit too long and made some bad decisions with the n64. Sony like nintendo will succeed or fail based for the most part on online gaming, as xbox live has become a sort of standard to which other services will be judged. worst case scenario for Sony is that they will lose the majority of the marketshare, but their fanboys and diehards both as gamers and devs will sustain them until they can get their feet back from under them if need be.

    /end of ramblings :P

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