Penny Arcade responds to our "hideous editorial," misses the point [update 1]
by Vladimir Cole 
{ Sep 15th 2006 at 9:35AM }
PA's Tycho has responded to my rational gamers editorial calling it "hideous" and remarks, "It's fun to think about the author tippity-tappin' this one in while he eats light bulbs in the last car of the circus train."
[Mmmm, light bulbs. BRB.]
It seems the point was missed because I mixed too many different issues into one post. If I had instead posed the hypothetical as follows, I doubt many would have objected:
Assume Nintendo is selling a white-colored Wii at a profit of X and the tangerine-colored Wii at a profit of X+Y. That is, the price (and hence, Nintendo's profit) on the tangerine Wii is greater than the price (and profit) on the white Wii. Which of the two devices would a rational consumer choose, all else equal?
He'd choose the one with lower factored-in profit margin. That is, the lower-priced console.
In the comments below, JB Cougar (and others) wrote: "I believe the black MacBook outsells the white one, and yet Apple charges a $200 (might even be $300) premium for it. They are the same system, save for the color."
For that to be true, you're assuming inequal demand for the colors. "All else equal" means equal demand for different colors of the console.
Hopefully, the elimination of mention of "Sony" or "Microsoft" from the thought experiment makes the point amply clear. So why make such an obvious statement? Isn't this like saying that consumers will buy the larger candy bar if the price and taste of all candy bars on the shelf are the same? Yes, but this question is a required first step before digging into the following question: if gamers are showing a preference for undiscounted hardware, then what else is at play here? What are people paying for, if not for hardware?
That allows us to get into discussions on Nintendo's strategy (with mention of Reggie's favorite Blue Ocean Strategy book), the value of fun, the value of software exclusives, and the value of the "unique" control scheme. This was to have been a multi-part series of editorials dissecting the value attributed to the Wii versus its rivals. With hardware power out of the way entirely, the discussion would narrow to more meaningful topics.
[Update 1: added quote from reader JB Cougar.]
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Reader Comments (Page 1 of 10)
Jeremy @ Sep 15th 2006 9:42AM
In other words if Microsoft instead made a Wiimote controller for the 360 and sold it at a loss, gamer's would rather have that.
But only Nintendo has it, and gamers want it.
FSK405K @ Sep 15th 2006 9:43AM
"Assume Nintendo is selling a white-colored Wii at a profit of X and the tangerine-colored Wii at a profit of X+Y. That is, the price (and hence, Nintendo's profit) on the tangerine Wii is greater than the price (and profit) on the white Wii."
Ah-hah! But you didn't say the prices were the same! So X+Y could be less than just X!
McWeen @ Sep 15th 2006 9:46AM
I just thought it was funny they read joystiq
Mastertoad @ Sep 15th 2006 9:44AM
No you're still wrong.
The Wii is the cheapest console. Irrespective of it's proportional cost compared to the others.
If you consider more graphical power somehow of 'more value' then YOU have missed the point.
The Wii isn't about graphical power, it's about the new 'feel' of the playing experience. If you think that this is somehow 'less valuable' then the other consoles you need to think long and hard about your career choice.
Whether or not the PS3 can be considered 'more valuable' to the consumer because even though it costs more the value of the machine you purchase is more compared to the price because the Sony profit margin is smaller is also irrelevant.
Nintendo have always made profit, and that is because they manufacture products cheaply, efficiently and to order. Just because You pay 600 dollars for 800 dollars of machinery when buying a PS3, doesnt mean it is intrinsicly more valuable.
When you buy a Wii you pay 250 dollars for 100 dollars (eg) worth of hardware. This means Ninty makes a profit.
THIS DOES NOT MEAN YOU ARE BUYING SOMETHING OF LESS VALUE.
Honestly, I thought PA had it spot on. The original article was an embarrasment, and the more you prolong the thing the more your, and Joystiqs reputation goes down.
zero @ Sep 15th 2006 9:45AM
Really? This is it? This is your rebuttal? Wow.
