A veteran’s view on marketing games

Being a hardware platform holder is not easy, there are so many pressures waiting to destroy you, technology, competition, piracy, fashion. So, over the years we have seen many platform holders leave the arena, Atari, Sega, Sinclair, Amstrad, Acorn, Commodore and many more. Each loss weakens gaming. Every platform holder is precious and adds to our industry.

Two years ago it looked, very worryingly, as if Sony were headed to join the others in the graveyard, they had gone from owning the PS2 generation to making just about every mistake possible in the PS3 generation. I wrote articles on here itemising what they were doing wrong. And it wasn’t just Playstation that was in trouble, Sony the corporation was also having massive problems. And Sony has led consumer electronics for half a century, so it was not good for anyone.

Nintendo are an entertainment company, Microsoft are a software company and Apple are a marketing company. Sony, however, are a manufacturing company so their solutions to the PS3s problems came firstly from manufacturing. The PS3 was obscenely expensive to manufacture, the unit loss hit that Sony was taking was untenable and unsustainable. So they quickly re-engineered it taking out many features, including backwards compatibility. After this they were still taking a huge unit loss, but not one that would kill them. Then last year they made another big manufacturing step change with the Slim, this gave them enough leeway to do a little to become more competitive with retail pricing, but they were still taking a hit on every machine.

Underneath the skin the PS3 was following Moore’s law with the chips starting out using 90nm fabrication, this moved to 65nm in 2007, then 45 nm with the slim, which reduces the silicon acreage by 75% compared to the original machines.

Sony Chief Financial Officer Nobuyuki Oneda says that they are still making a loss on every PS3 sold, but now it is just a paltry $18. But with an attach rate of around 8 games for every PS3 sold Sony are now making an overall profit out of every new PS3 owner, which is what we want for the health of the game industry. And it isn’t just the PS3 that is making a profit, Sony as a whole are. They finally made an overall profit in the last three months of 2009, after 5 consecutive quarters of losses.

I started writing about this hardware based turnaround and the new optimism this brought to Sony last August. And about Howard Stringer’s (Sony’s CEO) actions to bring this about last May. Even further back in August 2008 I wrote an article about how Sony would recover from their disaster. So regular readers here will not be surprised by the turnaround.

But still Sony seem set to come third in this generation of home console, behind Microsoft and Nintendo, just because of momentum, if nothing else. Sony still rake in profits from PS2 and PSP so overall they are very healthy indeed.

Sony are still massively well placed for the future, they have the brand and the heritage and everything that goes with it. But they do need to get their finger out with smartphones. In just a few years time more of the computing power on earth will be in smartphones than in desk top computers, over a billion a year will be shipped. So they will become the main gaming device. Currently Apple, Android and Nokia are running away with the market. But Sony are uniquely positioned to challenge this, with the PSP they have built an understanding of mobile gaming and they have a large mobile phone division. Let’s hope they have the insight to convert these assets into platforms.

In all the current excitement and hype about Android and the Apple iPhone and iPad people have seemed to lose sight of Nokia, this is a very silly thing to do. Nokia make about 40% (actually 39% last quarter) of all the mobile phones in the world, compared with Apple’s 2%. Nokia has 123,000 employees to Apple’s 35,000. Of the 52 million smartphones sold in the world in the last quarter 21 million came from Nokia, a 40% market share.

In the gaming world everyone remembers the Nokia failure that was the original nGage. They forget that Nokia Snake is on more machines than any other video game in the world.

Who owns the smartphone market is headed to become the most important factor in all of technology for the foreseeable future. To explain why we need to go back to Moore’s law (again). This says that the number of transistors on a chip doubles every two years. Compound. This means that a given chip halves in cost or doubles in power every two years. This is easy to see in the price and capabilities of the game consoles, mobile telephones and computers we use every day.Other, lesser, components are not governed by Moore’s law. But we are at the beginning of a display revolution that will see complex, power hungry LCD displays replaces by simple, cheap, elegant OLED displays, which will drop prices further and faster.

