Entries Tagged 'Crystal ball' ↓

The internet allows so much competition for everything that prices drop to zero. When I was young rich kids had an Encyclopedia Britannica at home which cost a lot of money. Now the internet brings me Wikipedia which is bigger, better and free. We have become used to this, Google searches for free and gives me my office applications for free. I can blog for free, join online communities like MySpace and FaceBook for free, engage in forum debates for free and even trace my genealogy for free. And, most amazing of all, the providers of all this free stuff seem to often make a lot more money than the providers of the paid for stuff!

Video gaming has evolved gradually from stand alone devices to connected devices. The PC led the way, of course, but now the Xbox 360 (the best online console to date) only reveals it’s depth of capabilities if you are online with it. All the major platforms are now internet devices. With this comes the internet culture. And the internet culture is that free works best.

Now here is something very, very interesting. NPD released research in October looking at kids (aged 2 to 17) gaming habits in the USA. They found that 91% of their online gaming was free. This is, quite simply, a revolution.

As you would expect Electronic Arts are up to speed here. As we saw in yesterday’s news article on here with Battlefield Heroes being given away free online. Their philosophy is revealed in this article : “Riccitiello says the $31 billion gaming industry will suffer if it doesn’t start to reevaluate its business model. Game executives at Sony (SNE), Microsoft (MSFT) and Activision (ATVI) must answer some tough questions in the coming years, like how long they can expect consumers to pay $59 for a video game. Riccitiello predicts the model will be obsolete in the next decade.

“In the next five years, we’re all going to have to deal with this. In China, they’re giving games away for free,” he says. “People who benefit from the current model will need to embrace a new revenue model, or wait for others to disrupt.” As more publishers transition to making games for online distribution, Riccitiello says he expects EA will experiment with different pricing models.”

So what are the leading games in this free revolution? I have written in the past about Habbo Hotel for which over 86 million avatars have been created worldwide, there are over 8 million unique visitors to the Habbo websites around the world every month, with 75,000 avatars being created every day. MapleStory has a combined total of over 50 million subscriber accounts in all of its versions. And RuneScape has approximately nine million active free accounts and more than one million paid member accounts. These are immense numbers which prompted Gamasutra to make it their number one significant MMO moment of 2007.

So free gaming is now well past the thin end of the wedge stage. It has become by far the most rapidly expanding business model in gaming. We know that the $59 boxed game in high street retail is doomed, will free online gaming become the new industry standard? What will be interesting will be to see how the industry adapts, there are bound to be casualties. Most interesting will be the game console manufacturers. Offerings like Microsoft’s Xbox Live and Sony PS3 Home give them the flexibility to react well to virtually any business model.

This has to be the biggest event in this generation of consoles. The point when 130 million (150 million if you include Wii) owners of old generation consoles decide to walk into a shop and buy an HD console. A Microsoft Xbox 360 or a Sony PS3. There seem to be three factors that, coming together, will decide when this event happens.

The first is the gaming. There are still far more AAA titles on the old consoles than there is on the new, HD platforms. Microsoft have released a lot of AAA games for the 360 but it has not been enough to tip the balance. Sony are way behind and there is still no compelling reason to buy a PS3 for the games. All that changes in 2008 with a whole raft of Sony AAA system seller releases. A lot of commentators think that GTA IV will tip the whole market on it’s own. That the power of this franchise is so great as to make the HD consoles become compelling purchases overnight. Maybe they are right, but Halo 3 didn’t have this power for the 360.

The second factor is public awareness of what HD is. Currently most people seem to be buying HD LCD and plasma televisions for their bigger size and slim form factor. Not for the HD capabilities. This is largely down to the scarcity of broadcast and recorded HD content. The format war between HD-DVD and BluRay is only confusing matters. As more and more HD content becomes available people will gradually switch over to it. Then they will no longer be prepared to watch non HD content. It will be just like the transition from black and white television to colour television. And if they only watch HD broadcast and recorded content then they will only be happy with HD game content. Watching four times as many pixels on screen makes a big difference in a game.

