Elegy for PlayStation.
One of the many interesting things about transformative products wrought by Technology — asides from the socio-economic changes they inform or accelerate — is the historical context surrounding their conception. This is true for the traditional PC, the iPod, the iPhone, YouTube (and by proxy Gangnam style), and of course, the PlayStation.
Historical context starts to balloon in importance once you look past the present towards the future. A particularly effective framework for divining the future is to review historical events, extract trends, draw cause-effects, and then abstract a pattern. In this essay, I apply this framework (for the first time publicly) to the future of the PlayStation and perhaps gaming broadly.
For context, please allow a few anecdotes:
A blast from the past
Perhaps the most fascinating thing about Sony’s PlayStation history is that it was not originally meant to be Sony’s PlayStation: It was to be an addendum to Nintendo’s SNES console.
In 1988, Ken Kutaragi, a senior engineer at Sony brokered a deal with Nintendo wherein Sony would manufacture the disc drive that would go on the SNES. However, things did not pan out as Kutaragi or Sony expected. Rob Fahey on Farewell, Father:
Everyone was there to hear about the Play Station — a new product from Japanese video game giant Nintendo which would integrate CD technology from consumer electronics firm Sony with the indisputable gaming prowess of the soon-to-be-launched SNES console. Sony’s executives and engineers had been showing off the product proudly only the night before. It would be the world’s first hybrid console, featuring a SNES cartridge slot and a CD drive side by side, with both formats available to game developers.
When Nintendo of America’s then-chairman Howard Lincoln took the stage, there were already rumblings that everything wasn’t quite going to plan — but nobody quite expected to witness something which went on to taint Nintendo’s corporate reputation in Japan for over a decade. Instead of announcing a partnership with Sony, as planned, Lincoln stunned the audience by revealing that the company was now working with European electronics firm Philips — with the Play Station project being abandoned.
Following the event, it seemed Kutaragi’s career (one riddled with an arrogance and controversy atypical to Japanese business ethic) was over. However, not only did Kutaragi keep his job, he managed to convince his boss, then Sony president and CEO, Norio Ohga to allow further development of the so-called Play Station. The end result was the massive hit PlayStation console launched in 1994 and Sony, by virtue of a failed business deal, dogged systems engineer, and angered CEO, found themselves in the business of making dedicated gaming hardware.
While it might be interesting to debate the prospects of the initial Nintendo-Sony partnership and effects it might’ve had on the gaming scene as a whole, it is rather important to note that as per the agreement, Sony was to reserve full control of the Super Disc format to be employed in the console. This very factor led to the deal’s fall out; Even though Sony had produced components in past Nintendo consoles, the disc drive existed on a visible level; It was perfectly reasonable for Nintendo to preserve control of all access points to its console.
A blast from the past II
Early on during the development of Xbox, Microsoft had a meeting with Nintendo and then Sony (approached by Bill Gates himself) about the possibility of partnering on a console: Microsoft would develop the software, networking, APIs et al while either Nintendo or Sony tackle hardware. Both companies declined. Microsoft was left with no choice but to pursue its ambitions alone.
Compared to compiled stories with the PlayStation, the Xbox’s debut is well documented. The initial idea for the Xbox codenamed “DirectX box” was pitched to Bill Gates by Kevin Bachus, Seamus Blackley, Otto Berkes, and Ted Hase. The underlying strategy was a box structured architecturally like a PC with the body of a console and in accordance with early Microsoft thinking, all that hardware was to be undergirded by Windows.
After spotting similarities in both Xbox and PlayStation’s conception, the Yoruba lore surrounding the birth of twins came to mind. From Wikipedia:
In Yoruba culture the second twin is considered the elder twin; the reason for this is that Taiwo is sent by Kehinde to judge if the world is fit and beautiful before he/she descends, in accordance with Yoruba belief.
