While smartphones are definitely growing as a platform, they're still relatively expensive to the average consumer. You got the initial price and monthly plans which stops it's market share from rapidly expanding, so there's still a large segment of people who haven't purchased one. There's still a market for multimedia devices without phone or constant network functionality, the iPod Touch and emerging tablet market shows that.
The 3DS price is expensive, but Nintendo is going to cut it's price in the near future once they're capable of manufacturing it fast enough and demand dies down a bit. Sony needs to keep the price close to the 3DS to make sure it can capitalize on enough sales even with 3DS already out first. Volume sales have to be at a reasonable level in regards to the competition, which the 3DS is. It may have a few months on it, but pricing the NGP at a reasonable amount insures it's sales won't be too far behind.
Hmm. I'll comment further down.
This thread is supposedly about the business side of Sonys new handheld games console, and if so there are quite a few questions that seems appropriate to discuss, such as
Q1. How will the new console do in the marketplace vs. the old?
Q2. How will it do in the marketplace vs. the only other dedicated handheld console, the 3DS?
Q3. What is, or should be, the target demographic of the NGP?
Q4. What might be a likely price for the new device, all things considered?
Q5. Is it likely to be a profitable device, as a whole, for Sony?
I'm convinced that the rise of the multimedia phones profoundly changes the market conditions for handheld gaming consoles. Putting actual numbers to that is difficult though, and you are certainly right that there is a market for devices that aren't constantly connected. Furthermore, I'd say that there is a hard-core market of affluent gamers that is likely to buy the NGP simply because it is a device that interests them. However, the other side of that coin is that it is pretty much undeniable that the smartphone market to a large extent is a superset of the NGP market, and that by the time the NGP comes to market, it needs to justify its purchase as an additional portable device over potentially both a smartphone, and among the hard-core handheld gaming fans, the 3DS. I have yet to see any argument put forth that would motivate actual growth beyond what the PSP has achieved. So my take is
A1. The NGP will see a smaller market than the PSP. How much smaller?
How will it do vs. the 3DS? Well, with the 3DS, Nintendo has targeted a tighter demographic than with the DS, the exception being that novelty seekers may be attracted to the 3D-screen, giving some additional sales. Nintendo seems to aim for a very closed garden type of eco-system. They have the only 3D-screen, they are the only ones with dual screens, they have a unique internal hardware architecture. It is unlikely that it will have much in the way of multi platform games. For better or worse, this means that it will offer something unique in the gaming landscape, not only at launch but for the foreseeable future. (If it's something "better" is another question entirely.) I'd say that this is likely to help Nintendo keep interest going for their platform, beyond the initial enthusiast purchases. Also, in relation to the NGP, launching significantly ahead is an advantage, as I doubt the NGP and the 3DS address completely distinct markets.
A2. Over the lifetime of the console, the 3DS is likely to sell in greater numbers. (Weaker conclusion than A1)
Since a lot of people will have difficulty justifying an additional handheld gaming device, and the 3DS is launching ahead, I don't think targeting casual gamers or pushing the multimedia qualities of the NGP makes sense. Let's face it, those categories already have their needs well covered. So Sony has little choice other than ensure that they get the attention and dollars of the hard-core. That category is also likely to buy more games anyway, yielding higher net revenue per NGP sold. And this is what Sony seems to do, revealing a very ambitious internal processor, 3G and WiFi, the biggest and highest resolution handheld OLED screen yet, double capacitive touch panels, and real joysticks and other physical controls.
A3. Sony should to target the hard-core gamer demographic.
This decision also means that the console will be costly to produce. Not only does it offer everything a smartphone does in terms of hardware, it offers more. On top of that, Sony won't just slap Android on the NGP, it will offer its own software environment/applications/development tools et cetera. So compared to the smartphones, it also carries large additional software costs for Sony. The NGP
will cost more than the high-end smartphones to produce. But it also has a different business model, where game sales generate additional revenue for Sony. The price of the device + the licensing revenue must generate profit. Pricing of smartphones in countries where there they sell like any other consumer electronics device imply that if it hadn't had licensing to sustain it, it would have needed to sell at over €700, (that's a mere €100 up from its much lower specced SE phone sibling.) So how much licensing revenue can they expect from an NGP? Lets be optimistic, and call it €200 (actually, I think this is too high, on the other hand they may have better margins on their own games). That would leave us at €500. Of course, they will get better longevity out of the NGP than a phone, so there is likely to be cost reductions in production over time. So lets assume they lower the initial price against the hope of sustained sales at lower production costs later in the product life cycle. Note that this implies that it won't have much room for price reductions later on. I'd say that an initial price of €400 is fairly likely, possibly including a first party game, so
A4. €399 or $400 MSRP at launch. (A lot for a game console, cheap for a small tablet with excellent gaming capabilities.)
So will this make money for Sony? Damned if I know. It seems like a risky gamble to me, then again Sonys business model is to develop and bring new technology to the market and try to make it mass market enough to recoup costs and more, so this kind of gamble is their modus operandi. As long as they win more often than not, they're ok. Will the NGP loose too many customers to competing platforms? Will the multiplatform possibilities of the NGP play out to their advantage yielding a lot of titles for the platform even later in its lifetime, or will it make the NGP seem like an increasingly pointless device vs. other platforms running the same titles?
A5. I really can't say. I don't think Sony can either.
That's my brain dump as far as NGP "business" is concerned. It's too long. Sorry. Think I'll shut up now that I've had my say.
3DS is out in Japan, and out in Europe today (and US? not sure, but it's in stores here now and I look forward to at least seeing it in action in an in-store demostation soon).