The third factor is price, as it has been for every previous generation of console. The early adopters are willing to pay a premium for the kudos of their position. But the real meat of a console’s sales curve only comes with radical price reductions. Both of the HD consoles are still too expensive to have reached the mass consumer, casual purchase price point. But they will get there and they may well get there this year. Both Sony and Microsoft have been working furiously hard behind the scenes to reduce the manufacturing costs of their consoles. When you are making tens of millions of something every fraction of a penny counts. They have been girding their loins for a price war and a price war is what we are going to get.

So as you can see these three factors will inevitably come together to create a massive demand for the HD consoles. But how sudden will it be, will 150 million people walk into the stores on the same day? Probably not, but it will be one event, probably a price drop, that is the trigger. So there will be an overnight surge in demand. The manufacturers can control this by rolling the price cut out, country by country, over a few months. But it will still be pretty spectacular.

Then we have to ask if the tipping point will come at the same moment for both manufacturers. Possibly if it comes at a certain point in the calendar, like say Christmas. But possibly not if Microsoft take advantage of their lower manufacturing costs and early adopter benefits. If they brought out a $199 Halo 3 bundle for the 360 in the same week that GTA IV is released it would be the biggest sales week in the whole history of gaming.

So when will it happen? Probably this year. Definitely by the end of next year. And how big will it be? When the market tips each HD console will start outselling the Wii by a significant margin. And over lifetime they will possibly each go on to sell a multiple of what the Wii sells. The 360 and PS3 will go on to become the biggest selling consoles ever, until the next generation. And who will win? Microsoft if they capitalise on their early adopter and low manufacturing advantages, the exclusive content for GTA IV is a marketing masterstroke that could win the generation for them. Sony if they can rediscover their core strengths and bring them to the marketplace.

The following is just speculative fun. But it is based firmly in reality.

The Microsoft Xbox 360 is very, very well designed. Part of this design genius is ease of manufacture and potential for cost reduction. So I see this console as having a ten year life. This should easily see it up to 2015.

This year Microsoft will use their manufacturing cost advantage to use the price mechanism to build market share in the face of Sony’s AAA game releases. This will leave headroom in the market for them to introduce a new premium console giving them a two model range, just as Sony have had for a few years now. It will also make the 360 a cheap mass market machine which will have the effect of growing Xbox Live enormously. And this is the most important thing for Microsoft. It is the online platform which, ultimately, will be the main event.

The new premium console (Xbox 3) will feature a gesture interface and probably integration with a new handheld game console.
Microsoft have a great incentive to go for this two model (plus handheld) strategy sooner rather than later because Sony are currently too weak to respond. So it would be a knockout blow that could give them market supremacy.

The new Microsoft handheld will be son of Zune with iPhone and Nintendo DS features. This device looks pretty inevitable and will give access to Xbox Live anywhere and everywhere and with it’s integration to Xbox 3 it will bring a whole raft of new capabilities to the consumer.

Another factor to remember is that Nintendo will have to do something about the Wii. This machine is really Gamecube 1.5 with a gesture interface. It’s old technology will find it out. So Wii2 cannot be too far away. And it is something that Microsoft must have an answer for.

So when will we see Xbox 3? The normal console cycle is for new models every 5 years. Which would put availabilty at the end of 2010. I can see Microsoft bringing this forwards a year to 2009. The current year year is too soon as they still have to build the market position of the 360.  So next year it is then! And rememeber that for just about every new product area that Microsoft has entered it is their third generation of that product that gives them world domination.

2008 will be, quite simply, the best ever year for video games in the whole history of the industry. The success of gaming has brought a lot of money into the industry and that money is being converted into games. We are also at that sweet spot in each console generation where we are still getting new IP whilst this generation’s version of established IPs are starting to appear. So we are getting Assasin’s Creed and Halo 3 at around the same time, for example.

It takes a few years into each generation for development teams to master the new capabilities of each machine. So the technical quality of games will go up a lot this year. Especially for the Microsoft Xbox 360 which has a more easily understood architecture, better development tools and has been worked on for longer. The Nintendo Wii is already mastered from a graphics and programming point of view because it is just a souped up Gamecube, the advances here will be with innovative uses of the gesture interface.

