Here's that article:
CONSOLE PRICE WAR COMETH
People who wear suits and carry briefcases to work every day are
currently touting the possibility of a console price war. Given
the fact that by roughly the equivalent point in the original
PlayStation's life, it had already been slashed down to $199, it
seems fairly apparent that the potential for a price war erupting
soon is quite huge.
So what's stopping it? To be completely honest, from what people
have been telling me lately - it seems that we are. Consider
this...the installed base of the PS2 in the U.S. right now is 10
million - all of which were sold at $299. It took almost three
times longer for the original PlayStation to hit that same kind
of number.
Secondly, when the PS2 launched, our friends at Sony were making
a loss on every box they sold, and then making up for this with
the money that they make on software sales. As technology gallops
ever more crazily along though, manufacturing the PS2 gets
cheaper and all of a sudden, what used to be very expensive now,
well...ISN'T. You may have noticed earlier this week that Sony
announced that they can squeeze all of the Graphics Synthesizer
and Emotion Engine goodness onto a single chip, presumably by
using some kind of voodoo magic:
http://eletters1.ziffdavis.com/cgi-bin10/flo?y=ePkT0DdZ7K0GJu0jGm0AY
While all this funky stuff has been going on though, our demand
hasn't abated one bit. Now we're in the situation of lapping up
lots of PS2's and Sony is very happy with the speed of that
lapping, thank you. Typically a price drop is necessitated by
competition or a drop in demand...and right now, let's face it,
if you were Sony - would you cut the price?
The competition is nowhere near touching you, there are tons of
cool games that are driving demand up, and you're making dough.
It's easy money right now...and why mess with that?
So far, management at Sony CEA has categorically stated that a
price drop won't happen any time soon - however, the competition
is now being a lot more bullish about what it's prepared to do
when it comes to pricing:
http://eletters1.ziffdavis.com/cgi-bin10/flo?y=ePkT0DdZ7K0GJu0gQk0Ad
So what could happen over the next few months? Anything really. I
certainly don't have any Nostradamus-like powers that allow me to
prophesize the future - but I am perfectly capable of taking some
wild stabs in the dark and freaking you all out with some dumb
prediction. Call them hypotheses, call them guesses, call them
whatever you like. Call them stupid if you really feel that way.
Here are the five possibilities I can envision. Take it all with as big a
pinch of salt as you dare:
1. MICROSOFT GIVES AWAY XBOXES
-Microsoft launches its broadband strategy and pushes new users
to sign up for a monthly subscription service by giving the Xbox
away "free" as part of the deal, much like a cell phone provider
giving "free" phones away with contract sign-up.
-Is it likely? Well...Microsoft has deep pockets, and arguably
could front such a deal if it meant the company would receieve
guaranteed income every month from everyone that wanted to play
new games. If it doesn't happen soon, this is the kind of thing
that could end up happening in the future.
-The reaction? Similar deals from Sony, no doubt - and a price
drop from Nintendo. Chances are that "standalone" PS2s or Xboxes
wouldn't be reduced in price just as standalone cell phones are
ludicrously expensive if you don't sign them onto a calling plan.
If you don't believe this - just check out the price difference
of a Handspring Treo with and without a Cingular calling plan:
http://eletters1.ziffdavis.com/cgi-bin10/flo?y=ePkT0DdZ7K0GJu0CKG0AL
2. SONY CREATES PS2.5
-Sony doesn't drop the price of the PS2, but creates a "new"
machine that has the hard drive and broadband adapter built in,
but for the same price of $299. Or, alternatively - for even
cheaper.
-Is it likely? I don't know about you, but this is something that
strikes me as quite possible - especially to get around the
piecemeal nature of getting a PS2 up to the same tech spec as an
Xbox. For new owners who want to get in on the action this year
it will make a lot of sense. For the rest of us, if we want to
take part we'll still have to buy the extra bits and plug 'em in.
-The reaction? Microsoft would almost certainly react to this by
doing one of two things, namely a) holding out and saying, "look
what they had to do, just to be like us" or b) they'd twist the
knife and cut the price to $249 or $199. Nintendo could hold
tight at $199 or drop their price as they've already indicated.
Would Sony CEA drop the price of a PS2 that came without all of
the extra stuff? It's possible.
3. SONY CUTS PRICE OF PS2
-Sony cuts the price of the PS2 to $199 in the summer, thus
making a PS2 with an online adapter $50 cheaper than Xbox.
-Is it likely? This one gets my vote for most likely...but it
also is the most brutal way of declaring all-out war on
Microsoft. So far everyone has been getting along so nicely.
-The reaction? A price war, something that ultimately is pretty
good for all of us as consumers. Microsoft would cut the price of
the Xbox immediately and I'm sure Nintendo would stick to their
word and cut back too.
4. MICROSOFT PREEMPTIVELY DROPS PRICES ON XBOX
-Microsoft pre-empts Sony at E3 in May and out of the blue
announces a price drop to $199. It also throws in the new
controller to prove that the company "gets it".
-Is it likely? If Microsoft wants to accelerate the speed at
which folks adopt the Xbox, you have to consider this as
something that's extremely possible. Given that the back half of
2002 has a ton of cool Xbox games in it (notably Knights of the
Old Republic, Project Ego, Brute Force, the Sega stuff) Microsoft
would hit the ground running for the holiday season with such a
proposition.
-The reaction? As above...an all out price war ensues, only with
the additional effect of Sony being really aggressive because it
didn't get to make the first move. Sony being aggressive would
only be good for us though, because it means stuff would get
cheaper.
5. THE ZERO EFFECT
-Nothing happens. Everything stays as it is and we all keep
buying PS2s anyway.
-Is it likely? I guess it could be...but it won't last.
-The reaction? I dunno...what do you think? Complete ambivalence
I guess. That and we all keep paying the same prices for
everything.
What do you think the odds are? Feel free to come online and
discuss it:
http://eletters1.ziffdavis.com/cgi-bin10/flo?y=ePkT0DdZ7K0GJu0e6q0AG