Agent MOO @ Sep 15th 2006 9:51AM
I agree with tycho, you guys were just being attention whores.
FSK405K @ Sep 15th 2006 9:48AM
Seriously, the whole debate comes to the question: would the Wii, and thus, Nintendo, do better in the marketplace IF THEY SOLD THE WII AT A LOSS? This would most likely be achieved by A) selling current configuration for $200 (or less, LOL), or B) adding a second Wii Remote and possible a second Nunchuck. There is the stigma that if Nin does either of these things, or finds another way to sell at a loss, that they will be in financial ruin.
Not so. My answer is that selling the Wii console at a loss, just as Sony and Microsoft do, would help them gain marketshare, especially with their target audience, non-gamers. Many folks have alluded in the last 36 hours that $250 is not an impulse buy and that seems reasonable. We will all pay it, but not the people Nintendo really is trying to sell to. To sell to them, Nintendo needs one of two things: A) us to tell them and show them how cool our new Wiis are, or B) lower the cost of entry. Whereas A) enables Nintendo to make profit from day 1, B) would enable them to obtain a stranglehold on the industry by Xmas.
ovet @ Sep 15th 2006 9:54AM
I love how you say penny-arcade missed the point, when there was no point at all really.
Worst.Post.Ever.
theflyingorc @ Sep 15th 2006 10:15AM
Not "you guys", agent MOO. Vladamir.
GW @ Sep 15th 2006 9:53AM
Penny arcade have a point... the original post was retarded, fundamentally flawed and completely illogical. But I'd have to disagree with the eating lightbulbs as its more as if it was posted by someone with a very simple understanding of ecnomics who thought throwing around 'big' words was going to impress. And since you failed to successfully comback from them - as well as all the comments - its seems penny arcade are winning 2 - 0.
protofunk @ Sep 15th 2006 9:54AM
Girls, girls, please... Neither ONE of you are pretty.
Andrew @ Sep 15th 2006 9:54AM
A rational customer would take many factors into consideration when making a purchase. Desire weighs in heavily. If they want the tangerine Wii bad enough, they'll pay for it. Are they being unreasonable for purchasing something they want? I'd rather get something I want at a price I'm willing to pay than something I don't with a subsidy.
Doc P @ Sep 15th 2006 9:54AM
what if Y is negative?
Dave Chandler @ Sep 15th 2006 9:54AM
But that's not what your post was about. Your post was about subsidy and consumers picking the best VALUE and not the best Price.
It was about one console selling for X, but is worth Y where Y < X. You get Y value in hardware, but you paid X for it. You lose X-Y in value.
Then there's another console that sells for A, where A >> X, but is valued at B where B > A. YOu gain B-A in value, BUT A is so much higher than X that the comparisons between A and X are invalid.
Also you DID say that it tends to show lack of faith by Nintendo in their console. If they aren't willing to take a loss on it they aren't showing faith in the platform.... and that, for lack of any better word, was just flat out stupid. It's a different business strategy, and less risky to be sure, but has nothing to do with the faith in their console.
This is a nice attempt to backtrack, but look at your first article and tell me you aren't trying to make a comparison not between prices, but between the nebulous concept of 'Value'.
Once you accept that, consider this example: if you offered me a 10 million dollar yacht at half price, losing 5 million yourself, or a 50 dollar inflatable worth 30 bucks making 20 yourself, I'd (and most consumers) would be forced to choose the cheaper boat simply because they don't have the 5 large.
Your simple price comparison here ONLY holds true when you are talking about selling EXACTLY the same item.
dsub @ Sep 15th 2006 9:57AM
This doesn't so much come down to Nintendo not having faith in their products in the long run as it does come down to Nintendo's ability to change the minds of gamers.
With 360/PS3 MS and Sony are going after the most graphical horsepower, as all along THAT is what has defined the "superior" console. Until now...or maybe not.
