The State of Gaming, Part 2

In The State of Gaming, Part 1, I examined Sony's dominant PlayStation 2 video game console and the company's upcoming PSX Entertainment Center and PlayStation Portable (PSP) devices. This time, I look at Sony's competitors—Microsoft and Nintendo—to see how these two companies are faring now and where they're going.

Nintendo GameCube, Game Boy, and DS
In late 1985, I was working at Toys R Us while going to college, and someone came in and asked about a strange new video game system. The customer had just been in New York City and had seen the new system, which was created by arcade game maker Nintendo. The system included a light gun, he said, and a robot that would play games against you. It sounded fantastical, but I had never heard of it. Indeed, in the United States, the video game market had crashed hard 2 years earlier, leaving companies such as Coleco and Mattel foundering. In 1985, only aging game machines by a barely solvent Atari were selling, alongside cheap computer systems primarily from Commodore.

Within months, that situation changed dramatically. The system that Toys R Us customer described—the Nintendo Entertainment System, or NES (dubbed Famicon in its original Japanese configuration)—went on to rejuvenate the video game market in the United States, selling more than 20 million units in 5 years. By the time the NES generation ended, Nintendo dominated the video game market, handily beating the technically superior Sega Master System (SMS) , a Japanese arrival. And by then, virtually everyone in America had heard of Nintendo.

Since then, Nintendo has watched the popularity of its console systems slide when compared with the competition. But the company has maintained an interesting edge with customers, thanks to its popularity with children, a long-lasting set of recurring video game characters, and its biggest success ever: the handheld Game Boy line.

Looking to the second half of 2004, Nintendo will continue to push its struggling GameCube system, which now plies the bargain-basement end of the video game market with its lowball $99 price tag. To be fair, the GameCube is selling almost as well as Microsoft's technically superior Xbox, and the system offers a number of unique charms, including an interesting Game Boy Advance/GameCube link, which lets you use the Game Boy Advance as a hand controller with a secondary screen. Exclusive titles such as Metroid Prime and certain LucasFilm titles, as well as a steady stream of Zelda and Mario Bros. titles, keep the faithful coming back for more.

But the road ahead for Nintendo—at least in the console space—is harsh. Stung by low sales, many third-party software developers have scaled back or completely abandoned their GameCube plans. For this reason, many fans have turned their attention to Nintendo's next-generation system, currently codenamed N5, which will ship at roughly the same time as the eagerly awaited Microsoft Xbox Next and Sony PlayStation 3. Characteristically, Nintendo has been quiet about its plans. However, this spring, Nintendo president Satoru Iwata noted that the N5 would bring with it a "gameplay revolution." Another Nintendo executive noted, "Rather than offering a new edition of the same thing, we want to offer new ways of game playing." If Nintendo isn't able to pull off a successful N5, it might be Game Over for the company's console future.

Game Boy
The outlook is much rosier for Nintendo's handheld gaming devices. Its Game Boy line—which has spawned Game Boy Color, Game Boy Advance, and Game Boy Advance SP over the years—has sold more than 60 million units. Indeed, the GameBoy Advance SP has no competition today at all, although that could change in the future. As I mentioned in Part 1, the console market leader will ply its PSP device by early 2005. But Nintendo has its own next-generation handheld device in the works, and in typical Nintendo fashion, it looks to be innovative and quite different from the competition.

The Nintendo DS will feature two screens and a clamshell design that opens up like a checkbook. The bottom screen will feature a touchscreen interface, opening up possibilities with new types of applications, and the unit will also include voice-recognition and wireless capabilities—two features that will further differentiate it from the Sony PSP. It's too early to tell whether the DS will be sufficient to counter the PSP tsunami, but Nintendo seems to have a firm grasp of its strengths and will likely continue to fare well with its faithful customer base. We'll know in a year whether Nintendo is able to attract any new ones.

Microsoft Xbox
Over 3 years ago, software giant Microsoft shocked the world by announcing that it would enter the video game market with the Xbox. Analysts feared its monopolistic ways would quickly push aside all competition and echo the company's desktop PC successes. They needn't have feared: Although Microsoft offered a stunning piece of PC-like hardware that outperformed the competition and integrated networking features—through which it would introduce, a year later, its well-received online gaming service Xbox Live—the Xbox quickly stalled in the face of the PS2's success. Part of the reason was timing: The Xbox shipped 18 months later than the PS2. But much of it was image: Few people were interested in handing Microsoft yet another monopoly.

Consider the irony: Although many non-PC markets resisted Microsoft over the years, the video game market was the first one in which Microsoft actually had a superior solution at the outset. Relatively speaking, the Xbox has done well—certainly well enough to beat out the third-place GameCube. However, it fell far short of Microsoft's sales goals, and thus far has done little to establish the software giant as a dominant player in the living room. Furthermore, as a loss leader, the Xbox has cost Microsoft dearly: Now selling for just $150, the Xbox loses money for Microsoft each time a unit is sold.

However, in sharp contrast to the GameCube, the Xbox is supported by a wide range of third-party software, including numerous games that work with Xbox Live. Even holdout Electronic Arts, the most sought-after third-party developer, reached a compromise with Microsoft this spring and announced plans to support Xbox Live with several of its best-selling titles. Looking ahead to late 2004, the Xbox story is solid: As the most technically advanced system currently sold, the Xbox offers the best development tools to game makers and will have the most impressive-looking titles going forward. Indeed, of the current-generation systems, only the Xbox will see a port of id Software's epic Doom 3, which promises to be a visual masterpiece.

Microsoft also pledges that it will not give Sony another 18-month head start when it's next-generation Xbox Next ships in late 2005 or early 2006. But, as with Nintendo's console future, the question of Xbox successes on the horizon won't be answered for many months to come. For now, Microsoft holds a solid second place to Sony's PS2.

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