Strategy for Information Markets/Sony PlayStation 3

The origin of the PlayStation began in 1988 when Sony and Nintendo teamed up to develop the Super Disc. The Super Disc was originally intended to be a CD-ROM gaming technology which would be used on Nintendo's upcoming console the Super Nintendo. Sony and Nintendo ended up parting ways and the Super Disc was never used by Nintendo. In 1990 Sony began developing a modified version of the Super Disc that would later be introduced for their first version of the PlayStation. Fifteen years later and after a multitude of technological advances, Sony releases the PlayStation 3 (abbreviated PS3) in 2005. Sony and the PlayStation series were recognized in every international market as one of the leading video game consoles. Sony, however, was not satisfied with being just another video game console and dedicated themselves to being the best multi-media console on the market. [1]

In this chapter, there will be a complete thorough analysis of the Sony Playstation 3 (PS3). The chapter will discuss the history of the product upon its actual launch, the current state, and as well as the future plans for the game console. The chapter will go in full depth with the PS3's specifications, features, and performance capability compared to its competition with Microsoft's Xbox 360 and the Nintendo Wii. This chapter will also discuss the different networks, competitive advantages, market strategies, and market sales, which Sony used for the PS3.

History
PlayStation began in 1988 when Sony and Nintendo teamed up to develop the Super Disc. The Super Disc was originally intended to be a CD-ROM gaming technology which would be used on Nintendo's upcoming console, the Super Nintendo. Sony and Nintendo ended up parting ways and the Super Disc was never used by Nintendo. In 1990, Sony began developing a modified version of the Super Disc that would later be introduced for their first version of the console. This research and development was headed by then Sony engineer Ken Kutaragi, who was credited with being the household name who pioneered the technology for the original PlayStation system.

Originally, set up as a multi-purpose system not only to play the Nintendo game cartridges that were infamous for the Super Nintendo System, but it was also capable of reading compact discs in audio and video format.

At the time, only 200 actual consoles were released to the general public. However, it wasn't until about 5 years later that PlayStation made a dominant move in the video game market. The new design, PlayStation X, was formatted to only play CD-ROM games commonly found to be played on personal computers. This gave PlayStation one of the most state-of-the-art technologies in the video game industry outside of the personal computer, and it ultimately led to a robust strategic advantage for the new Sony game platform. Fifteen years later and after a multitude of technological advances, Sony released the PlayStation 3 (abbreviated PS3) in 2005.

The PlayStation 3 (abbreviated PS3), the successor of the previous model, part of the PlayStation series created by Sony Computer Entertainment. Was first launched on November 11, 2006 in Japan, November 17, 2006 in North America, and March 23, 2007 in Europe and Oceania. Sony had to delay the release to Europe and Oceania over four months due to shortages in the materials used to make the Blu-Ray Disc Drive. This third line of the PlayStation series was first offered in two different models. The 20GB version, first retailed at $499, and the 60GB version began at $599. According to Sony’s records, the first day the PS3 was available for sale in Japan an estimated 81,639 units were sold.

There were two major competitors to the PS3: Microsoft’s Xbox 360 and Nintendo’s Wii. Both consoles have a certain degree of similarity with the PS3, Xbox being more related to the PS3 than the Wii. The Xbox has much of the same features that the PS3 has including Wi-Fi connectivity, online gaming, and HD supported formats. The Wii once distinguished itself the most from the market by being the only console with the ability to support motion-censored gaming. Microsoft followed suit, and released the additive component a few years after the Wii called Xbox Kinect. Unlike the Wii, which still used a handheld controller as the basis for picking up movement in the person playing, Xbox Kinect used state-of-the-art technology called machine learning, which picked up the motions of the player without the use of any hand held device. Originally first thought out in 2007, Xbox worked on the development of the project until it was ultimately released in November of 2010 with an initial price of $149.99. With this release, the Xbox Kinect became the fastest selling video game system in the history of the industry, selling over 8 million copies in just around 2 months. One of the strategies that Microsoft looked to use to gain a higher profit margin was product bundling. Overall, this strategy was a huge success and was done with a great marketing art ploy. Microsoft added a bundling package by not only selling the Kinect as a stand alone device, but bundling together with the Xbox 360 console as well for a mere $299.99, the same price that an Xbox 360 console was sold for alone. All in all, this strategy not only sold more Kinect devices but also boosted the sales of the Xbox 360 console as well. Sony knew it had to respond to also play a part in this new market of having the player turn into the controller. With Sony's latest release, the PlayStation Move, Sony is now be able to compete directly with Nintendo and the Wii and Microsoft and the Kinect as the new add-on (in the form of a new console) gives PlayStation users the same motion-censored gaming experience. [2]