With the Wii, Nintendo's marketing and PR department has somehow convinced millions of gamers worldwide that graphics don't matter. Something that just 10 years ago Nintendo would have not agreed with while they were trying to sell gamers there "graphically superior" N64 console, or even farther back, the NES. Nintendo saw an opportunity to manipulate and change the face of gaming. I believe much of this was due to two things.
First off, we are at a turning point right now with HD televisions. They are the wave of the future...but, the future is not here yet.
The vast majority of people in the world still have standard televisions. Therefore for MS and Sony, with their largest features being HD gaming, they have a massive challenge ahead to convince gamers that their consoles most coveted feature, is still worthy of a purchase whether they own an HDTV or not (this is something that can be debated till the end of time) Nintendo on the other hand, saw an opportunity. While MS and Sony are off pushing HD resolutions to markets where HDTV's sit in the homes of only 10% of consumers, Nintendo came up with an idea to push the standard, current graphical power of gaming to the other 90%.
Low and behold, came the Wiimote and the Virtual console, and a price tag considerably lower than the competitors. At first, I'm sure Nintendo was extremely nervous about how the idea would take off, and had the Wii not been received so well so early by so many, we'd probably be looking at a launch price of $199.99, but before the Wii has even launched, Nintendo has somehow managed to snag back the majority of the marketshare in the minds of gamers across the world.
They have realized this, and are merely capitalizing on the fact that this may be there only chance to make such a profit on a console, that 5 years from now, may not have withstood the test of time. Because we all know that if the Wii is successful, next time around this "graphics don't matter" jargon won't be enough for Nintendo, and they'll actually have to go back to the drawing board and design an ENTIRE new console, rather than just a new controller and a modified gamecube.
**please don't take the ending as a fanboyish remark, we all know that the Wii shares alot of hardware with the GCN, so I'm not saying this to take a shot at Nintendo, as they have even convinced me to get a Wii on launch, and I have an HDTV.
DiRT @ Sep 15th 2006 9:55AM
Your argument still assumes that a $600 price point is equal to a $250 price point because the $600 price point, while costing more, includes more "value." However, $600 is not equal to $250, therefore there are other factors involved that can't be taken out of the equation.
Todd @ Sep 15th 2006 9:56AM
I would prefer to get a black Wii. This won't be available though. I'm still planning on buying a Wii upon launch, however. My sole reason for getting the new Nintendo console isn't about price, it's about fun. I'm looking for a system which will be fun to use. The interactive gameplay will reinvent gaming for me, rather than just simply sitting on the couch playing a game... which is common with all the other systems out there now. In this sense, the 360 and PS3 are the same.
Cian Hayes @ Sep 15th 2006 10:00AM
I think the entire issue is pointless because, as a rational consumer, I'm going to buy the machine which gives me the best value for money. The profit margin of the company does not have any bearing on my decision to purchase a machine, the only issue for me is "Is the price fair and do I feel I am getting good value for my money?".
And actually VC also violates his own "All things are equal" argument because at every turn he is comparing two products which are not equal. Even if it's only colour that is different, that still creates a disparity and some people will be willing to pay extra for the difference.
The real issue here is that Sony and Microsoft make loses on console sales because they could never afford to sell the machines at a profit, I can't remember for sure but I think I heard that the components alone for the PS3 cost over €1000. If Sony were to make a profit on that they'd go bankrupt. €250 is still good value for money for the Wii and kudos to them for producing a reasonably priced machine at a profit.
DocGonzo @ Sep 15th 2006 10:02AM
"With hardware power out of the way entirely, the discussion would narrow to more meaningful topics."
What the hell were you expecting? THIS IS JOYSTIQ. Everybody missed the point because you didn't MAKE a point. PA noticed this, I noticed this, you had to make an explanatory post using fucking ALGEBRA to show what your point was. How can you expect anybody to have understood you?
hjungle @ Sep 15th 2006 10:02AM
I like joystiq.