There are companies that tear down these electronic devices to work out how much they cost to manufacture. Currently this is around $180 for a top end smartphone. So in 24 months time this could be $90. And due to the compound nature of Moore’s law this would be just $22 in 6 years time. You can see that at this price non smartphones have had their day. All new phones will be smartphones. And we are talking about a billion new phones every year.

A billion new smartphones is a billion new computers connected to the internet. It is also a billion new gaming machines. Every year. This is going to be revolutionary. It is going to put so much power and so much capability in the hands of so many people. It is going to totally dwarf the computing power in all the world’s desktop computers and it will make game consoles look like a small sideshow. It will be the biggest democratisation of knowledge and the means to use that knowledge in human history.

So if Nokia can hang on to owning 40% of this they will be the biggest computer company on earth. And if you look at what they are doing right now there is no reason why they won’t. They may lack the showmanship of Steve Jobs but they are more than making up for it with great products that people want.

The N97 Mini is a very well made, very well featured evolution of the less than stellar N97. With a fold out keyboard it can take some serious use and it represents serious value for money. The 5800 has been honed by Nokia to be a brilliant non keyboard smartphone and is available both with or without the XpressMusic service. And the new N900 is a fantastic, fully featured top end smartphone. These three devices (and others) are why Nokia can command a 40% smartphone market share and must be giving their competitors sleepless nights.

It is not just the hardware. Nokia are covering their bets by having two different operating systems. Symbian is now open source so expect more rapid development to build on it’s ten years of development that make it the most fully features smartphone OS. Which is why it is on more smartphones than any other OS. Maemo is also mostly open source. It is a clean sheet of paper, state of the art, linux based OS and it is what drives the new N900.

Ovi is the online portal for Nokia smartphones, it is an App Store, an iTunes, a Google Maps, email, file storage and sharing service and so much more. It is where nGage now resides. Ovi is the most comprehensive suite of online services currently available for a smartphone.

By now you must be getting the message, if you are in the game industry you ignore Nokia at your peril. If you develop smartphone games they need to be on Ovi, not just Android and iPhone. And if you don’t develop smartphone games then you are going to miss out. Massively.

The Wii isn’t clinically dead yet, but its best days are well behind it. Sales are massively down, and with that so are Nintendo’s profits and their share price. So they must do something soon, not so much for their gaming audience and fanboys, but rather to keep their investors happy.

The Wii was always just Gamecube V1.5, it was not truly a machine of the current generation like the Sony Playstation PS3 and the Microsoft Xbox 360. It lacked the power and it lacked the HD graphics. But to make up for this it was cheaper, it had that breakthrough gesture interface and it had a catalogue of amazing Nintendo first party games that were must haves for any keen gamer.

The problem now is that the Wii no longer looks cheap, the cupboard is pretty bare of first party titles (most third party titles having missed the mark) and the gesture interface is looking old hat compared to what the competition are about to unleash.

Now, the people that run Nintendo are not fools, they know all of this better than I do. So it is obvious that the successor for the Wii is already designed, that the first party studios are working on games for it and that production is just about to start. So the Wii will be discontinued with about 68 million units made, it will be interesting to see if the Xbox 360 can catch up with this figure over the next five years.

The new machine, if Nintendo keep to their previous naming rules, could well be called the Super Wii. Moore’s Law tells us it will be about four times more powerful than the Wii. And the market tells us that it will be HD. Obviously it will be backwards compatible. But this specification, on its own, will not be enough to compete. Nintendo need to do more. Much more.

Satoru Iwata is the president of Nintendo and he has just given an interview that reveals much of their thinking. It is in Japanese but with the magic of Google Translate you can read it here. And he says that HD is not enough, that Nintendo will be doing something new.

Over three years ago I wrote an article in this blog entitled What is Nintendo? That article is just as true now as it was then and mirrors much of Satoru Iwata’s thoughts. The key here is that Nintendo is an entertainment company first and foremost, they are not a hardware or a software company, it is just the entertainment that matters. And they use technology and innovation to provide this entertainment.