The installed base of the DS is now so massive that it can be very profitable to address niches. So expect all sorts of oddball games for this machine. Increasingly the DS will be used as an educational tool so expect more titles in the vein of Brain Age to appear. This will be the thin end of the wedge of what will grow to be a massive industry. Education by playing games.

Game genres will mainly continue as before on the hardcore front. However beyond that there will be a lot of new family entertainment. The Wii has changed the market for ever.

On the publishing side we will see the continuation of existing trends. Big publishers will get bigger because they have huge advantages of scale. Small publishers will be taken over or go out of business because they lack these advantages. The exceptions will be niche players and online publishers. Remember that Jeff Minter is a global developer and publisher with two members of staff. Xbox Live Arcade allows him to bypass traditional publishing constraints. This must be a warning to the global media giants like Warners who are muscling into gaming. It could be that the business model they are buying into becomes obsolete.

Overall we live in very exciting times and it will be fascinating to see the year unroll with so much that is new. Some of it expected and much of it not.

Of the 3 current generation consoles the Nintendo Wii is the only one that is not HD. This has brought them several advantages. The consoles are cheaper to manufacture so they can be sold at a profit, unlike the HD consoles from Microsoft and Sony. In addition the Wii can have games developed for it far more quickly and cheaply because a far smaller number of pixels are being manipulated.

HDTV puts about four times the number of pixels on the screen compared to the conventional TV standard we have grown up with. When consumers see this, it is such a huge leap in performance that they want it. But at the moment there isn’t much true HDTV content of any kind so people are generally unaware of the capabilities. They are buying HDTVs mainly for their large screen size and the convenience of their flat form.

However this situation is changing every day as more HDTV is broadcast and more people get HD DVD or Blu-Ray players. Games thus far on the HD consoles have come nowhere near delivering the full HDTV experience. Over 2008 this will gradually change. When it does the results will blow you away. Once people routinely watch broadcast HD television and watch HD videos they will not want to go back to inferior quality. The same will apply to gaming. Once people are fully HD literate they will not want to go back.

So what is key to the life of the Wii is how long it takes for people to become fully HD aware (they are not there yet) and how long it takes the games industry to make the best of HD graphics. These will not be sudden things. They will ramp up gradually over the next couple of years.

Wii is an amazing creation of Nintendo and has a fantastic but short future ahead of it. Imagine if someone brought out a console that only displayed in black and white because that is what televisions used to be. This is the situation Wii will be in by Q4 2009. Nintendo are not stupid, they know this, so new product announcements are inevitable.

Firstly the iPod and iPhone. Apple can see a lot of money here and are working to create a major gaming platform. Earlier iPods lacked the horsepower but the iPhone and iPod Touch correct that fault. Because of the iTunes distribution system this platform could be ramped up very quickly indeed to an already well established user base. This could well be the biggest growth area in gaming this year.

Nokia meanwhile continue to mess up their nGage platform. In 2003 Nokia had the potential to create the most popular gaming platform on earth and instead they made just about every mistake that was available to them. It was embarrassing. They are trying yet another tactic this year. It could work for them, but the evidence of history is not on their side. A pity because we are headed towards a universal pocket device and Nintendo Nokia could have owned the market. Yet they squandered first mover advantage.

The PC has matured into an interesting gaming platform. For boxed games at retail it has been in a downwards slide for some years. But for MMOs, casual gaming and for Steam it has grown massively. Also the effective banning of online gambling in the USA has forced companies to put their resources into online for money skill games. This will grow a lot during 2008. The companies with a gambling background will make a lot of money from this, showing up the lack of vision of traditional game publishers.

MMOs have grown under the effect of World of Warcraft which brought strong social networking to the genre. Other MMOs have learned this lesson and we will see the results of this during the year. Also non subscription business models will increase. Habbo Hotel is a powerful role model. As for genre we must be reaching the time when something other than swords and sorcery will work. It is overdue.

Steam is hugely important to the whole future of gaming. It must make Valve worth billions of dollars. The addition of social networking at the end of last year was a genius masterstroke. For serious hardcore gaming Steam is rapidly becoming the only show in town. It is a great example of what a team of very clever people can achieve.

