| One, Two, Middlesboogie |
03-06-2002 02:18 PM |
Xbox: An Analyst's View
From Xengamers:
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With Microsoft's Xbox available on Japanese shelves for less than two weeks, several analysts have begun weighing in with their impressions on the launch. Among them, outspoken videogame analyst for Morgan Stanley, Shunji Yamashina. This week Yamashina-san discussed his vision of the marketplace, where the Xbox fits in, and how software developers will be affected by supporting three major consoles.
Question: What are your thoughts on the Japanese launch of Microsoft's Xbox?
Yamashina-san: First and foremost, the launch was too late. While Christmas isn't as big a holiday in Japan as America, Microsoft missed out on the holiday sales period. As the numbers have shown, many people purchased PlayStation 2 and GameCube consoles in the closing weeks of last year. Secondly, there aren't enough games for the Xbox yet. The Xbox lacks the kind of recognizable brands that will sell consoles in Asia. Historically, Japanese software developers are apprehensive about supporting a console which originates from another territory. To Microsoft's credit, they've tried to fix this problem by forming partnerships with Japanese firms and supplementing development resources.
Question: What are your thoughts on Microsoft's strategy and how the Xbox stacks up against the competition?
Yamashina-san: Microsoft's strategy to sell consumers on the Xbox has been to pitch the abilities of the console, rather than what's actually available. Case in point, Microsoft's trump cards have been the built-in hard-drive and Ethernet capabilities of the Xbox. The console is being sold on the idea that Microsoft will lead the online game marketplace because they're the best equipped. Unfortunately, the majority of consumers aren't even interested in online gaming. There are studies which suggest online gaming will continue to appeal only to the high-end demographic, which breaks down to 1-2 million users globally. Speaking about the software, the success of online games depends on the level of interaction by human players. The amount of time needed to build that level of interactivity sets a high benchmark for casual players.
Question: How do you think the market will grow with the introduction of new consoles such as Xbox?
Yamashina-san: There will be oversaturation in the market, except for Europe which could continue its upward growth trend. This console generation is expected to continue growing till 2005, but based on the market cycle of the past twenty years, things seem to be leveling off. For example, while there was growth in the American market last year, some segments of the Japanese market declined. I believe the American market will experience this oversaturation as well. It's estimated that 50% or more of American homes already have a game console, compared to about 30% in Europe. As for the software market, there's still room for growth. Not only are the number of players increasing, but new demographics such as people in their 30's are playing consoles. The majority of these new console owners are casual players who will buy 1-2 games per year.
Question: In terms of marketshare, who do you see as leading this generation?
Yamashina-san: I don't think Sony's dominance will be challenged. By the end of March, more than 27 million PlayStation 2 units will have been shipped worldwide. Software developers are reassured by that, and will continue to support the PlayStation 2. As for marketshare, I believe the PlayStation 2 will control more than 50% of this generation. Nintendo's GameCube is going after a different demographic. Compared to the Nintendo 64, I believe the GameCube will have much better results in the marketplace with more attractive software. By broadening their appeal of to different age categories, I believe Nintendo could achieve a 30% marketshare. Microsoft's Xbox, on the other hand, is going after exactly the same demographic as the PlayStation. When you factor in Sony's user-base and Nintendo's market segment, there's only 15-20% left for the Xbox. While hard-core players will purchase multiple consoles this generation, they represent a small segment of the market. Xbox sales have been strong in America and the console could continue to perform well there. But things will continue to be difficult for Microsoft here in Japan.
Question: What about software developers?
Yamashina-san: In the software market there's a tendency to spread yourself thin and commit virtual suicide with a multiplatform strategy. That's why more and more you see companies targeting their games based on the audience of the console. Other developers, such as Square, have lowered their risks further by choosing to support only one console. However, there are advantages to a growing hardware market. For example, hardware providers often pay a portion of development and advertising costs in order to ensure key software from third parties for their platform. Three players in the console market is considered viable, and the battle within this hardware generation is expected to drag on for quite sometime. As a result, I don't think we'll see software prices fall. Rather, in order to ensure platform dominance we'll likely see more hardware price cuts. If software prices were also drastically reduced, the entire market could collapse.
Microsoft hopes to appeal to traditional console software developers and some new companies as well. By using familiar development environments and tools such as Windows, PC developers will be better suited to release their software on the Xbox this generation. When compared to traditional console developers such as Capcom, Konami and Sega however, PC software developers have little influence in the console market. Certainly there's a segment of fanatical players, but their software likely won't appeal to casual players.
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