Since the release of the Sony Move in 2009, Sony has been able to increase the overall profitability of the PS3 substantially. In an attempt to avoid bundle pricing, Sony decided the necessary equipment to play with the Playstation 3’s Move would be sold separately from one another. Compared to Microsoft, who bundles their Xbox Kinect in with the Xbox 360 itself or sells just the Kinect, Sony prefers to sell the three pieces of the move individually allowing more flexibility when buying its components. If a consumer is to buy the Xbox Kinect, and a malfunction occurs, the consumer is stuck paying full retail price for the entire Kinect setup another time. With Sony, if something goes wrong with one of the devices, a consumer can simply just go purchase that particular item for less than 50$. Ultimately, what seems to be a convenient option for the consumer is really a strategy to increase profits gained from the Sony Playstation Move. Bundled together, Sony’s product would sell for roughly $120, the Motion controller at $50, the Playstation Eye at $40, and the Navigation controller at $30, compared to Microsoft’s Kinect which sold for $150 originally. With this lower price, Sony intends for its customers to see the Move as a slightly less expensive alternative to the Kinect. Since its release, it has been aggressively marketed throughout a variety of commercial campaigns, as well as through retail locations in the form of displays and test models. In addition to the marketing itself raising awareness, currently 85 games are compatitible with the Playstation Move and that number is rapidly increasing. To this day, the Playstation move has not only been a profitably venture in itself, but is assumed to be at least partially responsible for an increase in sales of the Playstation 3 from 3.2 million units in 2009’s third financial quarter to 3.5 million units in 2010’s third financial quarter.

Exclusively to the Playstation 3, Sony has recently released the Playstation Vita in February of 2012. This was a breakthrough product designed to stand alone as a handheld entertainment system, comparable to the old Sony PSP or any of the models of the Nintendo DS, or as an extension of one’s personal Playstation 3. The Vita gives its user the ability to play top-of-the-line graphic games, wirelessly connect to Wi-Fi, connect to other compatible devices via Bluetooth, and even connect to 3G networks (given the upgraded model of the Vita). In addition, the Vita allows for the user to take photos or video and contains both joystick and touch screen movements making it up to par on most handheld technological standards (including tablets and Smartphones). Sony’s intention was not only to break out with a legitimate competitor to the Nintendo DS dynasty, but also add on yet another exclusive feature to extend the capabilities of the Playstation 3. The Vita ultimately allows the user to continue playing the exact game on the handheld device that the individual was playing on the much larger Playstation 3. This idea was completely breakthrough in the current video game market, comparing to the Xbox 360 and the Nintendo Wii.

PS3 Capabilities
Recently PS3 has joined with Netflix in allowing users of this system to stream movies, television shows, and documentaries right through their PS3 system. One is able to view these movies, television shows, and documentaries all in a high definition format. PS3 has taken advantage of the high definition format by allowing the use of Blu-ray Disk. The cost to add Netflix to your PS3 system starts at $8.99 per month, but you are allowed unlimited access to the Netflix archives throughout that period. Systems such as Xbox and the Wii also offer Netflix for their systems at the same price, but PS3 is the only system that is able to play Blu-Rays from its system. The addition of the Blu-Ray playability helped transform the PS3 into a superior gaming platform to Xbox 360 and the Wii. Sony was on the right track of following its mission of being not only a gaming system, but a standard entertainment system for every home.

