Model of business of Next-Generation Hardware

[MarkoIt]

I recently watch Tim Sweeney talk at DICE show, that actually made me think about the "social acceptance" factor on a technology. His example was Facebook, but we could apply the same reasoning to something like the business model of consoles.
Today teenagers are grown in age where a piece of technology older than 2 years is old. They are used to change, and they change gadgets often. But also for us the lifespan of almost every technological object has shorten. From tv to pcs, from refrigerator to washing machine.
People are used to change. So it's curios that the only piece of technology in the entire house that has a longer life, are consoles.
I wonder, does this model still work in the year 2012 and so on?
Shouldn't we completely rethink consoles, in a way that they can be constantly updated both in hardware and software?
I'm actually thinking that the yearly cadence updates would work much better than what we can expect. In the contiguous years, the consoles would be still based on a similar architecture, and thanks to the API, there will little to be worried abouthe t compatibly with games. Developers could also decide which hardware generation they want to support, and with which graphical features, and how they want to delivery the game, by an app store or by an optical media.
The console could be cheap, not sold at a loss, and it wouldn't be too powerful, but it would be still nowhere near obsolete. They could easily use a customize SoC. Developers could get a smoother transition to the next-generation, being more free to do what they want from a power prospective.
For example MS could develop a staggered updates for Kinect and Xbox, one it's updated in a precise year and the other one in the year following.
And instead of discussing of the next Iphone is going to sport an A6 or A5, we would talk about XSoC 3. Price range? 199-299$.
And if they do partnership with cable dish operator.. or maybe even network operator, (like smartphone partnership).. more Xboxs around.
So what do you think? Would it work?

 

[Gubbi]

I think the next generation Microsoft console will be a loss leader initially.

Selling hardware at a loss to early adopters is a win in the long run. Early adopters are more likely to spend on games, media and apps.

I fully expect Microsoft to support the RT software stack on the next XBOX (and maybe even the current one). This means Metro apps would be very easy to port to the platform. You can then as a developer easily support Windows PC (desktops and laptops), Windows on Arm (tablets), Windows Mobile (phones) and XBox.

Ie. that means you can potentially buy an app that will run anywhere. You will get a different platform specific binary for each platform of course, but the user doesn't have to realise this.

This has a lot of implications. MS can essentially use a dominant marketshare in one segment to expand into another. If you have bunch of useful apps on your laptop and XBox, it would make sense to get a tablet and a phone that can run the same apps (games are apps as well).

It would put pressure on Apple to consolidate app markets for iOS and OS X, and it would put tremendous pressure on Sony.

Cheers

 

[AlphaWolf]

People aren't replacing their TV's and refrigerators and washing machines every 2 years, and I don't expect they will start any time soon. The disposable/replaceable model has worked with phones because they have been advancing fairly rapidly and they're subsidized by telcos. If John Doe had to drop $600 on his phone, he'd probably be inclined to keep it a bit longer, and maybe even buy more software for it. (I don't have any actual data on that, if there's any to the contrary feel free to provide it).

A lot of people have been espousing the short term solution for consoles of late, but they haven't addressed a number of problems.

1) How well does a $200 profitable box compare to a $500 piece of hardware sold at break even or even at a loss? (blah blah wii blah blah, 130 million people have chosen something other than the wii and just because 1 wii was profitable, it doesn't mean 3 (or more) would have been)

2) User retention. If you're on a short cycle you need to make sure your customers are locked in, because in 2 years they might be buying your competitors product. Investment has a significant tie in with loyalty.

3) The mess of supporting multiple different products. It hasn't been rosy for all iOS users. (Smooth transition to the next cycle, is still more difficult than getting out 3, 4, 5 or 6 generations of software on the same platform.)

 

[liolio]

I think that going back to say a 5 year cycle is closer to the actual technological evolution. That's ~2 process node. You need to invest a shit load of money to ironing out an hardware for more than that.

Then the market is not always in competitive mode, as it is for years you have no choice but to buy what they sell, Christmas is coming every year, people have to buy something price get lower, etc.
Imho it's a misconception to believe that costumers are free of their choices. A PC gamers is free to update whenever it wants. In the console realm not that much is there an alternative that failed and proved that costumer may not have choose something else?