Having said that I'm a little confused as to what they see themselves to be. On one hand they flog a user for calling them "bloggers" while on the other they post articles whining about how someone disagrees with them.
I realize I’m simplfying things but the points are still valid. Blog or not it just seems like someone at Joystiq needs to grow a thicker skin.
David @ Sep 15th 2006 10:02AM
You were pwnd.
Just because something is subsidised does not automatically make it good.
Like most US industry...
vc @ Sep 15th 2006 10:03AM
"Just because something is subsidised does not automatically make it good."
Who said that anything's good? There's no value judgment implied in the subsidy.
Morder @ Sep 15th 2006 10:06AM
People are paying for a perceived value. Not pure hardware. Nintendo Wii has a value of however much the consumer wants to pay for it to get the enjoyment he or she desires.
Now I am not a sony fan by any standard but their console no longer has a value worth much to the consumer. It comes with features the average gamer does not want therefore value goes down. Just because you offer a discount doesn't mean anything other than "We couldn't sell it to you at this price because it's too expensive for you. So we'll drop a few hundred dollars." But that's not enough, the perceived value of the console is still not worth the 600 price they laid out before you.
As for all things being equal last post. That would mean that the Wii, PS3 and XBox360 all have exact same hardware yet the Wii is still cheaper than all the rest and Nintendo still makes a profit.
You cannot compare this no matter how much you try. People will pay for the consoles with the most value to them and not the most value the manufacturer claims it to have. Irregardless of price.
mykeyii @ Sep 15th 2006 10:12AM
Consumer decisions are typically made irrespective of producer concerns.
I don't care how much profit the company is making, as I would typically have no way of knowing how much profit a company is making. The purchasing decision is based on whether the value I get from the console is greater than or equal to what I have to pay for it.
Using the chocolate bar analogy, if two companies make the exact same chocolate bar, and Company A charges one penny less for the bar than Company B, but it costs company B 5 cents less per bar to make than company A (due to newfangled chocolate making processes), Company B makes more profit, but I still want to buy Company A's bar.
gameclu @ Sep 15th 2006 10:06AM
I'm with Penny-Arcade on this one.
Pirate Penguin @ Sep 15th 2006 10:08AM
Your mistake is assuming that all consumers share your concepts in what makes the hardware valuable. Somebody might have a room decorated completely in tangerine, and to that person the tangerine wii is worth every penny. They might not care that the PS3 has a thousand gigaplexes of nanograph power. All they know is that their system is a whole lotta fun, still (likely) costs less than the other systems, and perfectly matches the lamp they just got at Pier One.
greatn @ Sep 15th 2006 10:09AM
God you are an idiot. Even your new example is flawed. All else is not equal! One is White, one is Tangerine! People may be willing to pay extra for a different color!
Please don't think your econ 101 class you took in college makes you knowledgable. It doesn't.
Tobor @ Sep 15th 2006 10:10AM
The only queston that makes sense is:
Is the Wii a good entertainment value at $199: YES
Is the Wii a good entertainment value at $250: YES
Fil @ Sep 15th 2006 10:12AM
I'm more than satisfied with the steep, almost treacherous price delta between it and the Xbox 400, and the difference between this product and Sony's offering is so vast that the person presented with this disparity would assume that there had been a grievous misprint in their Sunday circular.
32_Footsteps @ Sep 15th 2006 10:12AM
Well, to be honest, I think part of your problem is that your editorial was misleading at best in the first place.
The one thing that kept giving me a hangup was the line, "Sony and Microsoft are giving us free hardware when they sell each console at a loss."
See, I don't see it that way at all, and that's what led me to personally write off the editorial.
You can argue they're giving us extra hardware for the price. Bonus hardware, if you will. But if I have to pay for the system, even at a reduced price compared to the price of the components, then I'm not getting free hardware. Trust me, I'd love it if they were handing out free hardware - I'd be first in line with a shit-eating grin on my face. But when the worthwhile versions of the hardware are $400 for the 360 and $600 for the PS3, I'm not getting anything for free.
