Sony's PS3 pricing gamble

Tags: Games, Gaming, Marketing

According to a Gamespot report on material published in the Japanese magazine Toyo Keizai, Sony's upcoming PS3 will cost about US$494 to build, yet Sony plans to offer it for sale in the US next spring at $399. That compares unfavorably with current thinking around the price of the XBox 360, which some analysts expect to launch this year at $299. Sony Computer Entertainment president, Ken Kutaragi, wouldn't confirm the pricing, but had these comments about Sony's pricing strategy that lends credence to the idea that Sony has both confidence and data to back up a premium price:

Whether consumers think a product is expensive or cheap all depends on the balance between its appeal and price," he said. "Our ideal [for the PS3] is for consumers to think to themselves, 'OK, I'll work more hours and buy it.' We want people to feel that they want it, no matter what."

"When Nintendo was selling its 16-bit machine at around 12,500 yen ($114), we sold the first PlayStation at 39,800 yen ($364)," continued Kutaragi. "The press was saying that it was expensive, but it was a huge hit. It's the same thing with the PlayStation Portable from last year. The Game Boy Advance is a same handheld gaming machine, and it costs less than 10 thousand yen ($91). On the other hand, our PSP had cost 25,000 yen ($229). But people lined up overnight to buy it, and it sold out on the day of its launch. It all depends on whether people want it. Of course, I'm confident that the PS3 is a product that people will definitely want."

Kudos to Kutaragi-san for choosing to do real marketing instead of mindless discounting. Our bet is that despite Xbox 360's six-month launch lead, Sony will continue its domination of gaming consoles and games. Why? Three reasons:

1. Compatibility. Sony's PS3 is expected to offer full backward compatibility with PS2 and PS1. Microsoft's XBox 360 is expected to require users to purchase recompiled versions of Xbox games; XBox binaries will not run on XBox 360 without modification (at least according to current data -- Microsoft's statements have been rather delphic on this matter.


2. Game titles.Game consoles are all about what games are available. Sony currently has the largest number of games available for its platforms, all of which will run on PS3. While Microsoft has the Halo and Halo 2 franchises to lead with on XBox 360, it has fewer overall titles and will require developers to reissue old games to run on the new platform.


3. Focus on gaming. There have been claims that Xbox 360 will be a gaming machine, an online gaming platform, and a media console for its Windows Media Center PCs. Sony has an easier story to tell -- its message is that PS3 is a gaming machine, pure and simple. While it will play Blu-Ray HD-DVDs, that's just gravy; Sony's marketing focus on making a great gaming platform will allow it to make engineering tradeoffs -- and there are always tradeoffs with new products -- more easily than Microsoft can.

At the end of the day, the success of both of these platforms will depend a lot on flawless execution by both companies. One major error on Microsoft's part, and it will lose its advantage of launching before Christmas. One major error on Sony's part, and XBox's early introduction could become an insurmountable advantage. We'll just have to wait and see.