Following this arguably warped reasoning, it’s interesting to posit that Sony’s PlayStation 2, having defined the market that Microsoft’s Xbox would be borne into, was the “younger” of the two. And it showed: The first Xbox was released in 2001 with new features (relative to consoles of the same generation) in line with far superior performance, rich online capabilities, and multi-media management.
Microsoft moved on to define the console gaming scene at E3 in 2002 with the addition of Xbox Live. The service, predicated on the Xbox’s in-built connectivity, allowed gamers to play online multiplayer with or against each other from anywhere in the world. A feature unprecedented within the console market at the time. Xbox Live also had a social interaction layer (Microsoft had cracked social media even before the advent of social media!) as well as the ability for developers to deliver ‘Over-The-Air’ updates in form of patches, DLC (Downloadable Content) and expansions. Despite these obvious improvements, the timing of Xbox’s release, as with most of the Redmond company’s efforts, could not have been worse; Microsoft essentially had to brute-force its way into a maturing market, a decision that has pulled billions of dollars from its deep pockets.
In the three weeks post-release, Xbox amassed a record sale at 1 million units sold, a feat made possible by the side-by-side release of Halo, a first-person shooter by Microsoft’s latest acquisition at the time, video game studio and developer, Bungie. However, during the months following release, it was clear that whatever goal Microsoft set for the Xbox was not being met. And in a rather shocking move, the company moved to cut the price of the Xbox by $100 ($299 to $199). If there was any profit to be made on hardware, well, that ship had sailed. The obnoxious “strategy” seemed to work though; The console, discontinued in 2009, sold roughly 24 million units, outselling Nintendo’s GameCube and Sega’s Dreamcast, making it a very distant second sales-wise in the sixth generation console wars (with the PlayStation 2 reigning supreme at 155 million units sold).
Humpty Dumpty Xbox
The small victories the Xbox and later the Xbox 360 experienced did not cross over to the last generation console, the Xbox One. For Microsoft, the console was to be the realisation of one end of their intention of having devices geared to three use cases, with a cloud component tying it all together. Ben Thompson wrote months after Xbox one’s launch in It’s Time to Kill Surface (Forgive the long excerpt):
The problem is that winning at consoles is a small goal, one wholly different from the reason Xbox was created in the first place. For many years now Microsoft has been focused on “Three Screens and a Cloud,” the idea that they as a platform provider ought to have a presence on your desk, in your pocket, and in your living room, all tied together by the cloud. While that specific formulation arrived somewhere around 2009, that vein of thinking was central to Xbox’s creation; the console aspects were meant to be a trojan horse, giving people a reason-to-buy the Xbox (and not a PlayStation); the more computer-type aspects would then be added over time until an Xbox was to living rooms what PCs were to every desk in every office and every home (running Microsoft software).
It was this original goal that contributed to the current Xbox One disaster; Microsoft’s newest console is not only underpowered relative to the PS4, it’s also $100 more expensive (due to the mandatory Kinect), and launched with a terrible wave of publicity surrounding its always-on nature. The Kinect and connectedness were both included to help the Xbox One fulfill its goal of being the primary box in your entertainment system, controlling not just games but also live TV with your voice. Unfortunately, it doesn’t work that well for entertainment, even as it has hurt Microsoft’s ability to compete for console buyers. Thus, Microsoft has spent the last year walking back many of the main features of the console, including its DRM system, its connectedness, and, last week, offering the console without the supposedly essential Kinect to make it $100 cheaper. Now it’s the same price as a PS4, but still less powerful and with the same dark cloud.
The problem with this approach was that the Xbox (hardware) was inextricably a gaming console. The shift caused its identity to waver as it didn’t pack quite enough juice for a next-gen console and it was not quite enough TV set-top box either. It was Microsoft’s failure to understand the market their product was originally geared towards.
Furthermore, in 2013, prior to the launch of Xbox one, the popular TV solutions for cord-cutters namely the Apple TV (3rd gen), Roku 3, and Tivo Roamio DVR cost $99, $99, and $199 respectively. The Xbox one cost $499 at launch. $300 more than the Tivo Roamio. Comparatively, the PlayStation 4 cost $399. $100 less than the Xbox.