I think the profitability line gets brought up simply because people naturally wonder how sustainable the business plans of both Sony and Microsoft can be. I mean, mock Nintendo for relatively paltry console bases in the last couple of generations, but you have the comfort of knowing they'll still be working in the industry. With Sony and Microsoft, there's a fear (how legitimate, I can't say - I have no inisght to each company's inner workings) that a few bad turns could convince them to abandon video gaming.
But putting all that aside, I think your point is a bit off. The crux of the argument is, "wouldn't it be better for Ninty to sell the Wii at, say, $150 and take an initial loss on the machine to get more units into homes?"
Now, I'll agree that the hardware would sell more units at $150 rather than $250. But the question is, would it sell appreciably more units? Given the demand which only cooled a small amount after the price announcement, I think it's reasonable to assume the Wii will sell all the immediate units. If you're going to sell out of product no matter what, wouldn't you rather sell at $250 rather than $150?
But let's move into the future, after Nintendo has satisfied the holiday rush but before the first price drop. At this point, there's a reasonable argument that you'd sell more units at $150 than at $250.
However, here's the question - will Nintendo be able to move enough software and $60 Wiimote/nunchuck bundles to make a profit and thus pay off on the subsidy gambit? More important, can Nintendo afford for such a gambit to fail?
I think those are the more important questions. Now, if the Wii can be an immediate smash out the gate with tons of software sold, then you're right, it should be sold at the subsidized price. However, I suspect that the sales of the profit-makers would not keep proper pace with the subsidy, thereby making it a losing proposition overall. This seems like an appropriate stance given that launch titles are seldom worth the time and thus few people rush out and get those.
Now, I think a subsidized price would work perfectly if Nintendo times it well. Imagine this - Nintendo drops the price of the Wii to $150 one week before the simultaneous launch of Super Mario Galaxy and Super Smash Bros. Brawl. You'd be introducing the subsidy, yes, but you'd also be introducing it at the same time as two guaranteed million-sellers. Most people who don't already have the Wii will rush out to pick up a bundle with those two games and probably an extra remote/nunchuck. It'll be like printing money.
Ultimately, a subsidy can be the right strategy. You just have to know when to time the subsidy.
SquirrelPhister @ Sep 15th 2006 10:14AM
Ah-hah! But you didn't say the prices were the same! So X+Y could be less than just X!
uh, you need to take algebra 1 again, dude
J @ Oct 9th 2006 1:16PM
Hate to bring it up, but many people do pay a premium for a different color. Tangerine orange probably would sell better, the same way black gamecubes are generally preferred to purple. Have you seen Apple's notebooks? It's 200 dollars extra for a black one, even though the only difference is 50 dollars worth of hard-drive space.
Anyway, your argument that Nintendo doesn't have confidence in its product takes some strange assumptions into account. Nintendo has no other business ventures, unlike the monstrous holdings of Microsoft in the computing industry and Sony in the electronics one. Nintendo can't really afford to subsist only on it's once yearly handheld systems they've been pumping out while taking a big hit on every Wii system sold. You're comparing apples and tangerine orange colored systems.
Also, they already have invested in their product in R&D stages. This just means they'll start paying for their development time much faster (id est from launch).
best of all worlds @ Sep 15th 2006 10:13AM
I'd agree with Penny-Arcade but...damn, that's such a shitty comic. Joystiq is less shitty but keep in mind, I always skip the shitfest editorials and speculation.
Who gives a shit. Can we go one day here without e-drama?
Matt @ Sep 15th 2006 10:14AM
Penny Arcade is better than Joystiq will ever be. These past few weeks at this site have made me never want to return .
greatn @ Sep 15th 2006 10:14AM
Hey, here's another way to put your argument.
Two farmers produce two bananas. The bananas are exactly the same, but are produced with different methods. Farmer A produced his Banana at a cost of $10. He is selling it for $12. Farmer B produced his Banana at a cost of $20. He is selling it for $15. Ceteris Paribus(all things being equal, which they actually ARE in this example), which one should the consumer buy?
