Game Consoles and their Bet on Software

It’s only a matter of days till the 8th generation of video game consoles launch in the US. Sony and Microsoft are still making the wager that, six years after the modern smartphone has been introduced, a dedicated gaming machine can still set the foundation for a profitable business and that owning the living room is a worthwhile business strategy. On the other side, the iPhone 5S reveal led with Infinity Blade III, and really speaks to the maturity of mobile hardware: like PCs, the most interesting use for new CPUs and GPUs has evolved to mainly graphics and games.

On the surface, the absolute number of tablets and smartphones sold per year – plus the popularity of the app stores and its games – call into question whether game consoles even make sense. After all, phones are much more multi-purpose and have a form factor that allows them to be carried around more often; their hardware cycle is much shorter and has rapidly advanced to match if not exceed handheld consoles in only a handful of years; mobile games are plentiful and more importantly cheap and unapologetically consumable.

As a software developer, I’m rooting for consoles.

The business model of the Wii, XBox and Playstation haven’t changed much through iterative generations. There is a long period of R&D, resulting in a computing machine with hardware optimized for graphics and gaming, which is then initially sold at cost or at a loss to establish a user base, to whom games are sold at decent profits over the 5+ years of the console’s life. Even as the internals become commoditized, the basic tradeoff of cheap hardware and expensive software remains the backbone of the console gaming industry. To put it another way, console games have to provide enough value to players that sales will ultimately pay for the cost of its own development, plus the development of the machine it runs on[1].

The business of smartphones and tablets is a mirror opposite: the hardware cycles are yearly (or even shorter), the processing improvements are incremental though rapid, but the software is cheap or free. The role of app ecosystems are to sell phones: it’s in each handset maker’s best interest to build or entice third-party developers to build high-quality apps, but to sell them at ridiculously low prices and make up the prohibitively low margins by scale.

Getting a smartphone for “free” every two years and spending an occasional $5 for a handful of in-game coins seem like a better deal than buying a $199 handheld with $40 games up front, but the former strategy has every inclination to promote consumption over longevity. This picture is made cloudier by the subsidies, contracts, and in-app purchases which all serve to hide the true cost of mobile hardware and software. The end result is that phones (and now by extension, tablets) rarely last more than two years and run apps and games that rarely last more than a few days, both of which end up costing way more than a console in terms of per hour of entertainment provided.

For those of us who make their living building software, I’d think that we would want the value of our creations to be relatable to the end-user, that the apps we make are not just all subsidized by gouging the user on data transmission or tricking them with dark UI patterns and Skinner box game design. Going back to the basic relationship that software costs money…well, it just feels more…honest.

Footnotes    (↑ returns to text)
  1. Though nowadays, this seems only achievable through massive scale as development costs go through the roof.