 PS3 Capabilities in from a Competitive Standpoint 

In making the Sony Playstation 3 the ultimate entertainment system for every home, Sony was sure to make sure the PS3 had technological advantages from both the gameplay side and the media entertainment side. Comparing to the primary direct competitor the Xbox 360, the PS3 gives users rechargeable wireless remote controllers unlike Xbox's batteries required remote controllers. Sony also provides a unique operating system that allows for users to conveniently sort, organize, and share vast libraries of music, photos, videos, etc. As mentioned above, PS3's high definition abilities is what truly separate it as an entertainment system as opposed to just a gaming console. The Blu-ray feature is one that makes the PS3 the preferred choice over any other system for home theater savvy customers. Considering most Blu-ray players were priced above that of the PS3 when both premiering, these savvy consumers were able to get a 2-for-1 deal when purchasing the PS3. Currently, and mostly due to the success of the PS3 as a Blu-ray player, competing generic brands of Blu-ray players sell for just under or over the $100 mark. Recently, Sony has taken the high definition experience to the next level by allowing the high definition video streaming service "Vudu" to also stream through PS3's, much like the way Netflix does. This option gives users the ability to stream high definition movies directly to their televisions on demand at a per-rental price. Certainly taking the Playstation 3's abilities as a home theater system to the next level.

Although comparable to the Nintendo Wii's online store, the Playstation 3 offers users a chance to purchase a variety of content through its Playstation Store. Users are able to explore the store and purchase a variety of original Playstation games, newer domestically and privately developed games, videos, trailers, demos, and a vast array of other features for download. With the simplicity of putting in credit card information, users are able to have access to virtually thousands of add ons to their system. This allows for users to place a higher value on their PS3 system. Users can store large amounts of data, from old games to video, and make their Playstation experience unique. Memory can even be added to the Playstation to make more room for future downloads. This allows for Sony to truly expand the possibilities of their latest gaming console. They are able to not only justify the high price for their system, but also have created a sort of two-part tariff pricing system from this feature to increase their gains. Consider the Playstation 3 to be the flat fee of roughly $250. Beyond that, depending on the consumers demanded quantity, Sony collects a per unit price for each download that a user demands throughout the lifetime of their Playstation (Much like Sony already does through the sales of PS3 Blu-ray disk games). Individual demand for each game determines its price, for instance a classical PS game that still is in high demand from older generations may be priced higher than a current game that is not so popular etc. Bottom line, the Playstation Store not only increases the value added to the PS3 from traditional Playstation users as well as new users, but also allows for two-part pricing from Sony to realize an generous increase in profits from a totally separate revenue source. Because the downloads are a simple transfer of virtual information, marginal costs for Sony are extremely low if not virtually zero, making the Sony Playstation Store an extremely valuable exclusive asset for Sony.

Completely unique to anything offered by the Nintendo Wii or the Xbox 360 is Sony's Playstation Home. The Playstation Home is a virtual world, designed as a social networking tool that connects gamers together giving them access to tons of unique features. Playstation Home allows users to communicate either through the use of typing keyboards or through microphones for voice chat. Users are able to completely customize their "character" with hundreds of different tools, much like an individual would create their own profile on popular social networking sites like Facebook and MySpace. From there, users have the ability to explore an entirely artificially created world alone or with other users. The Playstation Home however, is newly developed (2008 release) and is already popular amongst its users. Comparing the Home to a social networking site allows for similar analysis when regarding positive network externalities. Much like social networks, it is a 1-sided network and the more people registered or involved in the network increases the value for everyone in the network. This is why Sony offers the relatively new Playstation Home for free to any Playstation 3 owner. However, users can choose to purchase exclusive items in "stores" in the virtual world if they desire. These items usually are customizable character add-ons etc.(usually $1-$5 range) and are not required for experiencing the Playstation Home. Allowing users to join for free increases the demand to join Playstation Home, and naturally the number of users within. However, in order for the network to be successful, users must see a significant value in devoting their time to participating within the network. Meaning there must be enough users in the network to make it appealing, distinguishing a critical mass point that must be reached in order for Playstation Home to be successful. Considering that the current number of members fluctuates over 23 million users, it is safe to say that Sony broke the barrier of its critical mass point and is now stabilizing in regards to the number of users in its Playstation Home network. Consider following the number of Playstation Home users for upcoming years to observe whether or not it grows or shrinks, only then will we be able to verify that it has reached its high/low quantity equilibrium due to its very strong network externalities.