So I don’t know what to expect. They know that they need to innovate, so they could do just about anything. The only thing that is for sure is that it will be fun.

The Microsoft Entertainment and Devices Division was able to start the year by telling the world that they are three times more profitable than they were a year ago. Q4 ‘09 profits from the division were $375 million, compared with $130 million for Q4 ‘08. The increase comes from Moore’s law bringing down hardware manufacturing costs and from the ever increasing user base buying proportionately more software and Live services, which are a lot more profitable than hardware.

The Xbox 360 also currently heads the game sales chart with Mass Effect 2 and are by far the most popular platform for the monster hit that is Modern Warfare 2. This presages a year in which there will be a succession of huge titles that are not available on the other consoles. Halo: Reach, Fable III, Tom Clancy’s Splinter Cell Conviction, Alan Wake, Crackdown 2 and Scrap Metal for starters. For any game enthusiast these make owning a 360 essential, even if it is in addition to owning other consoles.

On the hardware side Microsoft are starting to roll out 250GB hard drives. And this autumn we have the much anticipated release of Project Natal. Microsoft have changed the design slightly to reduce the hardware by doing more in software (using 10-15% of the 360s cpu resources), this is to keep to the $50 price target and to increase the flexibility of the device. At this price Microsoft expect to sell several million units in the ‘10 holiday season and so there is impressive game support coming from publishers. Pretty soon around half of all 360 owners will probably buy Natal and they will want Natal enabled games to play on it. Expect a surge in more family friendly titles, which will take the 360 to new demographics, further enhancing its success.

All is not sweetness and light at the Microsoft Entertainment and Devices Division, though. Their mobile strategy has been an unmitigated disaster with Google and Apple trampling all over them. This is the biggest possible problem for Microsoft as mobile devices are set to dominate computing and the internet. Even if they continue to dominate the office and grow to dominate the living room they could still be beaten by the owners of the mobile space.

Finally let’s risk making a prediction for the next generation of Microsoft home console, the Xbox 720, Xbox 3 or Xbox Phoenix. It is inevitable that Microsoft must do this because Moores law will leave the Xbox 360 looking less and less powerful. They will produce a scaled Xbox 360, so it will be backwards compatible. The new machine will have many more features and benefits such as 3D. It will be announced, probably at E3, in Q2 ‘11 and will be available at retail Q4 ‘11. Expect it to be 8 times the power of an Xbox 360 (Moores law says it will be) and expect the 360 to stay in production as the junior model in a two model range, retailing for $100.

The older I get the more cynical I become about awards and rewards, did Barack Obama win the Nobel peace prize because he wasn’t George Bush, or was it for waging several simultaneous wars, using Predators to commit attacks in friendly countries, supporting a toxic Israeli regime and leaving the CIA to trample on human rights? The latest BBC Sports Personality of the year award went to a professional soccer player near the end of his career who doesn’t even play for his national side any more, when we also had Olympians and the world F1 driving champion, amongst some very highly achieving sports people, eligible. And, having looked at the latest new year’s honours list, even the awards the government hands out sometimes look very shaky.

So it is with the video game industry. I remember receiving awards on behalf of Imagine in the early 1980s, so they have been going nearly 30 years. And they very often seem to go to the wrong recipient. In fact they often look as if they are the measure of belonging to the right clique or cabal rather than having anything to do with actual achievement.

Which brings us to this year’s MCV awards. The process is as transparent as mud: MCV will take soundings from the industry and consider any direct lobbying from retailers, suppliers or general readers before announcing a set of Finalists on Friday, February 26th. The winner is voted for by the Judging Panel, which will consist of around 100 highly regarded industry executives taken from all sectors of the business.

I am sure the winners will be very happy with their awards.

In the world there are over 100 million blogs and they are monitored by a service called Technorati. So you can imagine how pleased I was two year ago when this blog made it to number 52,589 in their ranking. This with an “authority” of 121, which is a measure of how often it had been referred to by other blogs in the previous six months.

