PlayStation Just Went from a Product to a Company

playstation_company_products

Since its Japanese launch on December 3, 1994, PlayStation, the now 21-year-old gaming division of Sony, has all been about making one thing: gaming consoles. Released on average every 5 years, Sony’s pattern with PlayStation by now is fairly predictable – release a console and follow through with a slim variant halfway through its life cycle. For Sony, the slim model has typically allowed them to give their aged console a smaller profile with improved internals for better efficiency such as power consumption and heat output.

Along with those external and internal shifts, Sony typically introduces the slim models at a lower price point as well, which allows the console to see a greater adoption with consumers. If we condense all this to a simplified 5-year timeline, on year 1, a new console is released and on year 3, we get the slim variant. Then for the next two years, Sony enters into heavy R&D mode as they work on creating a followup console – rinse and repeat for 4 generations and we get to where we are today.

Beyond the slim models though, and excluding Sony’s endeavors into mobile with PSP and PS Vita, PlayStation has always been a single product. This is in direct contrast to say iPhone which can span multiple models in a given year with robust accessories and services on top of it. Think of it this way, Apple’s services business, which includes App Store purchases, Apple Music subscriptions and iCloud, accounted for $6 billion in revenue in just the last quarter, let alone the monster money that they make from hardware like iPhone and accessories.

When you’re a single product, trying to achieve that type of success is not really possible and the future remains fairly consistent – release new hardware, improve internally, release new hardware, improve internally, etc. To that end, up until PS4 and really this past year, PlayStation was purely a product, but after the introduction of PS4 Pro in context with their actions of the past year, it’s becoming quite apparent that PlayStation is no longer a single product and instead, a well-envisioned company that reported a $3.21 billion in revenue during their most recent quarter.

Finances alone make PlayStation Sony’s most prized division that continues to built on its revenue and profits year-over-year. The chart above should really tells all you need to know about how PlayStation is positioned within Sony. Compare that to other divisions like Mobile which just recently barely broke even after years of massive losses and the financial differences become quite stark. Now don’t get me wrong, PlayStation in the PS3 era wasn’t doing so well either but two things have changed since – first, unlike the Mobile division, PlayStation seems to be in charge of their own future in that they have a vision that they’re executing on and building towards versus chasing the market – and second, PlayStation then was a hardware-driven business during the PS3 era with a single product, 2 if you count PSP and their transition to Vita but neither mobile console lit the sales chart on fire.

Fast forward to PS4’s stellar launch and all the new services and ecosystems that are building around PlayStation (some directly tied to PS4 and others not), and we suddenly see a very different company. First, let’s look at the hardware that is PlayStation.


playstation_hardware

Hardware

PS4 (slim)

PS4 ‘slim,’ which is really just being called PS4 by Sony, is the mid-cycle refresh that we’ve come to expect. Smaller design, improved and more efficient internals with a lower, $299 price point. From a business standpoint, this also allows Sony to likely do a year-over-year $50 price drop that will even eventually have it arrive at the magical $199 price point most products love to hit while keeping each console profitable. That’s because with a redesigned body also comes smaller components that, since PS4’s inception, have surely dropped dramatically in price. This is in direct contrast to PS3, which used a custom Cell processor that was developed between Sony and Toshiba. With them being the only manufacturers that put it to use, they were never able to achieve true scale that helps bring component prices down. The PS4, on the other hand, uses a ‘common’ CPU/GPU configs that others have access to as well which helps bring the cost down for everybody.

ps4_pro_1
PS4 Pro

The iterative evolution of PS4 now offers better graphics, higher framerates, and VR support. Sony’s pitch here is simple, whether you own a HDTV, 4K TV, or PS VR, PS4 Pro will have something to offer you. What’s nice is that Sony was also able to introduce their much more powerful console at PS4’s launch price, $399. One of the biggest narratives around PS3 was how expensive it was and keep in mind, even at its $599 price point, Sony was losing somewhere in the ball park of $300-$400 on each unit sold. That’s not the case this time around, as Sony has made money on each unit sold from day one – but that’s the business side.