Anyway I hope new actors comes and disrupt the market and its model, is no longer competitive enough if manufacturer can go away without competition with 7 years and counting hardware.

 

[eastmen]

I think the next generation Microsoft console will be a loss leader initially.

Selling hardware at a loss to early adopters is a win in the long run. Early adopters are more likely to spend on games, media and apps.

I fully expect Microsoft to support the RT software stack on the next XBOX (and maybe even the current one). This means Metro apps would be very easy to port to the platform. You can then as a developer easily support Windows PC (desktops and laptops), Windows on Arm (tablets), Windows Mobile (phones) and XBox.

Ie. that means you can potentially buy an app that will run anywhere. You will get a different platform specific binary for each platform of course, but the user doesn't have to realise this.

This has a lot of implications. MS can essentially use a dominant marketshare in one segment to expand into another. If you have bunch of useful apps on your laptop and XBox, it would make sense to get a tablet and a phone that can run the same apps (games are apps as well).

It would put pressure on Apple to consolidate app markets for iOS and OS X, and it would put tremendous pressure on Sony.

Cheers

There is really no question in my mind that the stores will be linked across win 8 which will power everything for MS going foward.

I wonder how devs and publishers will like this. Will they mind a xbox next game running on windows 8 with a single purchase ?

Anyway isn't that why people buy an Ipad over an andriod tablet even when its specs are worse ? Because apple is using its phone apps to get them over ?

 

[Platon]

The disposable/replaceable model has worked with phones because they have been advancing fairly rapidly and they're subsidized by telcos. If John Doe had to drop $600 on his phone, he'd probably be inclined to keep it a bit longer, and maybe even buy more software for it. (I don't have any actual data on that, if there's any to the contrary feel free to provide it).

I agree with that as well. This whole "smartphone" thing is quite new and an area that maybe has been advancing a bit faster than other tech areas, but I do think that it might start slowing down a bit though. And no doubt, had the telcos not subsidized the new phones the sales would have been much much lower and the upgrading would have been slower as well.

There is really no question in my mind that the stores will be linked across win 8 which will power everything for MS going foward.

I wonder how devs and publishers will like this. Will they mind a xbox next game running on windows 8 with a single purchase ?

I am not a dev but apart from what I would think is a minuscule population that might buy a game for both console and PC, it should not lead to any serious sales losses. On the other hand it might lead to getting paid a bit more for phone games, the a bit more high end ones as you can play them on your phone, xbox, PC, tablet, or if you buy a PC game you get its phone version free a very cheap or something like that...

 

[MarkoIt]

People aren't replacing their TV's and refrigerators and washing machines every 2 years, and I don't expect they will start any time soon.

True, but it also depends on how fast technology has innovated those items. Back in the CRT days, people were keeping their television for more than 10 years. Right now, a 5 years old television has old tech, and a 10 year television is completely obsolete.
Since I expect home automation and intelligent appliance to become much cheaper in the next decade, also those items will have a shorter life span.

The disposable/replaceable model has worked with phones because they have been advancing fairly rapidly and they're subsidized by telcos. If John Doe had to drop $600 on his phone, he'd probably be inclined to keep it a bit longer, and maybe even buy more software for it. (I don't have any actual data on that, if there's any to the contrary feel free to provide it).

$600 is way too much, but I'm pretty sure that people are used to spend few hundreds buck in electronics every year. $200 won't break the bank.

1) How well does a $200 profitable box compare to a $500 piece of hardware sold at break even or even at a loss? (blah blah wii blah blah, 130 million people have chosen something other than the wii and just because 1 wii was profitable, it doesn't mean 3 (or more) would have been)

From the point of view of raw specification at the 200$ price spot, it wouldn't be much faster than current generation. It would probably fit in the same power budget, but with much more modern architecture and features. They don't need to pull a Wii to make it work... if they can keep their current sales.

2) User retention. If you're on a short cycle you need to make sure your customers are locked in, because in 2 years they might be buying your competitors product. Investment has a significant tie in with loyalty.

Online and content, which are tied to the account.

