A Case Study of Sony and Sega

5. The main factor reducing the demand is the Dreamcast. It already has a fairly large user base; impressive games release list, and the attracting that it is £150 cheaper.

There are not enough Playstation 2s to meet the predicted demand. There have been rumours that this is a deliberate ploy by Sony to increase media exposure and to make more people keen to place an order. The shortage is apparently due to the massive success of the system in Japan. According to Sony the machine has been more successful than they had predicted. There has been trouble producing the technology as the system is very advanced and there are few places that can produce it the circuits. Because of the complicated innards it is very hard to produce in mass quantities. Sony has also blamed the shortage on the poor conditions of the factories after a localised earthquake. This is likely to affect the console market:

The short-term and long-term effects on the console market are that the customers will be sent into a frenzy (as seen when the console was released in America and again there were shortages), this will lead to a market to resent Sony. If Sony's image is worsened (as it will be) then they will obviously loose popularity and this then leads to less units sold and a lower turnover. There will be Dreamcasts available at Christmas then Playstation 2s and the Dreamcast has a good selection of software available (and we are always reminded that it is the games that make or break a console) so the Dreamcast (the Playstation 2s main rival) is a strong position to capitalise on the lack of Playstation 2s. This could then lead to Sega taking the majority in the games market. With Sega controlling the majority the games that are available and the 'flavour' of the games market would change. The games that are most common on the Playstation are simulations of popular sports i.e. football and motor sports, whereas the games that are most common on the Dreamcast are conversions of arcade games and more complex adventure or strategy games and these have always traditionally been considered more 'hardcore'.

One of the problems Sony is currently facing is that people in Japan were buying the Playstation 2 mainly for it's DVD capabilities and they were not selling many games in relation to the number of actual systems. The problem with this is that every console makers actually looses money on every console they sell (the production costs etc are higher than the price they sell the systems) and to regain the money and to make a profit they must sell a lot of software. Sony must sell at least four bits of software with every console; three to cover the costs and the fourth is profit (these are not the exact figures) but if people are buying it to only play DVDs Sony will loose a lot of money. One theory is that the pre-ordering scheme is there to stop people from doing the above. Another way Sony is trying to deter people from buying the system for the sole purpose of playing videos is that they are trying to get as many games as possible onto the market, they are giving anyone who wants one a software licence. This 'flooding' of the market could have catastrophic effects and we could see another collapse of the video games market very similar to what happened in the late 80's when games producers and developers buried millions of copies of various games in the Arizona desert. If this does happen and Sony looses enough money then they may drop out of the market.

The market will be drastically effected by the entry of Microsoft as it will be in danger of becoming overcrowded with not enough people buying video games and consoles to be able to keep four console manufactures (Sony, Sega, Nintendo and Microsoft) afloat. There will almost definitely be at least one manufacture that will withdraw from the market. Microsoft will enter the market with the biggest financial backing of all the consoles, so they will have vast amounts of money (even more then Sony) to spend on marketing their console. They will also have the most powerful system and it also have many other features that they will no doubt boast about. Microsoft's console will have:

* DVD playback of a much higher speed and quality.

* Internet access straight out of the box.

* A vast library of games on launch.

* The backing of the largest games producers in the world.

All of this will mean that the Playstation's position in the market will no longer be as strong as it was and a new arrival that has so much will damage the sales figures of all of the consoles.

There are actions that Sony and Sega can take to limit the amount of damage that Microsoft will do. The actions Sony should take are:

* They should make sure that the Playstation 2 is well marketed long after the initial launch, as this will strengthen their position as the most well known console.

* They do have some time before Microsoft launch their console so they should take full advantage of it and try to push the console as hard as possible, trying to sell as many units as possible. Making their console 'cool' would help, as it is the Playstation's image that helped it be so successful.

* Make sure that they have a clear plan of what to do over the next few years and steps they should take if the outcome does not go the way they want it to.

The actions Sega should take:

* They have one advantage over all of the other consoles and this is that they already have an established user base and they should use this as a way to market it. The should tell people about how successful the Dreamcast has been.

* Sega should also keep reminding people that the Dreamcast is internet ready and everything you need to get on the net comes as standard with the system.

* They should stick with the Dreamcast as it now is in the perfect position to do very well. It has a good Christmas release schedule and it should try to fill the gap that Sony has caused through the hardware shortages.

* The Dreamcast main selling point at the moment is the price. They should make people very aware that the RRP for a Dreamcast is £149, half the price of the Playstation 2.

* Sega should also look at what resources they have accumulated in the 18 years that they have been in the business and use them to there full advantage. By this I mean they should build on popular brands like Sonic.

* Sega should also create a business plan.

In the long term I believe that Microsoft's console (the Xbox) will be the most successful snd Microsoft the most successful business for the simple reason of money. Microsoft has resources like no other company and they do have enough money to ensure the long-term success of their console. Sony has a lot of problems with it's new console and these problems were created through arrogance and poor planning. The believed that the original Playstation was in such a strong position that a sequel would sell well no mater what. This is however untrue as people are very careful on what they spend their money on. Sega have never been in the position to be market leaders, they have had years of making a loss due to their last two consoles failing ( Saturn and the Game Gear). The only company that may be able to threaten Microsoft is Nintendo as they are promising similar things but they have the advantage of being the most experienced.