Online Playstation 3 Network Current/New Competitive Standards
The greatest asset that the online network provides is that it is absolutely free to the user. All that is needed is an Ethernet connection to a router. Owning an Xbox means that you will be charged a yearly fee of up to $50 for online gaming only if you choose to use it. How does this zero fee affect the economics of the Sony PlayStation 3? What Sony is theoretically doing is creating a system that has market network externalities. Network externalities are defined as the effect that one user has on the rest of the users within that network when that additional user joins. In the case of Sony and PlayStation 3, the market they created by having no fee created a network with extremely strong network externalities. In other words, as more users joined, it had a strong positive affect on all the other users that are already a part of the network. For example, when it comes to online gaming, the games are usually only enjoyable when there are enough users to actually compete against. If you are the only user online, then you get no utility from playing against no one. As a result, it pays off to have more people in the network. When Sony decided to leave a fee-less online service, it enhanced the number of people playing online and it also enhanced the experience. The actual quantity of people that were going to join the network was always going to be greater than the expected number which would ultimately lead more and more people to join the network because of strong pulling factors towards a strong network externality market. In the sense of Xbox 360 setting an annual fee of $50, it first took a select fee of people that valued this network at $50 to join it. In other words, the actual quantity of people in the network might not have met the expected amount and would have taken more time to overcome that value in order to reach those pulling factors for more and more individuals to join the network. Playing online doesn't simply mean being able to play video games against other users. PlayStation 3 also offers a wide array of features such as a web browser and other downloadable content. Being able to surf the web allows users to buy content online. This is extremely revolutionary in the gaming world because now this PlayStation can go online allowing Sony to compete online in a whole new way. One can even plug in a keyboard using a usb connection to surf the web in an easier fashion. The network uses a interface known as XMB (Xross Media Bar) which allows the user to download games, chat with other players, and download music. This is also a standard that the xbox uses although the PS3 seems to work a lot easier since the interface complements the actual internet, which helps the users download without too much confusion. The PS3 is extremely versatile which allows Sony to create new improvements even after the PS3 is released. This is a chart that will help compare the PS3 and Xbox features. A brand new improvement is the virtual PlayStation Move. It combines the PlayStation, a camera, and a motion controller which allows players to simulate the actual game play inside their homes (similar to the WII). The controller even has a sphere attached to the end that will change colors depending on which game you are playing. The WII has made this motion sensor a standard but now the PS3 and Xbox 360 has figured out how to incorporate that style of game play into their consoles.

Sony has also released 3D games and the user can enjoy these games by using their 3D friendly TV in order to immerse themselves in the gaming world. Games like Call of Duty Black Ops and Sony's Killzone 3 will also offer a 3D gaming experience. This might be the future of gaming, and Sony may be the first to enter into this market. NIVDIA teamed up with Sony to create what is currently a new and improved graphics processing unit that is now found in the PS3. This GPU is the image processing foundation used for computer entertainment to broadband applications. This custom GPU was manufactured at Sony Group's Nagasaki Fab2 and OTSS.

With the power of a Gigabit Ethernet the PS3 can transmit Ethernet frames at a rate of Gigabit per second.

As of today Sony no longer supports Linux on the PS3 system, but the feature may still be available in older versions of the device firmware or in a homebrew system.

Network
The PS3 is considered a 2-sided network as it is an entity that brings two different groups (gamers and game developers) together. It is clear that both groups benefit as more gamers and game developers join the PS3 network. That is, as more game developers join the network, gamers benefit by having more of a selection of games to play through the PS3, and as more gamers enter the network, game developers benefit because they have more people to create games for and distribute to.

The PS3 has strong network externalities due to its addition of the online gaming service. This service provides a way of connecting multiple people through the PlayStation Network by "adding them as a friend," much in the same way Facebook or Myspace users connect to other people. Through this service, users of the PS3 can find friends and play the same game simultaneously without there being the need of playing in the same room or the same console. One can also make new friends and be alerted when these friends sign-on to the PlayStation Network so that they could connect with each other and play their games. Due to the PlayStation Network, Sony has created strong network externalities with the PS3. Meaning that as more consumers buy the PS3 and connect to the network, more people benefit because they have more people to play these games with online and make that experience much more enjoyable. This is an example of high demand-side economies of scale for the online sector. Having more people within the network is not only helpful to the gamers, but crucial for its sustained success.

