Posted by: seanmalstrom | September 1, 2008

Pachter Admits Death of Next-Gen

When this console cycle began, there were three consoles but only two paths. There was New Generation, which Nintendo was proposing, and it was about creating a new starting line for new and current gamers. Then there was Next Generation, which Microsoft and Sony were proposing, and it is about increasing graphics, processors, and, in general, game sophistication.

Ever since the Wii took off, everyone has been trying to declare New Generation and Next Generation as both successful. But that cannot be. New Generation and Next Generation are opposed to one another.

One misconception about the disruption theory is that it explains why Wii succeeds. Actually, it explains why Next Generation fails. According to the disruption model, Next Generation fails because the technological improvements surpass what players can absorb. It is this that opens the way for the disruptor to come onto the scene (a console with new values that are not sustaining). For example, the 16-bit generation could not have a disruptor appear. The reason why is that the sustaining changes could be absorbed by the customers. Then came a radical sustaining change with 3d gaming and another sustaining change after that. In these previous cycles, a disruptor couldn’t appear because the sustaining changes can and were being readily absorbed.

Saying Nintendo is the disruptor is only half-right. Nintendo could not disrupt if overshooting was not occurring. If the market thought $600 consoles to be cheap, that everyone was rushing out their doors to see HD graphics, then the Wii would have little chance. So the steps I think best describe the process of understanding Nintendo’s disruption would be…

1) Understanding that the PS3 and Xbox 360 are overshooting the market. This means graphics and ‘fast processors’ become a commodity which means no one is going to buy a console based on those values anymore. This sets the stage up for a disruptor.

2) Wii enters the market aiming at the industry’s traditionally ‘crummy customers’ such as middle aged women, senior citizens, and families. Wii introduces new values such as the focus on changing the user interface.

3) Wii climbs upmarket by upgrading that value higher and higher (motionplus is a good example). While motion control might seem ‘crummy’ at first by traditional gamers, by building up from the ‘crummy gamers’, Nintendo is able to develop the product further and begin to eat away at the Core Market. An example of this would be someone buying a Star Wars game for the Wii instead of for a Next Gen console because they prefer the motion playing light saber. In other words, Wii will become the choice for Core gamers when choosing a title in the future.

4) Sony and Microsoft either retreat to even more of a Next Gen system or they counterattack.

While this website focuses on Nintendo’s disruption, the Wii is not the only disruption going on in the game market. The other one is coming from Internet gaming itself that is already chewing up traditional PC gaming. According to St. John’s predictions of Xbox 360 and PS3 being the last generation of game consoles, he is betting that the Internet disruption will take out the HD consoles (which he refers to as dongles since he views them as anti-piracy devices for PC games).

Every company has its own goals and long term mission. It remains to be seen whether Microsoft and Sony will counterattack (or retreat) from the Wii disruption or the Internet disruption. With the lack of motion controllers announced, it looks like they could both be aiming at the Internet disruption.

Let me interrupt myself by talking about the latest Bonus Round. I had to watch it twice to make sure I was seeing what I was seeing.

Michael Pachter actually says there will be no PS4 or Xbox 720. I’m glad the host made him repeat that. Pachter is literally saying Next Generation is dead. By that, I mean the trajectory of better graphics, better processor speeds, etc. is over. Seanus, a co-founder of the Xbox like St. John, agreed and literally talked like St. John in saying how technology had become a commodity and that the future of Sony and Microsoft would be the Internet platforms. Dan Hsu seemed to wax sadly about his hardcore games and seemed to hope Sony would pull a Nintendo Wii of doing things differently.

At the end of the article of “Disruptive Storm”, I put game consoles under three disruptions with everything else being a sustaining innovation of those. The first, Pong, the second, NES, and the third, Wii. I placed Xbox 360 and PS3 underneath the NES disruption as a sustaining value that goes all the way back to the NES. In other words, Xbox 360 and PS3 would be the last of the Next Gen consoles while the new consoles would be like Wii with more sustaining values that the Wii introduced.

So I don’t consider anything the panel said to be ‘surprising’. What I consider ‘surprising’ was that it was actually being said. It was only around five to six months ago that analysts such as Pachter predicting GTA IV to really rocket Next Generation. St. John was considered ‘insane’ by saying what the panel is saying now. Times are changing fast.

There is one thing I want to point out what Pachter said. Words do not become simply because of content. There is a context that is more important as context reveals the lens of how someone sees the world. I believe Pachter is viewing the future of gaming through a video context. This is proven, I believe, when used the metaphor of televisions being the same. He also said a paradigm shift would be something like virtual reality or 3d visuals.

But there has been a paradigm shift in gaming. It is called the Wii with its motion controls and other functions. At E3 2008, Iwata even comes on stage to speak nothing else but ‘paradigm shift’. If we adopt a game context, rather than a video context, this paradigm shift should be easy to see. This is why I think Pachter did notice it.

I know Pachter doesn’t like me (and I can’t blame him for it), but will someone get this word to him? Tell him: “Thank you for dressing like a gentleman.” You won’t believe how annoyed viewers are when people make these visual shows and don’t wear decent clothes. It is fine for podcasts as no one sees you. One could be naked during a podcast and no one would know. But when you go on TV, or something like it, it is a visual medium. If you dress like a clown, no one will care what you say even if you speak genius. I’m not saying people should be wearing suits, but they shouldn’t be wearing street clothes. You wouldn’t wear street clothes when making a public presentation. Yet, on a TV like interview which is a public presentation, people forget there is a crowd behind the camera and that they are on a public stage.

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