By your logic, the $15 one. After all, it cost Farmer B $20 to make. IT'S LIKE YOU ARE GETTING 5 FREE DOLLARS WITH THE PURCHASE OF THE BANANA! Because that's how economics works, right?
Ahms @ Sep 15th 2006 10:14AM
"What are people paying for, if not for hardware?"
Umm, the very foundation of the gaming industry maybe? The games? Just a wild guess
I buy a console if I like the games coming out for it. I'm not going to buy it because it was the cheapest, let it sit there, and go "I'm so happy, I bought the cheapest system out there" while paying absolutley no attention what I can do with it
These are ENTERTAINMENT SYSTEMS. The value you get out of them depends on how much fun you have with them, the games being the key
The rational consumer looks for the best value at the best price, not JUST the best price. The "best price" is worthless if in the end you're not happy with what it does
Which is where quality in brand names come in...hmm....
I take it Joystiq just hires any schmoe off the street to write :)
Duncan @ Sep 15th 2006 10:15AM
people ARE willing to pay more for different colours. just look at the black MacBook compared to the white one
Shad Genki @ Sep 15th 2006 10:16AM
I never thought I'd say this, but...Maybe you need to get Robert Summa back over here since your posts are both nonsensical and don't form a complete thought.
You're comparing apples to oranges here, and pretending like one is of lesser value because it's cheaper. That's retarded. They're two completely diferent things, and therefore have two completely different pricing schemes.
Yeah, I'm sure more people would buy the Wii if it included 7 or 8 games, bringing it to the same cost as the PS3. But that's just stupid. Cost does not necessarily equal quality or value, and I don't think any knowledgable consumer would ever assume as much.
WillGod @ Sep 15th 2006 10:18AM
I think one of the most interesting things on this site are the people who keep posting "you guys suck" / "joystiq suXXors." If you hate Joystiq, why do you keep reading and posting? Does it make you feel better about yourself to belittle others? Is this how you feel like a big man?
As to Vlad's original post - I disagree with you as many others do. As others have said, you can't say "all other things being equal" here because, well, they aren't. The Wii is different from the 360 is different from the PS3.
To use your candy bar analogy: we're not talking about three milk chocolate bars. We're talking about M&Ms versus a KitKat versus, say, an Almond Joy. All candies, yes, but would you say that someone should rationally choose a KitKat because it's cheaper? No, because it's not the same thing. All candy yes, but different candy.
SquirrelPhister @ Sep 15th 2006 10:17AM
oops, that first sentence (in 31) was a quote from 2
fergot the quotes
Kumar @ Sep 15th 2006 10:17AM
Your acidly is hideous. If a company is able to bring a product out at a good price and still make a profit of it than why not? The company never promised outstanding graphics, they have invested most of their money into something that everybody is pretty much loving. Is it their fault that the competitors put SO much money in R&D and updated tech that the Xbox360 and PS3 are sold at a loss? Should everybody just buy the PS3 because it is probably being sold at a price where it makes the most loss of all consoles? You article is not only hideous, its ridiculous.
Are you going to buy the PSP next time, if another DS version is launched at profit?
Rational Gamers would buy the things they want to buy and not worry about whether a company is selling something for a profit or a loss.
Lone Starr @ Sep 15th 2006 10:21AM
Apparently some people don't get the concept of a thought experiment. I don't know how much clearer the example can get -- good read Joystiq.
clo1_2000 @ Sep 15th 2006 10:28AM
"What are consumers paying for if not hardware?" In most cases, software. You will not find Zelda or Mario on anything but Nintendo. Microsoft has Halo and now Gears of War. Sony has Final Fantasy. There are many people that will make purchases of hardware just so they can get their favorite games. Others purchase out of brand loyalty. For better or worse, most consumers don't care if a console is subsidized by the company that made it or not. They don't walk into a store and say, "Ooh, the PS3 is costing Sony $200 while those bastards at Nintendo are making a profit!" Screw those profit-seeking bastards, I'm buying a PS3!"