The PlayStation Network also paves the way for some sort of a 1-sided network. While the console itself connects gamers to game developers and each benefit as more enter the network, the PlayStation network connects gamers to gamers making it more beneficial as more enter the network because there are more people to play with or against.

There are also demand-side economies of scale realized through non-online features of the Playstation 3. Much like demand-side economies of scale on old gaming systems, when online play was non-existent, users have the advantage of benefiting from their friends, family, colleagues also having PS3 because of the physical assets. If your neighbor also has a Playstation 3, but you only have 1 remote controller, you can get together and play at the same time with the universally compatible hardware. This not only applies to remote controllers, but also extends to games and other characteristics as well. If your neighbor then has a game that you have heard much about, but have not yet had the opportunity to play, you can easily use his/her game on your own Playstation 3 just the same way as any DVD will play in any DVD player. With the dawn of Blu-ray quickly turning into an increasingly popular product, demand-side economies of scale are only increasing for the Playstation 3.

Competition and Competitive Advantages
Sony Playstation 3 currently competes with two major gaming devices in the market. These include Xbox 360 and Nintendo Wii. The video game market includes a network of growing users, both from directly using games supported by the individual console, as well as the users playing the console's games through their online network. Each of these three competitors has its own online network which consumers can take advantage of. Users of these individual consoles and online networks benefit and grow in a variety of ways, such as more games becoming available, more accessories becoming available, more online users playing, etc.

Nintendo Wii, owned by Nintendo, was released in November, 2006 and is the only console with a remote sensor/controller which makes gaming interactive, as opposed to a simple controller. Disadvantages of the Wii compared to other consoles is their lack of graphics quality and inability of DVD playback. Xbox 360 was released by Microsoft in November of 2005. The positives of the Xbox 360 are: the plethora of gaming titles that it owns, its graphics quality, and its CD and DVD playback compatibility. However, in order to enter Xbox’s online network (Xbox Live), there is a fee which must be paid. Playstation 3, owned by Sony, was released in November, 2006 and rivals the high quality graphics of the Xbox 360, contains a huge library of games, and is wireless and free for online gaming. The PlayStation is also able to boast being the only gaming console with rights to the Blu-Ray playback.

Market Competition

What makes the Playstation 3 so unique is that not only is it a video game console, but Sony tried to market it as an all-in-one media entertainment center. Like stated before, the PS3 offers games, Blu-Ray movies, Internet, storage for all media formats (movies, music, and photos), and the free Playstation Online Network. Upon its release in Novemember of 2006, the PS3 was already in full competition with the Xbox 360, which had a one year advantage with its 2005 release; with the Nintendo Wii which was also released in November of 2006. The PS3 and Xbox 360 were considered to be the elite gaming console, as opposed to the Wii. As stated earlier, the Wii lacked the performance on the graphics and other digital amenities, but it was still a top competitor to both the PS3 and Xbox 360 for the number of consoles sold. The PS3 and Xbox 360 consoles were sold-out everywhere around Christmas time, so many people opted to purchase the Wii since it was available and it was significantly cheaper than the other two game consoles with a starting price of $249.99. The PS3 generated a lot of attention since all units were sold out everywhere upon its release, but the biggest complaint was the price compared to the Xbox 360. Both competing systems had two models for sale: the Xbox 360 had their Core model which sold for $299 and the Pro model (including a 20GB hard drive) which sold for $399. The PS3's two models were identical except for the size of the hard drive. The 20GB model sold for $499, and the 60GB model sold for $599. Both PS3 models offered features which the Xbox 360 did not have, such as Wi-Fi connection, a Blu-Ray player, free online gaming, bigger storage space, and most importantly: games being played in Full-1080p HD resolution. This strategy of selling different models within the same product line is known as versioning, which helps with the consumers' demand or preference for key features. Another clear advantage that the PS3 had over the Xbox 360 is that it offers full backward compatibility for all previous Playstation games from the Playstation 1 and 2, which brought familiarity with gamers who had either one or both the Playstation 1 and 2. This backward compatability feature definitely brings familiarity with previous Playstation owners, who were maybe in the market for a game console upgrade or just to own a Blu-Ray DVD player. The advantage the Xbox 360 had on the PS3 was its wide variety of games and its established online gaming network, Xbox Live. It was only a matter of time until the PS3 would have a mass variety of games, but at first still struggled with the online gaming experience through the Playstation Network. A major factor for the success of the PS3 was the battle between HD-DVD vs. Blu-Ray DVD. Ultimately, Sony had a great thing going for them since the PS3 had the Blu-Ray DVD player feature; the PS3 was cheaper than most Blu-Ray DVD players at the time. Sony decided upon its release that the Playstation Network would be absolutely free for online gaming instead of the annual $50 subscription fee which Xbox 360 owners have to pay in order to play on Xbox Live. In hindsight, the price of the PS3 was determined on the fact that Sony was selling more of an entertainment center than just a video game console.