3) The mess of supporting multiple different products. It hasn't been rosy for all iOS users. (Smooth transition to the next cycle, is still more difficult than getting out 3, 4, 5 or 6 generations of software on the same platform.)

[/QUOTE]

It's the developer that can decide if they want to support all the generations, or just the more modern ones. If they do supports many generations, the older will get turned down specs, or more likely, the newer one higher IQ. Microsoft or anyone else that may use this model will need to make sure that if an old console gen. is supported, the quality is acceptable.

 

[RancidLunchmeat]

Does anybody know actually how long it took Nintendo to become profitable with the Wii? We know that the individual consoles were all sold at a profit, but how many years and dollars of R&D did they have to invest?

Of course, they were just "piggybacking" on the Gamecube tech wise, so it may be an example that can't really be duplicated.

I just don't see how a company can launch a console that is profitable per unit initially, at a low price point ~$250, every two or three years. And as Alpha pointed out, even if one could pull it off, it's doubtful that there would be room in the market for 2 or 3 players at that strategy.

Also, I agree fully with Gubbi. There was talk not that long ago (a year? 2?) that no console manufacturer would ever again launch an uber console and sell it at a loss because they'll never recoup their costs.

I thought it was false then, even more so now. If not for the RROD, the 360 would be an unquestioned success. Even with hefty competition, mismanaged strategy and sacrificing itself for the greater good, the PS3 has managed to (pretty much) right itself.

I think the main thing that the consoles going forward have to provide for is future expansion, so the real interesting component to me is the bandwidth of the i/o ports that they will be using. As it is, Kinect is somewhat crippled not only by the processing power of the 360 but also the usb interface.

 

[Shifty Geezer]

True, but it also depends on how fast technology has innovated those items. Back in the CRT days, people were keeping their television for more than 10 years. Right now, a 5 years old television has old tech, and a 10 year television is completely obsolete.

Surely it depends more on what people can afford than whether somethings out of date?

As for the general business one, it's one I agree with as an option, but one of several. Next-gen could be traditional like this one; or short-term with a forward-compatible model; or spread across multiple devices with a hardcore console, compatible mobile, etc. They are all valid options, and either could work or fail. Without some realistic business research into growth and costs and returns and yadayada, there's no way we outsiders can form any informed opinion on the best course of action for any console company.

 

[AlNom]

As it is, Kinect is somewhat crippled not only by the processing power of the 360 but also the usb interface.

To be fair, USB2.0 was pretty ancient by 2005.

USB3.0 offers >10x the bandwidth, which I think should be more than enough for a long while, even if future Kinect had 1080p Depth and Colour streams or even if they reserved 100MB/s for an external drive (the average user probably won't have RAIDed SSDs ).

 

[wco81]

Smart phones, at least in the US, is heavily subsidized, so people are willing to upgrade every two years since their monthly bill would be the same whether they stayed with the older phone or upgraded.

Even in other countries, I believe you can defray a lot of the upfront costs by committing to a certain amount of usage, which implies a contractual commitment.

Consoles have no service contract associated with them so they can only be subsidized with expectations of $60 games being purchased.

Tablets on the other hand are unsubsidized for the most part yet people may be upgrading almost every other year -- we'll know how many iPad 1 users upgrade to iPad 3 to see how this market develops.

Of course, there is only one tablet brand, perhaps two with the Kindle, that is seeing high sales volumes so far. But the sale volume is crazy, 15 million iPads in the Holiday quarter starting at $500, each profitable. That number would be great for any console for a year of sales, perhaps even if all 3 consoles launched in the same year and combined, they had 15 million in the first year would be considered pretty strong take-up rate for new consoles.

Of course iPad benefits from the strength of the smart phone market, with the rapid pace of SOC and software development in the mobile space. It would however be astounding if tablets got the same pace of upgrades despite not being subsidized by any kind of service plans.

In this world where all the energy is around mobile, consoles have to differentiate with raw performance and that fact argues against coming out with designs which aren't the most powerful (but would be upgraded every year). Console makers can't risk coming out with a design that isn't at least an order of magnitude better-performing than phones and tablets.

