I agree with much of that post, Joshua, except this bit. Including an HDD would add all of $30 to the XB360 and it's use is far more prominent now than XB because of the sudden growth in download content. You only need look at the uptake of HDD enabled XB360 SKUs to see the primary gamers buying it value the HDD, and MS, due to their price-point positioning of the SKUs, clearly wanted the HDD in there. If we see a note-worthy adoption of HDD-less SKUs where that $30 makes a difference, then I'll concede that it was an okay choice, but at the moment, the retrospective back to the systems' launches, the HDD-less SKU did MS no favours. It hasn't netted them sales, has added an extra bump for developers, and offers a lower income potential due to lack of storage, where including the HDD and attracting owners onto Live! would be beneficial. The choice being made on the outcome of last gen was a little short sighted IMO. XB's HDD wasn't taken advantage of principally because the lead console PS2 didn't have one so developers didn't bother to leverage XB's. Of the XB's exclusives, some couldn't have happened without the HDD, which were the major product differentiation points with PS2. I think the HDD-less SKU was just to get a $300 launch price, but expectations that that would attract custom have been proven false, and the result is a system where they no longer have the option to go HDD only, limiting HDD use to XB like functions and giving developers an unnecessary headache where 90% of the market (PS3 and XB360) has HDDs but developers still have to develop around its absence.
I will step back into the time machine and preface my position from August 2005: I strongly disliked the non-standard HDD and wrote one of my infamous epic-style posts on the topic looking at the pros and cons. I 100% agree that going the direction of making a HDD standard and compensating for such through DLC and Microtransactions (even music and movie downloads) and the leveraging demos and the like to generate new revenue streams as well as encourage increased software adoption could, in an online enabled console, justify the cost.
But I still think Microsoft made the right financial decision.
1. The HDD is only $30... ok, but that $30 difference allows a couple things. (a) It allows MS to create a more expensive SKU with a price point determined by value over cost. The 360 Pro at $399 was financially a win for MS over the $299 Core. (b) I still believe in price points in the market, and have long held the non-HDD SKU wasn't a year 1-3 move, but a year 4-6 move. In lifetime sales I would gamble that Microsoft will sell more units at-and-below $199 than above. An extra $30 means they either have to wait longer to hit that price point or have to lose more money. Instead they cut the $30 and have a nice upsell in the form of a Pro SKU and HDD add-on. (c) Consumer perception is a powerful device. $299 is easier to stomach than $399 and sits better with consumer frame of mind/perception... so you save up for the $299 360 knowing you need some games and such, so at the check-out counter you also pick up a game or two, an extra controller, and start looking at the cables and decide that the Pro SKU, after the cost of cables, isn't quite as bad as you thought and "justify" the upsell. Upselling is very popular--it isn't uncommon at all to lead with the "lowest price of entry" item as your flier headline (loss leader even) only to capture the upsell at the point of sale.
You are right that what, 10% (?), of 360 owners have the non-HDD SKU. But the effects of the SKU, imo, aren't directly tangible in direct sales at this point of time for the above reasons.
2. the sudden growth in download content... True true! But on the reverse is it only 60% of 360 owners have accessed online (Silver) at all? It appears to me that a core percentage of users has the majority of the activity with some mildly involved and 40% not at all. As the product begins penetrating more casual markets I wouldn't expect the HDD to be as valuable in this market. If the first 10M early adopting gamers use it at 60%, the more casual consumers thereafter (in general) would be less inclined. Online gamers are essential to capture early on, but I don't expect the trends/impact seen in this group to be equally strong among all consumers as the marketbase grows.
3. It hasn't netted them sales... It has netted them about 1M sales Bringing this back to Sony, what has more sales impact at this point, a standard HDD or mimmicking MS's move and offering a lower cost SKU without a HDD?
4. and offers a lower income potential due to lack of storage, where including the HDD and attracting owners onto Live! would be beneficial... It does lower theoretical potential, but does going w/o a standard HDD translate to real lost potential. Consumers can get on Live without a HDD. They can even download arcade games and some DLC. And I could be wrong, but I think the strongly-active online consumers are (a) a small, but important, demographic that (b) happily sprung for the HDD model. I think the sub-$200 crowd won't find the HDD as much of a compelling feature. They game less and buyer fewer games/accessories (we here are the ones who inflate the attach rate! With a median of 26 games on our primary last gen console). I am not downplaying online services as I think online is an important sales point to early adopters and is extremely important for various reasons, but I don't see the "birthday and Christmas crowd" hot and heavy on it... and those that are can easily obtain Live and a HDD.
5. XB's HDD wasn't taken advantage of principally because the lead console PS2 didn't have one so developers didn't bother to leverage XB's... I agree the PS2 held it back, but I think the problem is deeper than that (in regards to games). I have been a PC gamer since the 80s and can say safely that most genres, notably those selling on the consoles (shooters, RPGs, racers, sports, etc) work great without a HDD. I can think of very few PC games that make use of a HDD in a way that cannot be compensated for with a memory card--and even fewer of those games that are in genres that appeal to sit on the couch console gamers.
