Economics‎ > ‎

History of Console Wars 2006-2010

posted Jul 30, 2011, 2:33 PM by Simon Nguyen   [ updated Aug 4, 2013, 10:18 AM ]
In the late 1990s and early 2000s, Sony was the dominant player in the video game industry. The company’s Playstation 2 controlled an overwhelming share of the console market; its games were selling like crazy. Lurking behind its shadow, however, was another powerful tech corporation posing to dethrone Sony. This powerful player was the software giant Microsoft.

After the company’s first home console (XBOX) failed to gain much attraction, Microsoft released a much better version of its console called XBOX 360 in 2005. The new console was considered, at the time, revolutionary. XBOX Live, a new feature of XBOX 360 that allows multiplayer gaming and content sharing, has been a tremendous success pushing the console in front of the pack. The entrance of Microsoft into the video game business started a new round of console war–one that is as fierce as ever.

In response to XBOX 360, Sony quickly rolled out the next version of its Playstation line called PS3. Sony was betting big stakes on its new console. The development of Playstation 3 was the costliest in the history of game console development. Sony’s chief aim in developing the system was to produce the most powerful and most innovative product in this generation and next. The company practically diverted most of its resources into this one project.

First, Sony partnered with IBM and Toshiba to develop the most powerful cell processor to date. The processor is so powerful that it could actually be used to power a supercomputer. Second, Sony’s engineers equipped the new system with truly over-the-top graphic capabilities allowing games to be shown with amazing graphic details and clarity. The new system has a ridiculously large amount of hard disk space and also includes Sony’s prized Blu-Ray DVD player.

The system was so impressive at its debut that even Microsoft had to acknowledge it as the jewel of all home consoles. However, this achievement did not come without a colossal cost. Sony pretty much exhausted all its resources leading to many problems with the company’s other lines of business.

Unfortunately, Sony failed to build on the success of the PS2. The key reasons why the previous system was immensely successful were its accessibility and affordability. The PS2 was relatively affordable; its games were inexpensive to produce. This allowed game developers to produce many great games targeting a variety of consumers—hardcore and casual gamers alike. The new system, on the other hand, has too much potential for its own good. PS3 is not a game console; it's a luxury item. The console is too expensive for ordinary consumers, who are likely to settle for a less expensive system.

A console war cannot be completed without a third competitor. After a long absence, Nintendo returned to the video game world with a vengeance. The company released the long-awaited Nintendo Wii in November of 2006.

Upon its release, the Wii quickly gained attention for its highly innovative control which allows players to emulate real-live movements. This new technology provides gamers with something completely different than the norm. By focusing on family-oriented themes, the Wii attracts a lot of first-time gamers. Most importantly, the system is perceived to be the most inexpensive system in the market. As of this post, Nintendo has overtaken both Sony and Microsoft as the leader of the market.

The early success of the Nintendo Wii has both its competitors scratching their heads. The technologies used to implement the exciting Wii game play are not new; they have been around for a number of years. Unfortunately, Sony and Microsoft were not able to think outside the box and failed to capitalize on it.

While Nintendo is the early leader, the war is far from over. Both Sony and Microsoft are seasoned competitors. They all have their core support groups and fan base. As development costs decrease, both systems will become cheaper and thus will find more buyers. The prospect of Blu-Ray DVD becoming the standard of the future should help Sony’s PS3 and Sony, in general, tremendously. Microsoft, with its popular XBOX Live service, is not to be taken lightly either.

Simon Nguyen, MA Economics