The Playstation Network being absolutely free was a good market scheme because it countered the Xbox Live subscription. This appears to be "penetration pricing" for the Playstation Network to achieve its critical mass for its online network. The Playstation Network not only allows Playstation owners to play on an online network anywhere in the world, but it allows owners to purchase current PS3 games and previous games from previous generation Playstation games from the PS1, PS2, and the PSP(Playstation Portable which is a handheld video game console)formats. The Playstation Network also sells movies, music, wallpapers, themes, and avatars. With the backward capability function, any PS1 and PS2 games purchased can not only be played on your PS3 system, but as well as your PSP. Playstation Network users may also purchase games, movies, music, wallpapers, and etc. for their PSP. Generally, like most Sony products they tend to be compatible with other Sony products the same goes for the Playstation products. Playstation owners can actually set-up their PSP directly to their PS3 console via USB and can use their PSP as a feature/ function for particular games. For instance, in 2007 Sony developed the video game Formula One Championship Edition where you can connect your PSP with your PS3 and while you are driving and looking at the screen, users could use their PSP screen as their rear view mirror. Sony continues to establish more accessories within the Playstation product line. Sony extended their product line for the PS3 system by adding motion-sensitive gameplay feature in the form of a controller to compete with the Nintendo Wii. This launch of the motion-sensitive controller is the Playstation Move which was released on September 17, 2010. The Playstation Move is an additional controller for the PS3 game console and it can be categorized as an accessory for the system. The design of the Playstation Move is very similar to the controller of the Wii, but the Playstation Move also functions with a camera to fully capture the body motions of the gamer. Sony released the Playstation Move two months prior to the release of the highly anticipated Microsoft Kinect, which was released on November 4, 2010.

Advantage of Free Online Play

Sony's decision to offer free internet play is arguably one of the most vital strategic moves that allowed for the Playstation to compete against the already established Xbox Live network. Especially once the newer and cheaper slim versions of the PS3 released, consumers began to choose the equally priced PS3 over the Xbox because of the ability to skip out on the annual cost of playing online while still having most of the big name games. In addition was the Blu-ray advantage, suddenly the PS3 became much more popular in the United States. More importantly is the differences between Sony and Microsoft in terms of how they manage their online networks. Microsoft uses a closed network in which members must pay a fee to gain access to it. Once in the network the player has very little power within the network to make changes within, or modify their role in the network. This is because Microsoft's closed network is very strictly managed and controlled limiting the users to mostly gameplay and interactions online. Sony on the other hand utilizes a more open network, allowing for users to modify their gameplay within the Playstation Network. Sony, although still in control of the Playstation Network, allows users to connect directly to each others' Playstations. Thus eliminating the need for servers to manage and host games, leaving it in the hands of the actual players to host games on their systems. Players then have the ability to "mod" their games in interesting ways such as adding or even taking away certain components of online play. By doing this, Sony cuts costs that Microsoft incurs by hosting the games on servers. In addition, Sony also appeals to the more technological savvy gamer who may want more freedom in the way they play their games. In a market that could have been tippy due to a low taste for variety (Xbox and PS3 have many of the exact same game titles), Sony insured its prosperity by eliminating the appeal of the bandwagon effect of the Microsoft Xbox Live network by adding numerous differentiated and appealing features. Furthermore, once a consumer chose the PS3 over the Xbox, the individual lock in effect keeps consumers oriented in the direction of the PS3. If consumers are playing online for free, why switch to an almost identical network that you have to pay annually for? Even furthermore, it's more appealing for an Xbox user who is currently paying to easily switch over to the PS3 Network for free. Ultimately, Sony offering the Playstation Network as a free service further distinguished their system from competitors (particularly Xbox), allowing it to gain the competitive position that it now holds in the market.