 

[Shifty Geezer]

Of course, there is only one tablet brand, perhaps two with the Kindle, that is seeing high sales volumes so far. But the sale volume is crazy, 15 million iPads in the Holiday quarter starting at $500, each profitable.

That's because it's a new product with no prior presence. It'd be like PS3 launching into a world without consoles where consoles never existed before. As the adoption of tablets proceeds, the market will gradually fill and interest will reduce to the sustainable level rather than introductory growth level. Unless we get evidence that every iPad owner upgrades to the latest model every year or two, paying full price, there's no reason to think the tablet market will be unique among consumer markets. Once people have a tablet, the interest in a replacement will wane. As you say, the only reason it's not the case in the mobile space is because people tend to get the phone as part of their contract and are often offered tech upgrades as a result. Most people couldn't really afford £400+ on a new phone every year or two, I reckon.

In this world where all the energy is around mobile, consoles have to differentiate with raw performance and that fact argues against coming out with designs which aren't the most powerful (but would be upgraded every year). Console makers can't risk coming out with a design that isn't at least an order of magnitude better-performing than phones and tablets.

Unless the new console is a tablet. Or it is supplied as a service on contract. Or it has added value like Wii did. Or the strength of the console experience is enough to attract gamers' money (as long as tablets don't extend that way to offer a full range of games). Or it is upgradable. Or some other aspect that makes it an appealing proposition to people who want to play games as part of their entertainment.

 

[RancidLunchmeat]

I don't think there's any reason for consoles to worry about tablets or try to compete with them in features or price. They serve different purposes. For as many people that are buying tablets, how many are buying huge 60" flat screen TVs?

I don't have the numbers, but I'd bet that the market for large TVs is magnitudes larger than that of the tablet market. So, I don't think you want something cheap to compete with the tablet. I think you want something as powerful as possible to work with your even more expensive, and far larger consumer electronics device.

 

[liolio]

Unless the new console is a tablet. Or it is supplied as a service on contract. Or it has added value like Wii did. Or the strength of the console experience is enough to attract gamers' money (as long as tablets don't extend that way to offer a full range of games). Or it is upgradable. Or some other aspect that makes it an appealing proposition to people who want to play games as part of their entertainment.

Speaking of which and more precisely the limitations (supposedly) coming with Nintendo design when it comes to range and the number of devices connected (we are sure for only one) I wonder If it could be worse to use that kind of technology:
http://en.wikipedia.org/wiki/Power_line_communication
In France it's used in house where for some reason wifi is not workable.

Say one is to push Nintendo idea further (2 devices or more) and wants the gaming experience to be available all around the house without moving the console I wonder if it could be a solution coupled with some wireless communication.
Could prove a bit costly though cheapest I could find is 30$ for the PLC and around the same for a wifi hotspot. I 'm not sure how cheap they could get the two thing together (actually looking as MS pricing policies in regard to peripheral... ). I guess price is related to the service provided. Say you pay a bit more than the price of controller and you can play everywhere (there are power plug everywhere in most houses) it's worse some money.

It's the only viable solution I can think off to provide a low latency client/server relationship (within a whole house) between a console and a tab like controller and so workaround the limitation Nintendo tech seems to impose on WiiU usage. It indeed make the console very tablet like (even though it can still be played on TV).

 

[liolio]

I don't think there's any reason for consoles to worry about tablets or try to compete with them in features or price. They serve different purposes. For as many people that are buying tablets, how many are buying huge 60" flat screen TVs?

I don't have the numbers, but I'd bet that the market for large TVs is magnitudes larger than that of the tablet market. So, I don't think you want something cheap to compete with the tablet. I think you want something as powerful as possible to work with your even more expensive, and far larger consumer electronics device.

It's disputable a lot of household have only one 60'' flat TV and they don't renew it often. Computers, netbook, laptops, etc. it's another matter.
Anyway for now you are most likely right there are more 60' TV thing is quiet often there are only one per household and there is competition withing household for main tv usage. Tablets alleviate that pressure. Indeed you need more power than what tablets provide now (still high pixel density makes marvel in how graphics are perceived) hence the hypothesis of a client/server relation between the pad like controller and the console hooked to the tv.

