Apple Game Console
Everybody have their own ideas about what Apples strategy should be and what they should use all their spare cash on. Everybody have their pet projects. Unfortunately most of these ideas are the result of wishful thinking. In the sense that it is about what people would like to have. However these ideas frequently make no sense what so ever for Apple from a business or strategic point of view.
Every week we hear that Apple should quit making hardware, and license OS X like Windows, just like Microsoft. This is of course just wishful thinking on part of the people that propose the idea. They are a basically people who want a Mac, but they don't want to pay for it. So they think if OS X ran on a regular PC they could get the whole Mac experience much cheaper. But of course it this makes no business sense for Apple. Why should they be able to beat Microsoft at their own game? Apple has a monopoly on their platform. Why should they voluntarily give away a monopoly? When everybody knows a monopoly is the most profitable way of making money.
The the other idea that they should just make hardware and put Windows on their computers is equally out of touch with reality. Again why give up a monopoly? If they used Windows they would have to compete directly with all the other PC makers, which would render it impossible for them to charge a premium.
Which brings me to game consoles. Part of the reason why they are so profitable is because they are a closed platform. Thus the makers can overcharge for everything because they are essentially a monopoly within that platform. In some sense the game console world has a similar business model as Apple. Except it is turned up side down. It is software sales that subsidize hardware. While in the Apple world, the profits from hardware subsidize development of Apple software.
I am here proposing the idea that Apple should make a game console. But why? There are a number of reason why this would be a bad idea. That anybody can point out. Apple is not already in the market like Nintendo and has no previous experience with it. Nor are they as large as Microsoft and Sony that they could accomplish the task with shear financial muscle.
The second question is, what is it for them. What purpose could it possibly server to make yet another game console? The market is already saturated. There must be easier ways to make extra money?
From this it is clear that entering the game console market like Microsoft did is not going to work for Apple, nor will it benefit them in any way. They should only do it in a way that can leverage Apple's existing strengths. This is what we have seen Microsoft do again and again, leverage their control of the OS to get into other markets.
Apple has a unique strategic advantage that nobody else in the computer business have, which they should attempt to exploit more. They are the only Computer manufacturer that full control their platform. They control both the hardware and the software.
In what way is this relevant for a game console? The business model of a game console can only work if the platform is closed. Why?
The demographic of console buyers mean that those who buy it can not afford single big expenditures on hardware. So the console has to be cheap. At the same time the hardware has to be powerful enough to run games. The solution to this problem is of course to sell the hardware at subsidized prices and then cover the cost by getting royalties from game sales. But if the platform is not closed, anybody could sell software without paying royalties and there would be no way to subsidize the hardware. Furthermore if it was not closed, when hardware prices actually dropped and the manufacturer could start making a good profit on it, the market would just be entered by competitors that would undercut his/her console prices.
Mac's always suffered from having few game titles available. Apple can't solve this problem by simply making a mac model with a game pad and call it a game console. First off since Apple gets no royalties from game sales they can't subsidize the hardware and will thus have to sell it with profit. However that will make it too expensive for its target group and nobody will buy it.
Apples business model for a Console
So here is how I suggest Apple should do it. Since Apple already makes computers they can save a lot of R&D costs, because what they simply do is to make Console that is very similar to existing Macs hardware wise. What will be different will be the business model. Unlike the other Mac models it will be sold at below manufacture cost.
But before they can do this they should try to exploit their current mac market share for their console. Otherwise there will be no particular reason for anybody to get a Mac console over another console. They could do this by creating a game API. Preferably based as closely as possible on existing technology like SDL and OpenGL.
By targeting the API, developers should be able to create games that run on both regular macs and a mac console. To prepare for a console Macs could be bundled with a game controller, so that games could be designed around it.
So in the first instance developers would make games for Mac, as before but they would be adjusted so they could fit a future console. When a critical mass of games has been made Apple could then introduce a console. The Console would have a critical mass of games to be able to sell a certain amount. Of course Apple is getting no royalties from games to subsidize the hardware so this strategy is not sustainable.
To deal with this the old Mac games that now run on the console could be view as first generation games. The second generation games that can utilize the full power of the console will require special license for the game developers, that require them to pay royalties to Apple.