Market Sales
Sales for the three competing consoles within this network have been very competitive from 2005 (when the first of the three market competitors was sold publicly) to now.

In November 2005 until the first half of 2007, Xbox 360 was the market leader (selling to mainly the Americas and Europe) despite having production problems at the time it was sold publicly due to the amount of Xbox 360's that were produced were less than the consumer demand. This initially slowed sales but they were still the market leader.

The Playstation 3 was released in November 2006, however when the PS3 was initially released, it was produced at a production cost of about $805.85 and priced to consumers at $499.00, resulting in operating losses of about $1.97 billion by March 2007. This made profit losses for Sony, and the high price of the console contributed to the competitive disadvantage of it compared to the Xbox 360 and Wii.

In the first half of 2007, the Wii (selling to mainly Japan and the Americas) sold more consoles in the U.S. than Xbox 360 and Playstation 3 combined, thus making the Wii the dominant competitor in the market. But in October 2007 when Halo 3 (game) was launched, Xbox 360 sales doubled compared to October 2006 sales. More people wanted to enter the Xbox 360 network because of this game.

Sales for September 2007 of the Xbox 360 were 528,000 and 501,000 for the Wii. During this time, production costs for the Sony Playstation 3 decreased as a result of eliminating the Emotion Engine chip and hardware cost decreases, and by the end of 2008 the Playstation 3 was profitable.

The Playstation 3 was able to be much more competitive than it was before the high production costs. Sony released a new PS3, which was completely redesigned cosmetically as well as substantially internally. The new model was offered at lower prices from $249.99 for a 120 Gigabyte capacity model, or $299.99 for the 250 Gigabyte model. Lower production costs combined with a now lower retail cost for consumers turned the Playstation 3 into a much more economical machine for not only Sony but for the buyers as well. In early 2008, sales were declining for the Xbox 360 so Microsoft started selling Xbox 360 consoles below cost in order to gain market saturation and increase profits on the peripherals and software because of the higher profit margin on those. Xbox live users increased substantially during this time. From May to June 2008, Xbox 360 was the market leader with the most sales of any console.

By November 2008, the Nintendo Wii sold 13.4 million consoles worldwide, which was twice that of Playstation 3 units sold and 2 million more than Xbox 360. However in 2009, Wii sales fell by 47% from that of 2008 because of price reductions in Xbox 360 and Sony’s future plans of creating a motion-sensing wireless controller. By mid 2009, the cost of producing Playstation 3 consoles had fallen to 70% that of it in 2006, which is about $240 per console, thus increasing profits for Sony. However by the end of 2009, Nintendo cut the price of the Wii and came out with the software release of New Super Mario Bros. These factors increased sales for the Wii in December 2009 in the U.S. to more than 3 million, taking the Wii out of their slump. To give an overall look at sales since the console's release, Xbox 360 has sold more than 41.7 million units since 2005, Wii has sold 73.97 million units since 2006, and Playstation 3 has sold 38.1 million consoles since 2006.

Open/Closed
PS3 has a mostly open network anyone who wants to go out and buy this system is able to as long as they have the money. There is no age limit or a certain amount that you are allowed to buy, but there are certain areas where Sony can prevent you from what you want. This is the game rating were you have certain age levels which are appropriate for that person and you have games where you need to be at least 17 years of age. With something like this you have a closed network because Sony is restricting anyone under the age of 17 from buying and playing this game, then there is the online side to the PS3. Sony can actually control your account online that you have with them. In the event your are not respecting the terms and licensing of their online program Sony has the right to kick you off their server and you will not be allowed to play games online. To a certain point PS3 can be considered a open and closed network depending on what you are looking at.

When considering the online network, it can be described as open/closed depending on the particular feature of the network one is using. As mentioned above, Sony can crack down on any vandalism or irresponsible usage of their network but mostly entertains a more open network. However, one can consider each game they play online as being a different online "realm". In order to play a certain game online, you must first purchase it (in most cases). In this regard, the private game developer seeks independent compensation before allowing access to their own "online network" within the Playstation Network. In this case, the network would most certainly be sponsored by that same private developer, insuring proper functioning of their network and preventing misuse.