Microsoft very cleverly offers two versions of its Xbox 360 console: one with the drive and one without.  But Sony has already told developers that they can count on a hard drive being part of the console.  So they’re stuck with it.  Another big problem that is a direct result of the hard drive is that Sony has decided to use Linux as the PlayStation’s operating system.  While this is not in-and-of-itself a problem, Sony has announced that they will allow users to run home-brew software on the PS3.  This combination of decisions is almost guaranteed to spell disaster in terms of piracy and hacking – a problem that will be magnified because China, a region known for its rampant software piracy, will be a very important growth market for the video game industry over the next 10 years.

But the core problem is still the PlayStation 3’s price and launch date.  It is no secret that the PlayStation 2 had much, much weaker hardware than both the GameCube and Xbox.  But because Sony launched its console first resulting in the highest market share, it was able to lock up high-profile exclusives with third party publishers, which in turn increased its market share, and so on – forming a cycle that made its hardware weaknesses largely unimportant.  But Sony is not only launching a full 12 months after the Xbox 360, they are launching at a price point that is $200 higher.  Bill Gates came to E3 for the first time this year, and proudly announced that the Xbox 360 would have sold 10 million units before the PlayStation 3 got out of the gate, and that over 160 games would be available by the holiday shopping season.


PlayStation 3 Controller 

Sony does have two advantages left, though.  They have the PlayStation brand name, and they have Japan.  It is no secret that the original Xbox was a disaster in Japan, and the Xbox 360 isn’t setting any sales records there, either.  This has been a problem for the American console because not only is Japan an important market, but Japanese game developers have largely shunned the Xbox as a result of this failure.  The Xbox 360 has managed to capture a few exclusives from Japan, but staple franchise games – which admittedly have diminished over the years – such as Final Fantasy XIII and Metal Gear Solid 4, will be PlayStation 3 exclusives.

But consumer brands can die very quickly – just look at AOL or Walkman.  And the Japanese game market has actually shrunk over the years.  What’s left is a console war with few exclusives on either side, and Microsoft with a 10-million-unit head start and a console that is $200 cheaper.  Things are not looking very cheery for Sony in the long run.