Another thing that drives why a customer buys is price point, or perhaps it is graphics capability, or HD capability, or the ability to play games in a new way. I'm not in Marketing, so I couldn't tell you what exactly drives the impetus to purchase a new game machine but those are a few examples.
The Voice of False @ Sep 15th 2006 10:19AM
It's funny that Tycho dropped the ol' "light bulb munchin'" quip... when he's the guy who looks like Uncle Fester.
And, as we all know, Fester loves him some light bulbs.
GravityKills @ Nov 4th 2006 11:07AM
[quote]I think the entire issue is pointless because, as a rational consumer, I'm going to buy the machine which gives me the best value for money. The profit margin of the company does not have any bearing on my decision to purchase a machine, the only issue for me is "Is the price fair and do I feel I am getting good value for my money?".[/quote]
This is the key point for all discussions on price and "value" in regards to 360 v PS3 v Wii. The typical buyer cares nothing at all about the profit/loss a manufacturer makes on what they sell, they only compare the offerings of rivals. Then they but what makes sense to their wallet and what level of return they are getting for the money they are spending. The discussion of subsidies is a waste of bandwidth and a red herring intended on trying to push high-end hardware to people that DON'T NEED IT in the current market.
Another thought occurred to me in that now I see just who Nintendo is going after with the new system. It's not just the "casual" gamers and family, it's the thousands that are PO'ed at Sony for making the jump from PS2 to PS3 such a huge leap. Sony has said that they are still moving tons of PS2s but I foresee the Wii cutting drastically into this as people do really want something new even if it means they don't have a ton to play on it right away. And the name “Nintendo” still means quite a lot to people who are in the market for a game system.
There are going to be a lot of Wiis sitting next to PS2s this Christmas.
Peace
r-deezy @ Sep 15th 2006 10:21AM
As a consumer, the last thing on my mind when making a purchase decision is: "hmmm, since this item is being sold at a loss, then it's a GREAT deal!" My main concern is if the product is offering something I want/need and if it is cost effective.
Reggie summed it up well: MS & Sony are very large companies with many different segments and can better afford to sell each console at a loss. Nintendo makes video games (& accessories) and video game consoles - if they begin selling 1 of those at a loss then it will hurt a bit more.
J B Cougar @ Sep 15th 2006 10:21AM
"Assume Nintendo is selling a white-colored Wii at a profit of X and the tangerine-colored Wii at a profit of X+Y. That is, the price (and hence, Nintendo's profit) on the tangerine Wii is greater than the price (and profit) on the white Wii. Which of the two devices would a rational consumer choose, all else equal?
He'd choose the one with lower factored-in profit margin. That is, the lower-priced console."
I believe the black MacBook outsells the white one, and yet Apple charges a $200 (might even be $300) premium for it. They are the same system, save for the color.
Care to try again?
Perri @ Sep 15th 2006 5:50PM
Joystiq, I have lost much faith in you... It seems the you've lost your integrity. Let me get this straight though...
Your saying the PS3 has more value because Sony is selling it at a loss? so we should make all assumptions pertaining to value based on price v profit? Because I can tell you right now that when presented with an opportunity to buy Wii or the Ps3 I will buy Wii.
Wii offers what none of the competitors can, and for a MUCH cheaper price. How could you expect Wii to launch for any less than 250? As soon as they announced it would not exceed that price point, you should assume that is what it will cost.
Now that we know more about Wii it seems reasonable to me(the price) The development and research of the Wii control obviously cost a lot. Not to mention the sophisticated hardware within the controller. Then we have the hardware which is more powerful than any current-gen system, and yet smaller, quieter, and more power efficient than any console ever created. Regardless of polygon count, that is an impressive technology.