Why gamers don’t understand Xbox
If anything, the air around the launch of both consoles last year is proof that both Sony and Microsoft have different strategies going into the new generation. Throughout the PlayStation 5’s rollout (including the “ Road to PS5” event that received some backlash. Personally, I was blown away), Sony made sure to highlight the importance of the different technologies employed in their next-gen hardware. A little before the PlayStation 5 reveal, when asked about pandering to existing PlayStation 4 owners, Sony Interactive Entertainment’s president and CEO, Jim Ryan said this to GamesIndustry.biz:
“We have always said that we believe in generations. We believe that when you go to all the trouble of creating a next-gen console, that it should include features and benefits that the previous generation does not include. And that, in our view, people should make games that can make the most of those features.”
“We do believe in generations, and whether it’s the DualSense controller, whether it’s the 3D audio, whether it’s the multiple ways that the SSD can be used… we are thinking that it is time to give the PlayStation community something new, something different, that can really only be enjoyed on PS5.”
Regardless of how badly that comment has aged, it bore a stark contrast to Microsoft’s messaging at the time. Xbox head, Phil Spencer was trumpeting a completely different tune. From The Guardian:
“I think the people who want to pit us against Sony based on who sold the most consoles lose the context of what gaming is about today. There are 3 billion people who play games on the planet today, but maybe [only] 200 million households that have a video game console. In a way, the console space is becoming a smaller and smaller percentage of the overall gaming pie.”
This pivot left a rather bleak impression on most in the console gaming community. The reasoning for this is simple: Nerds, geeks, and video game enthusiasts (the core console demographic) all love and celebrate the arrival of new hardware. And Sony was playing into that excitement. Better hardware allows for advancements in development as well as the rollout of more features later on in the console’s lifecycle therefore increasing the value proposition of the hardware. A virtuous cycle. While the PlayStation kept showing off new and interesting features e.g. custom storage solution, improved controller haptics etc. Xbox in comparison always seemed a tad bit bland. This was further exacerbated when both companies held their respective events;
Sony came out guns blazing:
Microsoft showed this:
Xbox’s flagship game, Halo. Upon closer inspection, a graphical hitch in the form of texture pop-in can be seen.
It’s safe to say this specific presentation did Microsoft very little in the way of any good rep. In fact, the reception was so bad that Microsoft had to push Halo’s release back by a year.
ground Zero: Unbundling Xbox
If divorcing Microsoft Office from Windows proved a viable strategy in a world where the OS mattered less and less (relative to the programs that ran on top), then unbundling Xbox (brand) from its console is a viable strategy in a world where the hardware is starting to matter less and less (relative to the brand and exclusives). It’s a brilliant way of avoiding the zero-sum console wars. By taking more attention off the hardware then more efforts can be placed on ‘gaming anywhere.’
It’s standard knowledge that gaming hardware i.e. consoles are sold at a loss to drive mass adoption, then all the money is made back (hopefully) in video game sales and services revenue. In the case of Xbox, the brand has always proved more profitable than its console counterpart. It used to be the case that services and exclusives existed in service to the console, that doesn’t have to be the case anymore.
Consoles are increasingly becoming destination devices i.e. machines that people make a point to use. Compare that to the smartphone, a device that is constantly in the background enabling certain actions and interactions. Normal people don’t say “The moment I get home from work I’ll take a shower, dim the lights and then it’s Twitter time!” or “Golly! It’s half-past three! Time for Facebook!” Those interactions occur in unscheduled spaces of time.
This gets to why smartphones rank low on the graph above. the barrier to entry is extremely low because they’re ubiquitous and persistent devices. The rate of adoption and sheer install base completely dwarfs that of consoles.
