The Difference Between Fads And Trends

The title of this post is slightly misleading, but I think that Microsoft and Sony may be on the verge of compounding a major strategic error with another strategic error.  The jumping-off point for this post is a New York Times article that reviews GDC speeches by the major manufacturers and developers, with the nominal topic being social gaming.

Naturally, there’s a hagiographic section on Nintendo’s prescience in identifying the gaming casual market, and highlighting how successful that strategy has been.  But I’d like to focus a bit more on the competition’s response. 

The NYT reporter says wryly that

“…I was not especially surprised to walk into a meeting with Mr. Schappert of Microsoft and find the walls covered with posters that looked as if they could have been ripped straight from Nintendo’s marketing playbook. Those posters actually conveyed more about Microsoft’s attempts to adapt to the new gaming market than almost anything Mr. Schappert could have said.”

Those posters generally mimic Nintendo’s marketing campaign, showing families and friends having fun in front of the console - emphasizing the communal aspects of games.  Microsoft appears to also be ramping up casual emphasis in its 360 development; the low-cost XNA strategy for XBLA may be another reflection of this as well.  Similarly, Phil Harrison of Sony (pre-exit) spoke candidly on Sony’s failure to accurately judge the market and its resultant impact on the PS3.

Unfortunately, though, I think both MS and Sony are drawing the wrong lessons from the last few years.  First of all, I’ll say up front that I think the growing importance of casual gaming is undeniable, and any company would be foolish to actually ignore it.  However, both non-Nintendo firms appear to be willing, even eager, to throw away their accumulated history, brand equity, and market positioning in order to chase casual gaming returns - in other words, to treat these events as a fad rather than a trend.  I strongly argue that any strategy that forces those two firms to emphasize casual gaming at the expense of traditional gaming in the short- to medium-term is a mistake.

I believe this for several reasons.  First, there’s no way that either company is going to catch up to Nintendo in any appreciable way this generation.  The Wii is a fad the size of the iPod (to call it a “fad” is hardly an insult, and I don’t mean it to be one - I just mean that it’s transcended the fame of any merely popular product.  You don’t have an event of this size every generation, or even every 2-3.)  Similarly, I don’t see Wii purchasers as being driven by a purely rational interest in gaming - they’re not going to suddenly purchase a PS3 or 360 because it re-emphasizes Uno or what have you.  Rather, I think one key insight that’s escaped many in the industry is that casual gaming is popular because people don’t really see it as “video gaming” per se.  The Wii is a fascinating device that plays games, but doesn’t have the traditional associations of, say, a SNES.  As a result, I think chasing casual gamers wholeheartedly with their existing products is a strategy that is going to doom the 360 or PS3 to failure.  They just can’t beat Nintendo at their own game right now.

Second, it might not necessarily be inaccurate to call the core gaming market “stagnant,” insofar as it’s not growing as fast as the casual side of things.  At the same time, though, if Microsoft or Sony simply abandon this market entirely they’re giving up on a lucrative and potentially uncontested segment of the market - one that’s willing to spend a premium on games and accessories to feed their hobby.  Failing to fill this crucial niche simply because it’s not the flavor of the month would be a huge mistake, not least because everything that you’ve been doing for the past 5-10 years to build your name in the marketplace has been centered on increasing your reputation in this area.  Throwing that away is tossing a lot of money you’ve already sunk into developing that brand equity and you want to think carefully before trying this. 

(This, for example, is where I think Phil Harrison has made a crucial miscalculation: I believe he’s correct insofar as he says that Sony Japan has failed to understand the way the market was trending.  At the same time, however, he’s way off-base if he thinks the PS3 failed because of this.  There’s always going to be a market for traditional gaming.  There’s just not always going to be a market for extremely expensive consoles laden with features that no one is willing to pay for and a highly limited library of games.  Sony made a mistake in understanding their existing target market segment, not in failing to capture an entirely different one.)

Finally, what about trying some combination of casual and hardcore gaming?  One of the core tenets of marketing is that “straddle” strategies, in which you abandon your brand’s core segment in the market to focus half-heartedly on some combination of segments, are a bad idea.  This goes at least double in the present case.  One of the reasons the Wii is so good at casual gaming is because it was built for it.  Motion controls are highly intuitive; but simply making the games that appear on your complex console less complex isn’t the same thing.  Doing this risks alienating your existing base while simultaneously failing to make too many inroads into the casual market.  And you run the same risk of damaging your brand image that I noted above.

What are the implications of this for Sony and Microsoft?  I think there are probably three.  Number one is that dropping everything to chase the casual gaming trend with existing hardware is a big mistake.  At least one of the two should remain focused on the traditional gamer, because they’re out there and waiting to drive sales and profits for a company that can cater to their needs.  Number two, both firms need to think longer-term about how they can extend their brand instead of changing it wholesale.  Perhaps a Wii-competitor in the next generation would allow them to effectively capture a bigger segment of the market in the next round.  And number three, me-tooism isn’t going to win this race.  A corollary to #2, simply imitating the Wii in future years is going to be just as much a failure as doing it now.  Motion control was exciting and new in 2006, but it no longer packs the same punch.  All manufacturers - Nintendo included - are going to have to work very hard to avoid making the Wii simply a flash in the pan.  The leader of future generations is going to need to continue to innovate in ways that absorb casuals without boring them, and that’s no simple feat.