However I think the most boils down to the software included. I'm not really talking about Wii Sports (but not excluding it.) I'm talking about the operating system. The Wii channels are brilliant, there are minigames included when viewing photos, you have an online infrastructure which seems to be very intuitive, and immersive (msg boards, file sharing, email, etc...) But the biggest innovation here has to be 'Mii'
A Character creating tool included within every console which allows you to store your avatar in your controller and play as yourself at a friends house? Thats insane. Never would I have ever guessed such a feature would ever have been included on any console, and by watching the videos I can see that it is definitly very well done. A lot of work went into this operating system and to purchase something like this seperately it would probably cost about 150 dollars on it's own.
There is a ton of value going into this package, Wii sports is included, I think this is great. People will say 'I don't want Wii sports, I should have the option!' Wii sports is an essential game for Wii. Nintendo wanted a simple game to get everybody acustomed to using the controller, also, Nintendo just ASSURED that everybody now has something their parents can play with them. This is very smart. When presenting Wii to a non-gamer, they don't want to play Zelda, but playing virtual tennis or bowling...I think thats something they can get into.
Lets face it, Wii sports wouldn't have sold as a stand alone game, therefore no non-gamers would have been exposed to something inviting to them. This way, everybody has it.
I'm sure the game probably costs an additional 10 dollars or so, which isn't much (based on DS+MK bundle v. stand alone DS)
Nintendo is packing the most punch this round. Sony and Microsoft only sell at a loss because they HAVE Too. If they didn't they're products would never sell, the only demographic that could have afforded either console a cost is not one who is particularily fond of gaming.
Nintendo is being smart, undercutting the competition, delivering the most value seen in a console in years, and still making a profit - your upset about that? why, if I make something and sell it, I'd like to make some money, so would you. Nintendo is and will continue to be the most successful console maker(profit) but it isn't as if they're ripping us off to do it.
Joystiq, I doubt I'll be coming back.
Jon @ Sep 15th 2006 10:23AM
VC, you are still wrong!
First of all, you don't say whether the white wii and the tangerine wii have the same retail price. If they do have the same price but Nintendo is making a profit on one and not the other then the consumer will make their choice based upon which colour they prefer.
If the two retail prices are differnet then they will make their choice based up on which colour they prefer and if it is the more expensive one, whether it's worth the extra money or not.
My point is that the consumer at no point will actually care or probably even be aware of what it cost the manufacturer to make it or whether it's subsidised. All the consumer cares about is what they perceive they are getting for their money.
Now stop with these pointless posts.
Ephor @ Sep 15th 2006 10:22AM
The problem is you were just smart enough to sound informed in your editorial without having the economic knowledge necessary to enforce your claim.
Ceteris Parabis, yes, a subsidized wii is better to me than an unsubsidized wii, unfortunately, your "point" is entirely irrelevant. A system's value to the consumer is based off utility for price, and while it is more likely you will get more utility on a subsidized system, factors like GAMEPLAY weigh far more heavily. To put it in "smarty-pants-ese," the indifference curve of the composite 'good' offered by a system versus its percentage subsidization is hella steep.
Additionally, you deserve to be mocked to insinuating that a company that doesn't sell hardware at a loss doesn't have confidence in its system. First of all, price is (or should be) based off demand in order to prevent shortages, if Nintendo could ship enough to meet the demand at $200, they likely would, hardware loss or no. The alternative is going out MS-style, having a reasonably MSRP that is laughably ineffective because the system can only be gotten over ebay for twice the MSRP or more.
Second, selling a system at a loss is just like any other investment, it's a risk, and it's a risk Nintendo doesn't have to take. Nintendo is not as rich as MS to engage in (de jure illegal, btw) predatory pricing and with the Wii hype train in full swing, it is not desperate enough to warrant pricing the console so low as to ensure it will sell out, rather than sell efficiently.
I do understand your point: predatory pricing in a competative market is beneficial to the consumer while producing minimal externalities and should be supported as a trend. The problem is that consumers and companies have much bigger things on their minds than a trend that will produce around $50 of pocket money every 4 years.