Nintendo may have a powerful concept at hand, but a concept is nothing without a good implementation is nothing. In this regard I'm still pretty septic about what they are doing and the noise around it

 

[liolio]

I recently watch Tim Sweeney talk at DICE show, that actually made me think about the "social acceptance" factor on a technology. His example was Facebook, but we could apply the same reasoning to something like the business model of consoles.
Today teenagers are grown in age where a piece of technology older than 2 years is old. They are used to change, and they change gadgets often. But also for us the lifespan of almost every technological object has shorten. From tv to pcs, from refrigerator to washing machine.
People are used to change. So it's curios that the only piece of technology in the entire house that has a longer life, are consoles.
I wonder, does this model still work in the year 2012 and so on?
Shouldn't we completely rethink consoles, in a way that they can be constantly updated both in hardware and software?
I'm actually thinking that the yearly cadence updates would work much better than what we can expect. In the contiguous years, the consoles would be still based on a similar architecture, and thanks to the API, there will little to be worried abouthe t compatibly with games. Developers could also decide which hardware generation they want to support, and with which graphical features, and how they want to delivery the game, by an app store or by an optical media.
The console could be cheap, not sold at a loss, and it wouldn't be too powerful, but it would be still nowhere near obsolete. They could easily use a customize SoC. Developers could get a smoother transition to the next-generation, being more free to do what they want from a power prospective.
For example MS could develop a staggered updates for Kinect and Xbox, one it's updated in a precise year and the other one in the year following.
And instead of discussing of the next Iphone is going to sport an A6 or A5, we would talk about XSoC 3. Price range? 199-299$.
And if they do partnership with cable dish operator.. or maybe even network operator, (like smartphone partnership).. more Xboxs around.
So what do you think? Would it work?

I believe that the market can be disrupted soon. It needs "only" big actors entering/widening the market for me it could both Android and iOS base running devices entering the show one after another.

For product cycle I think that Intel nailed it a long ago. It could be a reverse Tick Tock rhythm.
lithography 0 : new Product
lithography 1 : minor tweaks/improvements to existing products (18/24 months)
lithography 2 : new product (36/48 months)

The idea is to follow PC evolutions / reinvente a PC gaming segment. Compatibility is a given it's about performances like in PC but one is defining precise "steps"/"requirement" in performances instead of just API requirements.

You start cheaper than competition something they can match without outrageous bleeding.
After three or four years or in between your second real generation of product (third node) kick the old systems supposed to last in the ball and you can sell it at the same price as they are => they've somehow subsidize for nothing.

Not easy clearly without new actors entering the show this won't happen as without pressure it makes too much sense for MS , Sony or Nintendo to look you down for as long as they can.
As a costumer I don't like. I don't like when there is de facto no longer a competition in a sector and that manufacturers manage to go away with +7 years old hardware and counting.
Competing for the same money corporations can pretty fast (once some sort of ranking is established) agree on a statuquo and act as some sort of cartel.

Apple may introduce that kind of thing the "living room gaming market" + other things.
There is always the possibility of editors supporting this move on the Android side which is open to other market places like Amazon proved. YOu can have an agreement between I don't know say Samsung as they have a lot money and Steam, or EA, etc. The guys involved can say this is the news PC and it can be hooked to the TV (if you want).

 

[wco81]

That's because it's a new product with no prior presence. It'd be like PS3 launching into a world without consoles where consoles never existed before. As the adoption of tablets proceeds, the market will gradually fill and interest will reduce to the sustainable level rather than introductory growth level. Unless we get evidence that every iPad owner upgrades to the latest model every year or two, paying full price, there's no reason to think the tablet market will be unique among consumer markets. Once people have a tablet, the interest in a replacement will wane. As you say, the only reason it's not the case in the mobile space is because people tend to get the phone as part of their contract and are often offered tech upgrades as a result. Most people couldn't really afford £400+ on a new phone every year or two, I reckon.

Well iPad sales have been increasing over time. That is despite increased competition.

There will be a big performance gap between iPad 1 and iPad 3 so a good number of those who bought iPad 1 may upgrade.