On the consumer side, we’ve become accustomed to upgraded devices. After all, our favorite notebooks, phones, and tablets are updated nearly every year. With PS4 Pro, Sony is able to build on that thirst for new devices by pushing what gaming means on PlayStation without creating an entire new generation of consoles where developers then have to split their attention. Now, somebody like Guerrilla Games can ship just one version of Horizon that can accommodate PS4 and PS4 Pro users which keeps PlayStation fresh.

playstation_vr_fresh
PlayStation VR

It’s unclear how VR will be received over the next few years and if consumers will care, but as it stands, developers and hardware providers are quite excited by it. If VR ends up being a ‘thing,’ then expect Sony to be extremely well positioned. Currently, the biggest players in VR, Oculus Rift and HTC Vive, require you to purchase a headset that costs more than PS VR ($399) and a PS4 combined, which is only part of the story. From there, you also need a high-end PC to drive each headset which will set you back easily another $1,000 (if not more), and you’re still stuck needing to be wherever your PC is.

PS VR on the other hand is an elegant way to get into VR. All you need to do is plug the headset into any PS4 (with a camera) and you’re all set. No system requirements, no installs or compatibility issues. The considerably lower price point, along with PlayStation’s brand power, will allow Sony to become the biggest VR player (mobile iterations like Cardboard & Galaxy VR aside) by year’s end, despite coming to market more than 6 months after others. Best yet, Sony can also leverage its first party studios and fantastic relationship with 3rd party developers to create far more content for consumers in a manner they’re already familiar with, either through the PlayStation Store or retailers.

In the past, Sony has many times found itself chasing the market, but with PS VR, not only will it be timely and more affordable than their competitors, but Sony will likely be the market leader in a short period of time. And if VR does become a thing, then Sony finds itself in a leadership position to further build from.

PlayStation Vita

As an owner of the Vita on launch date, I’m not entirely sure why Sony still has their portable unit around. As much as I love the Vita, it’s quite clear that Sony isn’t focusing on it in any shape with no new software features or hardware iterations on the horizon. In fact for over two years, no internal PlayStation studio has been working on a Vita game as consumers as a whole have shifted to smartphones and tablets for mobile gaming. Since Sony is still selling the Vita, I decided to include it in this list but like the PS3, this is a dead product as far as I’m concerned.


playstation_services

Services

Services is perhaps the newest and most important category for Sony. Arguably, hardware has its limits. If you’ve managed to sell your device to every person on the planet, what comes next? Selling them a second version of the same hardware? But with services, even after a consumer has bought a hardware piece from Sony, they’re able to stay connected and in turn, Sony is able to make money off of them month after month. Just look at the most recent landscape of the past 5 years, Adobe and Microsoft, once known for their expensive softwares (think of it as selling a piece of hardware once) have instead transitioned to the subscription model where they can keep iteratively improving their software and in turn, have a consistent stream of revenue to count on.

Best yet, with services, you don’t have to limit your scope to people just running your hardware. Even for a company as entrenched in their own prowess as Microsoft, you can now purchase Office, and sometimes even sooner on iOS, followed by Mac, Windows, and Android. Go back 5 years, let a lone 10 years and say Microsofts business would no longer be Windows at its core and instead software on other platforms.

PlayStation Music

Sony tried their hand in the music streaming business with Qriocity, later renamed to Music Unlimited, but didn’t have much success with it. Sure the service did come to PS4 but it was eventually shuttered and replaced by PlayStation Music which is really just a skinned Spotify. Seeing how they weren’t ready to really compete in this arena, this was a smart move by Sony that gave people a robust platform to enjoy (Spotify) while keeping people connected to PlayStation.

And if Sony does one day want to reenter the music streaming business, thanks to their partnership with Spotify, they’ve built a base of millions of loyal customers who are already familiar with what PlayStation Music is.

PlayStation_Vue_iOS_Amazon

PlayStation Vue

One of the most ambitious services projects to ever come out of PlayStation, let alone Sony, PS Vue hopes to change how we consume TV. Arguably one of the first a la carte TV services, PS Vue is all digital and has been available on PS3, PS4, and iOS while recently arriving on Android and Fire Tablets as well. Not only is this one of the few truly original pieces of software and services Sony has ever written from the ground up, but one that, at its core, requires cloud capabilities, which is another area that Sony isn’t known for. More importantly, PS Vue doesn’t require PlayStation hardware at all.