The killer app for HDDs are MMOs and those haven't done well on the consoles compared to the PC (even though a console like the Xbox had a larger gaming base than the PC). Even now the Xbox 360 with over 10M consoles with HDDs lacks a significant MMO. Mods are another popular outlet for HDD usage, but on the PC you are looking at a couple million consumers who even engage in such. The Xbox 360 Core SKU didn't prevent MMOs from coming to the 360.
At this point I don't think either of those items justifies the "standard" cost when people can add it on. The 60% of users who have Silver accounts does raise an eyebrow... until you look at their activity levels and realize they probably have a HDD anyhow :smile: The 10% who don't have a HDD aren't holding back DLC at all, nor would they be helping the situation if they had a HDD.
Of the XB's exclusives, some couldn't have happened without the HDD, which were the major product differentiation points with PS2.
Which titles do you have in mind? I cannot think of many Xbox titles that couldn't have been done without a memory card. The big differemtators on the Xbox IMO were, technically, the graphics and online. The big games like Halo and and Halo 2 and... (haha) didn't scream, "HDD only". A HDD made life easier, but that didn't stop ports and same-genre (and design) games from being on the PS2 and GCN.
I think the HDD-less SKU was just to get a $300 launch price
That and to get to $249, $199 and $149 as quick as possible.
but expectations that that would attract custom have been proven false
That it would attract the attention of early adopters is proven false. Then again someone willing to shell out $300 for a console (and $40 for a memory card) probably won't bat an eye in most cases at $400. Price sensativity of the different consumers plays a major factor.
has added an extra bump for developers... giving developers an unnecessary headache where 90% of the market (PS3 and XB360) has HDDs but developers still have to develop around its absence.
True, true, and it takes away a feature that I love. I personally hate the move as a gamer. And with some smart design choices I think MS could have averted the situation. e.g. They could have put TRCs to effectively state "expect no more than 4GB" and eventually shipped a model with 4GB of Flash memory (or even 2GB). So in 2005/2006 ship only HDD based models, and in 2007+ you can address the market. If a non-HDD based SKU would give you the financial flexiblity you need you have it, or you can then relax the TRCs knowing everyone has a HDD and continue to exploit and explore the advantages of upselling DLC and Microtransactions... expansions even (an upsell missing from the console market!)
But, in the end, I think MS wanted the $299 launch price. It is the same price the PS2 and Xbox shipped. It reduced sticker shock of a $399 console and actually looked "cheap" compared to the PS3.
Which brings us full circle.
A $499/$599 PS3 was a huge gamble.
The Core may have fed into this, to a degree. e.g. The HDD wasn't said to be standard in early 2006. In that window we saw 1) the Core largely ignored and 2) a large demand for the Xbox 360 w/ HDD at $399. The demand was strong into early 2006 and we can only guess how many units they would have sold in the strong holiday period and how many people, after widespread shortages, took a "wait and see" approach for the PS3 in Spring. If I am Sony I am feeling pretty good about $499. It is, afterall, only $100 more--and you get the really strong PlayStation brand as well as a Blu-ray drive. Easily a $100 value.
But value is a funny thing as sales bases different and it isn't even linear. The higher your price, even at a similar or greater value ratio, the market shrinks due to cost of entry. Likewise, I think there is an "early adopter" factor where some adopt first, and then only adopt later releases whereupon they offer something they cannot have with their initial investment. I would also venture the guess that the hardcore gamers who came over to the Xbox brand from the PC are more willing to throw down a lot of cash for gaming over and above what most typical console gamers are used to. $400 for a console is nothing when you pay that much for a GPU alone. $500 is a lot for a console when the most you have ever paid is $300 (PS2). Two different mindsets.
I think this may have given Sony some false confidence. I know it inflated my view of PS3 sales. I thought 6M was gonna be a cake walk by Spring 2007 simply because the inferior Xbox brand had sold amazingly well at $400 with really strong demand during the first 4 months. Sony was able to hit 3 territories where they were strong in each (MS was flat in Japan and Europe with the Xbox wasn't overtly strong) and appeared to have covered a lot of bases--Blu-ray for AV geeks, Cell (and stuff like folding) for Technophiles, RSX/NV and Epic/UE3 to ensure a heftier share of good PC ports, a free online network, good BC, and so forth.
Execution was horrible though, software wasn't compelling, and the price obscured all the value. The big selling points (HDD, Blu-ray, Cell, PSN, RSX) didn't translate into software that delivered a superior experience which made justifying the additional price even more difficult.
Looking back, I do wonder if the Core at $299 had the double impact of a lower cost of entry on consumer conscious as well as giving a false sense of confidence of how consumers perceived value. Demographic differences, while undocumented, would probably tell us a lot in this regards. We know there are territorial differences in price sensativity, brand appeal, and software tastes. FPS in Japan and Nintendo in general show this much.