Another group of gaming platforms that will show very strong growth this year are the social networking sites. MySpace and Facebook are now both open to third party developers. Their huge user base guarantees that games have a great potential. It is a pity that so many developers can see no further than data mining. Combining online for money skill games with social networking userbases could be a license to print a vast amount of money.

Mobile phone gaming will continue to be a niche due to the fragmentation of platforms and carriers. However the potential is massive. They are ubiquitous. The current complex business model could well die out as much stronger business models run by the platform manufacturers come along. Apple and Nokia are the obvious ones, but look out for Sony, Microsoft and Nintendo entering this space.

There are loads of other gaming platforms from in flight seat back entertainment to SCUBA diving computers. They all sit in their respective niches and make business for those that service them.

Happy new year. And back to work! As is traditional at this time of year I will try and give some pointers to what I think may happen over the next twelve months. Firstly let’s look at the current situation. According to VG Chartz there are now 8.71 million Sony PS3s sold to end users, whilst the Microsoft Xbox 360 has sold nearly twice as many at 16.02 million, but has been overtaken by the Nintendo Wii with 19.45 million. All three of these are dwarfed by ownership of the Nintendo DS which has 64.92million happy owners, far more than the three previous machines combined. The PSP continues to sell with 29.79 million but most of these are used as media players, not as gaming machines.

Sony PS3 sales were given a big kick by the price reduction, despite the lack of AAA exclusives on the machine. This year sees massive system sellers such as Metal Gear Solid 4 and LittleBigPlanet which at long last will give the PS3 credibility and make it a worthwhile purchase. The delayed Playstation Home has the potential to be huge. Unlike Xbox Live this is geared up very much to be an online social networking community and we all know how big they can become. Sony should recover their position a lot during 2008, they need to with the amount of money this is costing them.

Microsoft have already pulled off what may well be the biggest marketing coup of 2008. Grand Theft Auto IV on the 360 is going to have a lot of exclusive downloadable content that the PS3 won’t have. Considering that this will certainly be the biggest game of the year this exclusive content will swing a lot of buying decisions over to 360. Other than this Microsoft have more games coming out for the 360 than Sony has for the PS3 and a lot of room to use the price mechanism to maintain their market position.

The Nintendo Wii could very well be a bubble that is already bursting. Or it could build on the existing solid base to become an entertainment phenomenon. Wii Fit will keep the impetus going through Q1&2 whilst Animal Crossing will be massive in Q4. These alone will probably be insufficient so Nintendo need some AAA third party titles. Nintendo like to upgrade their hardware so we could see an enhanced Wii with, for instance, a hard drive. Also a more powerful HD console must be on the way.

The DS for Nintendo threatens to become a ubiquitous device like the Walkman was for Sony. This year should see another upgrade with bigger screens. Nintendo are perfectly placed to make a telephone version (with a partner like, say, NEC?) which could deal a huge blow to both Nokia and Apple.

What is certain is that this generation is still in it’s infancy. There are still over 130 million owners of last generation consoles who have yet to upgrade (mainly PS2 owners waiting to see if the PS3 will be worth buying). If you add in the constant growth of the market and the popularising effect of the Wii then there could easily be a market for a further 200 million home consoles in this generation. Four and a half times more than have been sold to date.

A big factor this generation will be multiple machine ownership. To a far higher level than in previous generations. This is because there are so many must have games that are platform exclusives. This means that the real war between Microsoft and Sony will increasingly be fought between Xbox Live and Playstation Home. So expect both companies to put a lot of effort into these online platforms.

A big tactic this generation has been to stratify each console into a product range and to bundle games with consoles to give higher perceived value (something that was overdone in the days of the Commodore Amiga and Atari ST). Expect this to be continued this year with top end versions of the 360 and PS3 featuring large hard drives and enticing bundles of AAA games.

That is a very quick overview. It is impossibly to say who will do best out of the three. This generation of consoles is spectacularly good at making analyst’s predictions look stupid. One major change that has emerged is that Microsoft are now a player at the top table in the console industry. Just watching how they use this new found position will be fascinating.