Fast forward to today and Bruceongames.com is now ranked as blog number 7,139 in the world. And the “authority” is now at 464. Not too shabby when you consider that it is targeted at a fairly narrow audience, game industry professionals, that there is only one person writing here and that there is no marketing budget.

So a big thank you to everyone who has made this possible. You the readers and also the many other bloggers who have chosen to refer to what is written here.

At the gym yesterday the TV news in the changing room carried an item about Advent Computer Training going bust. One of the guys there said that he had been a victim of this company. He said a high pressure salesman had come to his house and promised him a highly paid career and that they would help him find a job. So he signed up to a finance agreement with Barclays for £5,000. When the course arrived it was no good for him and he gave up on it. But he still has to pay off the £5,000 to Barclays with several years of monthly payments. Even with Advent bust he will still owe that money.

It appears that what finished Advent off was Barclays stopping the supply of such student loans. In their words: “Barclays Bank are the main student funding partner and we have worked with them closely for several years. Just before Christmas Barclays informed us that they were pulling out of the student training sector with effect from 31st January 2010.”

So you can see what was happening here. Barclays were giving out loans to students and then handing the money over to the company. The company should have held that money in trust and only used it as the course progressed. But they didn’t. Obviously it was being spent, going somewhere, almost immediately. So when the supply of new money dried up there was nothing left to finance the training that the students had paid up for. Within weeks the company was bust.

I don’t like this business model. Why should the provider of a service (in this case training) be paid in advance with a lump sum for several years of that training? Universities and colleges don’t do this.

In my opinion using a finance company, like Barclays, is also pernicious. The student’s relationship for their course is with the training company, yet their relationship for paying for the course is with the finance company. This is not good.

You can see why Barclays may have got out. Even if the course is brilliant there are still going to be a percentage of people who have bought the wrong thing. And they are caught in a trap with years of monthly payments ahead of them. So they won’t be happy bunnies and, inevitably, they will take out some of their ire against the company they are paying the money to. Barclays don’t need this flack.

And remember that these courses are targeted at the young, the weak, the vulnerable. They are for people who are under educated and want to improve themselves. These people stand no chance against a highly trained high pressure salesman. Many of them become victims, they receive nothing yet have to pay out large payments every month for years. You can read about such victims here, and here.

Don’t these people realise that there are better ways to get an education? The Open University for instance. These guys don’t use high pressure salesmen, don’t use finance companies, have world class course material, give qualifications that are universally recognised, have first class training staff, don’t demand several year’s financial commitment up front and yet only cost a fraction of what some commercial trainers charge.They even hand out financial support to lots of students!

The Open University say: “Want to get a qualification that will help you develop or change your career? Learn a subject in depth? The Open University – voted top for student satisfaction for three years running – could provide the flexibility, the qualifications and the top-class teaching you’re after. For most courses you don’t need any previous qualifications. And with our world-leading blend of supported open learning and innovative course materials, you’ll get an exceptional learning experience.”

For example here is a course that provides an introduction to computing and human-computer interaction, including gesture interfaces such as the Wii Remote. It costs just £400. And it counts towards a degree.

Finally, here is some Advent marketing blurb:

Advent Training is Different.

At Advent, we not only provide excellent IT training courses, but we also offer specialist careers advice and support to help our students get a job in IT.

We understand how the industry works and we know what employers are looking for. We constantly research IT jobs in the UK to make sure our courses are up to date, providing you with the skills you need to get a job in IT.

Support Every Step of the Way.

Our certified trainers work closely with you to monitor your progress, making sure you move forward to the next stage only once you are absolutely ready. No-one is left to fend for themselves and everyone works at their own pace.

We also give every student comprehensive study guides, practical advice on exam preparation / technique and unlimited email and phone support throughout their course.

Whats more, our unique, introductory modules provide essential background information to enable you to understand more about computer skills in the IT environment and to be able to talk with confidence at interview or in a job situation.

Advent Training’s technical expertise is recognised through Microsoft’s Certified Partner accreditation.