For the first time, the PlayStation brand is able to truly extend beyond Sony hardware which allows them to reach a much greater audience. If Vue was limited to just PS4, the cap would be 40 million users to date. Add PS3 to the mix and your scale tops off at 120 million devices. But suddenly by having PS Vue on iOS alone, Sony can reach over 1 billion devices, let alone Android, the Amazon Fire devices, and other platforms like Roku and perhaps one day Apple TV. Now the scope of their service is unparalleled compared to being something for just PlayStation hardware.

PlayStation_Now_PC_2

PlayStation Now

PS Now is the game streaming service that allows you to play over 400 PS3 titles, including first party hits like The Last of Us, God of War, and the Uncharted franchise. Think of it as Netflix for gaming where all the magic is done in the cloud and all you need is a compatible device and a DualShock 3. Like PS Vue (hopefully you’re starting to see a trend here), PS Now isn’t tied to PlayStation hardware. Yes, you can get it on PS3 and PS4, but you’re also able to download the PS Now app on Windows, 2015+ Sony TVs, Blu-ray players, and even some Samsung TVs. Don’t be surprised if it eventually comes to Mac, iOS, and Android as well.

Again like PS Vue, Sony saw the opportunity to expand their business well beyond the scope of their own hardware, and it’s brilliant. Here’s something crazy to think about: before its arrival on PC last month, PlayStation had no real presence on PC. Even after all these years, only till recently has Microsoft begun to leverage Xbox and bring some of its games to the Windows Store which in itself is late to the digital store party, seeing how Steam and Origin have been there for a very long time.

Now Sony is suddenly ahead of Microsoft by having a service that offers a huge library of games and requires little from the computer hardware since it’s all handled in the cloud. What a brilliant play.

PlayStation Store

Since PS3, the PlayStation Store has been at the epicenter of PlayStation’s digital growth where you can buy games, movies, wallpaper, apps, and more. For some, like myself, PlayStation Store represents everything PlayStation has to offer, considering that with PS4, I’ve gone entirely digital. Like our smartphones and tablets which rely on digital content only, the future of games and media on consoles is digital only as well (can you imagine buying a CD right now to listen to music?), so expect PS Store to only grow.

playstation-app-mockupPSN

PlayStation Network is the soul of all of Sony’s services. From hardware like PS3, PS Vita, and PS4 to services like PS Now and PS Vue, PSN, like your Apple ID/iTunes/iCloud account, is what makes it all go around. Not only is it required to use any of the mentioned services, but is an absolute must if you want to game online on any of the PlayStation hardware. For Sony, PSN also represents a gateway for the consumer. If you already have a PSN account with an attached credit card, trying PS Now or PS Vue just became a whole lot easier. As for the consumer, the convenience of a single ID that gives you access to so many services cannot be underestimated either.

PlayStation Apps

Here is another familiar theme: since PS4’s launch, Sony has been much more willing to dabble in mobile. Released for iOS and Android, the PlayStation App, which would eventually break into 2 (PlayStation and PlayStation Messages), allows you to chat with friends, see who’s online, view trophies, watch live streams, and download whatever you can find on PS Store directly to your console. While up until PS4, the only way to be connected with your PlayStation was by being on the console, you can now take the social aspect of it wherever it is that you are.

I don’t expect PlayStation Messages to be the next great messaging platform like iMessage, Facebook Messenger, Slack, WhatsApp, or whatever else that’s big these days, but for a generation of people that are growing up, Sony is building the foundation of creating something big. As a reminder, Facebook bought WhatsApp 2 years ago for a cool $19 billion.

Remote Play

Here is another instance of Sony expanding PlayStation gaming beyond their own hardware. With Remote Play, you can stream your PS4 to a PS Vita, Mac, or PC. For somebody like myself who spends a lot of time on the computer, just getting up and firing up my projector and PS4 can take too long. With Remote Play, I can launch any PS4 game I want at any time on my 5K iMac. This is a bit of insider baseball, but this also allows me to more easily research topics about PS4 by being able to easily pull it up on my computer. For some, this isn’t that big of a deal, but for others like myself, this is the difference of being able to sneak in some gaming time where otherwise, it might not happen.