I've held off so far, probably will get the iPad 3, but I'm aware that A15 and Rogue GPUs are coming in the next year or two. And then by the time those components are out, I'm sure there will be some other big jump coming every couple of years. The mobile OS vendors and apps. developers will have to produce compelling software to exploit the big increasing in performance.

 

[TheChefO]

In this world where all the energy is around mobile, consoles have to differentiate with raw performance ...

While I agree with this concept and I've said as much in the Apple thread, I don't think that this means a 2 year cycle wouldn't work.

The console would have to designed to ensure it sells for at least break even (because the platform holder couldn't be guaranteed to make back the losses on the same hardware sold later), but that doesn't mean it has to be weak.

Selling hardware at cost for $400 can net a pretty nice machine if it isn't bogged down with other bells and whistles which are unnecessary for core gaming. Especially if one knows that they can upgrade the console in 2 years if consumers choose to. So if games are made with forward compatibility in mind, the newer console could afford things like higher res, higher frame rate, better AA/AF, better LOD, etc, all on the same games.

The other nice thing about a rapid upgrade cycle is that it guarantees a performance edge over mobile at any given point. Hardware sitting on the shelf 10 years after the fact might just get overpowered by aggressive new mobile tech.

 

[TheChefO]

1) How well does a $200 profitable box compare to a $500 piece of hardware sold at break even or even at a loss? (blah blah wii blah blah, 130 million people have chosen something other than the wii and just because 1 wii was profitable, it doesn't mean 3 (or more) would have been)

Who says it has to be $200?

2) User retention. If you're on a short cycle you need to make sure your customers are locked in, because in 2 years they might be buying your competitors product. Investment has a significant tie in with loyalty.

Good point.

This is where forward compatibility in games will come into play and xbl/psn.

Having both of these factors at play will ensure that the ecosystem isn't broken every 2 years. The idea isn't to force everyone into buying a new console every 2 years (though that would be ideal in their eyes), they idea is to never have a competing product on the shelf which can steal your customers due to a superior hardware offering. If every 2 years, you know that your games can look better if you choose, or you can choose to keep your box and still play the newest games, then you're likely to stay in that platform. And so will your friends on psn/xbl.

3) The mess of supporting multiple different products. It hasn't been rosy for all iOS users. (Smooth transition to the next cycle, is still more difficult than getting out 3, 4, 5 or 6 generations of software on the same platform.)

Another good point.

When does the platform holder say enough is enough as the baseline has become a major bottleneck in introducing new software?

One way to approach this problem would be to have a versioning system.

Something like this:

2012 xb3.1
2014 xb3.2
2016 xb3.3
2018 xb3.4
__________
2020 xb4.1
2022 xb4.2
etc

This way developers have a baseline they can choose to target which isn't holding back development for new concepts and ideas forever, but they can also give gamers a choice that desire to have the best of a the best.

Such a scenario could only really marginally bump the CPU and scale the GPU until the new full version came out as the baseline x.1 would hold back the fundamental capability of the game.

As long as the pathway is laid out clearly, there would be no buyers remorse and the price would be fairly predictable.

Of course the new version by 2020 would have to be backwards compatible for the platform concept to work.

There is also the question of desirability of the x.4 product. Who would buy this console knowing that in 2 years the new baseline architecture would be out?

_____________________

Maybe the best way to address this issue of multiple market segment demands is literally a high-end and low-end console.

Something similar to what Liolio suggested:

A SoC + GPU for the high end market
A SoC by itself for the low end / casual market

A true "premium" brand which has all the benefits I outlined above with upward compatibility, but without the confusion of versioning new products every 2 years.

_______________________

Or perhaps interleaved products:


2013 Xbox3 (compatible with Kinect of course)
2016 Kinectbox with Kinect2.0 + new SOC (the guts of xb3 binned for low power)
2019 Xbox4 (compatible with kinectX)
2021 Kinectbox2 (guts of xb4 binned for low power)

etc..

This way the marketing is clean and clear, each product has a traditional 6 year cycle, and there's always something fresh around the corner.

 

[wco81]

I'm not sure consoles will be able to command $400 every 2 years. Especially with $60 games.

Mobile devices get away with it because content is cheap.