While the addressable market for smartphones is limitless, that of consoles is defined by the number of people that can afford and want a dedicated gaming device. The ‘gamer hierarchy’ posited in the graph points out the decrease in population as you go higher up in the level of engagement. It’s not all doom and gloom at the higher level though; The higher the level of engagement, the more willing a customer is to plop down hundreds of dollars to purchase a console. In more recent years the barriers to entry for a console have grown higher and higher even as the install base of smartphones have grown larger and larger.
Looking back to the first graph, we can see the consoles and PC cover the mid-high section (as regards barrier to entry), leaving the bottom and middle barren. Smartphones are great but they cannot sufficiently cover the entire gaming interest graph. Well, what exactly can serve the underserved market?
Game streaming.
It’s no news that the Xbox (console) has been bleeding Microsoft money for a lot of its entire lifespan. What better way to clog the leakage than by abstracting and growing the profitable side of the business?
The xCloud bull-case
xCloud requires two things: A screen and a controller. No hard wires. No box. Nothing. This gets to why the service is incredibly compelling: By extinguishing most of the barriers to entry, the addressable market grows by leaps and bounds. Project xCloud when merged with Game Pass is, in my opinion, has the highest value proposition seen in the industry.
The benefits cannot be overemphasized: A scenario where you start up a game at the office (on a PC courtesy of Game Pass) during a break, continue on your commute home (on your smartphone through xCloud), and then finish your session on your TV (again through xCloud) when you get home, is the perfect realization of the potential of such a service. Gaming, once tied to the idea of a destination device can now be done anywhere! To draw a comparison to the PC and the internet, whilst the PC was a destination device, meaning if you needed to run a program, you would go to the PC, turn it on and then access the program, the internet completely flipped that on its ear; With the world wide web all you needed was an address, and said “program” could, in theory, follow you everywhere (assuming the presence of an internet-enabled portable device).
In the same vein, smartphones have simplified and popularized programs (renamed “Apps”) through sheer portability. These programs have been rethought to fit the form factor of the smartphone; It remains to be seen whether the advent of game streaming will affect the types or format of games that are developed later on.
Sony’s two mouths
So we’re back to the beginning. In the wake of all this innovation, well, where is Sony? The company is yet to show it has the mettle or dexterity to tackle network functionality the way Microsoft has. Following the success of Xbox Live (and Live Arcade), Sony issued its own competing service, PlayStation Plus. It’s safe to say that 14 years later, Sony’s competing service has overtaken Xbox Live and the slew of new services (e.g. Game Pass) that Microsoft has piled on. It gets to why I felt a sense of trepidation when Sony announced it was “working” on an xCloud competitor. It already has one: PlayStation Now. And dare I say it’s a service that is a ways off Microsoft’s solution at least technically. The only notable advantage it has are Sony’s exclusive titles. Comparatively, Sony’s efforts at porting its first-party games have not been rosy. There’s not much evidence that the Japanese company can win online.
A proposed solution for Sony is to keep out of directly competing in the streaming business and double down on its hardware-based efforts like Virtual reality. This way it can continue to leverage its strong suit: hardware engineering. It’s important to note that Sony is also a video game publisher; Even if it loses on infrastructure, it can leverage its massive repertoire of first-party titles and IP to wrangle a good deal come the age of game streaming. The bigger question on the mind of all parties involved is where gaming will head towards in the future. VR? Game streaming? or perhaps something altogether different? As it stands I remain optimistic about game streaming and Microsoft is uniquely placed to define that future.
If you made it to the end of this essay (without scrolling hard and fast past a good portion), thank you. Your attention, support, and or feedback is much appreciated.
‡: A large portion of this article was originally written months before both the PS5 and Xbox Series S and X were made available for sale. Some of the details included here are rather outdated news but after sitting on this article for so long, I decided to clean it up, complete it and post it regardless. This is one of many ‘late’ articles that will follow. Please bear with me while I play catch-up.
**: The graphs are terrible. I know. I’ll do better.
Originally published at https://scouring.substack.com on February 27, 2021.