Accessories

Accessories are not only a profitable business to be in, but they also help keep an ecosystem healthy by allowing the community to better express themselves with new design and added functionality. This is an area that PlayStation has vastly improved upon over years past. After all, why leave money on the table by allowing 3rd party companies to fill in the gap when you can make it yourself?

Dualshock_4_USB_Wireless_Adaptor_1

DualShock 4 USB Wireless Adaptor

Set to be released next month, this adaptor will allow those who use Remote Play on Mac/PC to use their DualShock 3 wirelessly where currently, it has to be connected via USB, like an animal.

DualShock 4 & PlayStation Move

Typical controllers for the PS4 and and now PlayStation VR. Though not every PS VR game will require a PS Move controller, some will for enhanced gaming experiences. What’s interesting here is that PS Move is brought over from the PS3 era with PlayStation’s motion control gaming initiative never really taking off. In regards to financials, this is money that Sony has long written off and any units sold will be be magical for their bottom line and any new units produced will have a much lower cost attached to it, due it to being a nearly 10 year old hardware that’s simply still good enough.

E3_2016_PlayStation_VR_Devices_1

PlayStation VR Aim Controller

Though Sony had developed two different PlayStation Move shooting attachments during the PS3 era, they opted to build a new gun from the ground up for PS VR. One key reason is that PS VR Aim has all the DualShock 4 buttons mapped out on it, including the new Options and Menu button as well as the Touchpad click, allowing you to do everything you’d need to directly on the gun without needing a DualShock 4 as well.

PlayStation Platinum & Gold Headsets

Sony continues to offer new versions of their headset with improved functionality and color/design options. This is an example of likely small improvements between each release but they help keep the ecosystem fresh and lively.

ps4_pro_playstation_camera

PlayStation Camera

With PS4 Pro, Sony had redesigned the PlayStation Camera which launched alongside PS4 and is required for PS VR. Same hardware, new external.

Merchandise

This might seem like an odd category to include but it’s one that’s actually important and overlooked. Merchandise, otherwise known as the T-shirt model, is a good way to make a profit as margins tend to run high. In PlayStation’s case, I don’t think they can sell that much where Merchandise ever starts to really affect the bottom line in a meaningful way but what it does for them is in 2 folds. First, it allows fans to show their pride by wearing shirts, beanies, and bags from PlayStation which only makes them more invested in the company  – and second, the fan base now creates free marketing for Sony. It’s not by mistake that each Apple device you buy comes with a sticker than you can put on your car or binder that becomes a signal to others that this is a brand you care for and to others, it’s a constant reminder that this is a well loved brand.

 


For the past 21 years, PlayStation as a product has been something great. You come home, turn on PS_ and you’re left entertained for a few hours. But once turned off, the PlayStation experience and what it has to offer ends. With PS4, the mentality of Sony and what it wants PlayStation to be has dramatically changed. Where before, it was just one product that Sony offered and refreshed every 5 years, PlayStation today can easily spin off and be its own fully functional entity.

That’s because PlayStation is now much larger than just gaming in our living room. PlayStation can be the games we stream on our devices, the way we listen to music, how we chat with our friends, and the means for us to TV. And for PlayStation, they are no longer reliant on needing to sell you a piece of hardware to keep that relationship and instead, can go with you wherever, on the platform of your choosing, and that’s powerful.

Make no mistake, no matter how well PlayStation does, there is a finite cap of how many consoles it can sell. But PlayStation as a company that offers hardware and services is suddenly the makings of a tech giant that has the ability to push forward and impact our lives and change how we view and consume entertainment and maybe someday more.

Discuss:

Are you impressed by the ecosystem PlayStation is creating?

  • Marko Požarnik

    Yes :-)

  • Harry Delaney

    It’s not called the PlayStation Eye anymore……

  • Ah damn. Camera. Right

  • JK18ny

    The author clearly does not understand the business model of video games. While Sony manufactured a product, they also created an ecosystem with PS1 where they develop and publish games or work with other developers and get licensing revenue.

    Sony emulated Nintendo. Create a platform, create great, unique games to pull people in, and charge licensing fees to other companies.

  • Curious how anything written has anything to do with going against the “business model of video games”?