Memo to Kazuo Hirai, the new CEO of Sony: Bring the video game business model to smartphones

What if I told you that I have inside information on a new ultra high end smartphone that’s due to come out in less than three weeks? It has a quad core ARM Cortex A9 processor, quad core PowerVR Series5XT graphics processor, 5 inch OLED screen, WiFi/3G/GPS/Bluetooth, and best of all it’s going to cost just $300. Those are the specifications of Sony’s new dedicated portable gaming system, the PlayStation Vita, and yes, it’s going to cost only $300 when it launches later this month in the United States. Now how the hell can Sony offer such an advanced device for such little money? That’s the video game business model, where you sell the hardware at a loss, but then make it up by selling software. Kazuo Hirai (pictured above, far right), who was instrumental to the success of the PlayStation brand, will become the CEO of Sony starting in April. There’s nothing more I’d like to see than for him to make Sony competitive again in the mobile device market by using the same tactics that have worked in the video game industry.

Before I get to what Hirai should do, let’s start by talking about the giant elephant in the room: the Sony Ericsson Xperia Play. Why did it fail? As a smartphone, it wasn’t really competitive with anything on the market, and most people know that if you’re a mobile gamer who wants to carry just one device then your best bet is to just buy an iPhone. As a gaming system, no one wanted to develop for it because it made more economic sense to just come out with an Android title that you can sell to everyone who owns an Android smartphone. And again, most of the money being made on apps these days isn’t on Android, it’s on iOS. That whole “PlayStation Certified” nonsense was bullshit too, why would Samsung want to slap Sony’s brand on their devices?

If I were Hirai I’d announce that Sony’s new smartphone and portable gaming strategy is to release just one device every two years. Halfway through this new device’s lifespan there would be a price cut, but under no circumstances would I release new hardware until 24 months have transpired since the previous device launch.

Why two years? There’s an iPhone 4 in my pocket right now and it’s 16 months old, yet I don’t feel any need to upgrade. There’s a huge library of games available at my disposal, mainly because iOS is where the money is, but also because developers have comfort in knowing that they have to make their games run on just a handful of devices. Indie developers can focus solely on the iPhone 4 if they wanted to, but the larger gaming houses make sure their software runs on the iPhone 3GS, iPhone 4, and the new iPhone 4S.

Sony waited seven years after launching the PlayStation Portable in Japan to bring the PlayStation Vita to market. That kind of lifecycle obviously isn’t practical in the smartphone industry; the iPhone is barely four a half years old. At the same time today’s smartphone industry moves far too quickly. People feel uncomfortable signing a two year contract for a device that they know will be top of the line for less than half a year. Developers feel uncomfortable making games for an operating system that gets updated every six months, and worse yet that upgrade doesn’t get sent to a lot of devices.

We’ve heard HTC, Motorla, Samsung, and Nokia say that they want to have smaller product portfolios, and to have that portfolio be filled with higher quality products. That’s an obvious admission that Apple’s strategy of coming out with just one new phone every 12 months is far superior to the “let’s release 30+ phones and see what sticks” model. Sony should copy that, but extend it to two years, and more importantly they should change the rules of the game.

Apple’s business model is to move units. They make money on hardware, period. The 30% they take on apps, the cut they take on movies, music, and books, that’s enough to keep iTunes in the black, but is by no means what puts food on Tim Cook’s table. If Sony wanted to they could lose money on each smartphone they sell, like they already do with every PlayStation, and then make it up by charging higher admission fees to their ecosystem.

Your typical game in Apple’s App Store ranges from $0.99 to $9.99 if it’s really nicely done. Games on the PlayStation Vita are expected to cost between $30 and $40. The industry needs a middle ground. Whether that’s $15 or $25 isn’t for me to decide, that’s all up to the market.

All I know is that I really just want to see Apple compete against a worthy adversary for once. Google wants Android to win because they want people to click on their ads, do you really think they care about making the best smartphone operating system? Microsoft wants Windows Phone to succeed so that people start using their services, why else would they shove Zune, XBOX, Bing, and Live in your face? Apple just wants to make money on pretty glass and metal, and they built an ecosystem so compelling that you’ll never be tempted to leave.

Sony, at this point, feels like my only hope to upend the market leader.

  • You’ve got some interesting ideas there and you may be on to something. My gut feel is that you’re overestimating the importance of games though.

    By and large, the only people who buy consoles, are people who want to play games. Most if not all of those would probably consider buying a smartphone if it had cool games. However, many other kinds of people will also buy smartphones but hardly play any games on them*. Especially if the phone is both good and cheap.

    The question is therefore, will the number of people buying a subsidized phone AND buying enough premium games be enough to cover the cost of selling the same phone at a loss to all the other users who don’t buy premium games?

    My hunch is that it’ll be risky. If you take the number of games consoles sold vs smartphones sold, the consoles are like a drop in the ocean. That *might* suggest that the proportion of hardcore gamers amongst the gadget buying public is fairly small then. I suppose nobody will really know unless someone tries this.

    Of course, it’s not just games. Premium content like films might help. Subscription services too (like OnLive for the games) but then again those services aren’t cheap to run either.

    *) Well, a lot of them may play simple, casual games. I doubt many would pay £10 for Angry Birds though.

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