Keeping the Playstation 2 Alive

Have you ever thought about the forward push for a new marketing strategy?  The big jump in a product to something that’s the same, but totally different?  it doesn’t take the same input, be it fuel or programs or ink cartridge; but it does the same thing as its predecessor, maybe a little shinier.  It’s the strategy a business uses to stay relevant:  push new product.

That strategy fails once in a while.  Today’s buzz pointed to Windows XP still outselling much-hated Vista, but I seem to recall Playstation 2 still outselling much-taunted Playstation 3.  I think the Sony product makes a far more interesting focal point for the Push New Product Fallacy, the idea that a totally new product that pushes a totally new product line needs to arrive every so often and obsolete the old product for a company to survive.

First, let me explain what I see in Playstation 3.  I see the very valid and strategic need to compete with both the Shiny Upgraded Graphics factor of the Xbox 360, and the peer pressure from the Wii.  Old products don’t sell mostly because the new product garners more attention; Sony needed a new buzz, and thus came the birth of the Playstation 3.  Besides, at the time they wanted Blu-Ray to trample HD-DVD and needed an in for that market.

I don’t, however, see the need to kill the Playstation 2 as a revenue stream.  In fact, I would call Playstation 2 the biggest opportunity Sony has right now for recovering their poorly performing Playstation 3 revenue stream.  With a few upgrades, tweaks, and marketing maneuvers, the Playstation 2 could become a side source of revenue based on a large value add handled mainly in software.

First let’s discuss some very basic hardware.  I can get a 1GB Kingston MicroSD for $3.30, and 1GB USB flash drives go for as low as $6, including a USB storage chip and a NAND controller; all in all, I’d say the bulk cost for the controller and the NAND would have to fall under $3 in total, maybe less.  With DVD drives, a straight DVD reader costs $15 while a DVD+-RW drive with DVD+R DL and DVD-RAM costs $19, so maybe a $4 mark-up to upgrade that.  DVD encoder chip would cost around $10 maybe.

So, with a flash upgrade and a new DVD burner, the Playstation 2 could come up under $20 increased manufacture cost.  Package it with a $10 remote and you have a dedicated DVD player and recorder.  The device of course needs a firmware rewrite to supply timer functions, DVD recording, and a better user interface for a DVD player; but it does serve its purpose.  The system can even keep the rest of its hardware.

Given this strategy, Sony now has a basic $150 DVD player it can market– DVD players come for $50, but DVD recorders come for $100-$150.  It does play Playstation 1 and Playstation 2 games as well, so that gives it a good value add for a nice, long life cycle.  Sony could keep a good stream of third party developer revenue because the system is now a standard household appliance, packaged at the standard price, competing for that market but bringing a value add of satisfying an extra function; this means that the Playstation 2 would find its way into houses not even looking for a game system, and thus becomes an interesting platform for developers.

With just software, you could add a DVR function that dumps the encoded movie to a hard drive based library, provided the user brings a USB hard drive functioning on standard USB Mass Storage protocol (which is to say, any)– that puts it into the range of a $300-$2000 device, but the price in those comes from the size of the hard drive; the user can use any cheap hard drive here.  Congratulations, you now compete with TiVo with a one-time production cost for software.

Software again, along with a radio chip and a small ARM processor that costs $1 and has 2MB of embedded RAM, gives you 802.11n and whatever else by firmware update, and the ability to use SMB, sshfs, and DAAP for a network media center.  This competes with Xbox Media Center with, again, a one-time production cost for writing software.

So now we have $20 of hardware upgrades that raise the per-unit production cost, and some amount of initial research and development costs that eventually lose significance but give a massive value-add to the Playstation 2 as a household media appliance.  This means Sony can market the Playstation 2 to a new audience, and use the segment of that audience with young children to get their games in the door.  Your kid wants a game system so you buy the latest buzz word (Xbox 360)… or wait, the DVD player plays Playstation 2 games, you have a game system.


~ by John Moser on August 7, 2008.

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