And now developers will be willing to release games for the console because a lot units will have already been sold because of the first generation games. The license should also allow the games to be run on regular Macs. This is actually a win-win situation for both parts. If people buy a console game to run on a Mac, the developers don't lose any money, it cost the same. Apple probably makes more money because they make a profit on regular Mac's unlike the game console.
This strategy has two benefits, for Apple it means that the Mac platform will get more games, which will increase the Mac's attractiveness as a multipurpose computing platform for the whole family. For developers it means that a game can always sell even if it console sales are not great because of the existing Mac market.
If this is so smart why don't other do it?
For Microsoft this strategy would make no sense. They don't need to make the Windows PC more desirable as a multi purpose platform because it already is. Besides they are almost already doing it. Since porting from XBOX to Windows is not that difficult. Nintendo and Sony don't control a computer platform like Apple.
What the console should and shouldn't be
For the strategy to work, it is essential that the console has quite similar hardware as a Mac. This creates some limits. Apple can not use esoteric designs like the PS3. This would limit the possible raw power of the console. They should thus not attempt to compete with XBOX or PS3 on power, but instead use a more Nintendo like strategy of making cheap consoles with good games. The goal here is not to become the most dominating console but to expand the Mac platform user base and make regular Mac's more attractive.
Like the iPod and iLife apps it is all about expanding the Mac ecosystem and creating more compelling reasons to chose the Mac platform. By tight integration and the digital hub idea they could create some unique user experience and possibilities. E.g. the iPod could be used as memory stick on the console, or perhaps firewire target disk mode could be used to use your Mac as a hardrive for the games console. Thus there are a lot of ways one could shave off cost for the console without sacrificing utility.
Every week we hear that Apple should quit making hardware, and license OS X like Windows, just like Microsoft. This is of course just wishful thinking on part of the people that propose the idea. They are a basically people who want a Mac, but they don't want to pay for it. So they think if OS X ran on a regular PC they could get the whole Mac experience much cheaper. But of course it this makes no business sense for Apple. Why should they be able to beat Microsoft at their own game? Apple has a monopoly on their platform. Why should they voluntarily give away a monopoly? When everybody knows a monopoly is the most profitable way of making money.
The the other idea that they should just make hardware and put Windows on their computers is equally out of touch with reality. Again why give up a monopoly? If they used Windows they would have to compete directly with all the other PC makers, which would render it impossible for them to charge a premium.
Which brings me to game consoles. Part of the reason why they are so profitable is because they are a closed platform. Thus the makers can overcharge for everything because they are essentially a monopoly within that platform. In some sense the game console world has a similar business model as Apple. Except it is turned up side down. It is software sales that subsidize hardware. While in the Apple world, the profits from hardware subsidize development of Apple software.
I am here proposing the idea that Apple should make a game console. But why? There are a number of reason why this would be a bad idea. That anybody can point out. Apple is not already in the market like Nintendo and has no previous experience with it. Nor are they as large as Microsoft and Sony that they could accomplish the task with shear financial muscle.
The second question is, what is it for them. What purpose could it possibly server to make yet another game console? The market is already saturated. There must be easier ways to make extra money?
From this it is clear that entering the game console market like Microsoft did is not going to work for Apple, nor will it benefit them in any way. They should only do it in a way that can leverage Apple's existing strengths. This is what we have seen Microsoft do again and again, leverage their control of the OS to get into other markets.
Apple has a unique strategic advantage that nobody else in the computer business have, which they should attempt to exploit more. They are the only Computer manufacturer that full control their platform. They control both the hardware and the software.
In what way is this relevant for a game console? The business model of a game console can only work if the platform is closed. Why?
The demographic of console buyers mean that those who buy it can not afford single big expenditures on hardware. So the console has to be cheap. At the same time the hardware has to be powerful enough to run games. The solution to this problem is of course to sell the hardware at subsidized prices and then cover the cost by getting royalties from game sales. But if the platform is not closed, anybody could sell software without paying royalties and there would be no way to subsidize the hardware. Furthermore if it was not closed, when hardware prices actually dropped and the manufacturer could start making a good profit on it, the market would just be entered by competitors that would undercut his/her console prices.
Mac's always suffered from having few game titles available. Apple can't solve this problem by simply making a mac model with a game pad and call it a game console. First off since Apple gets no royalties from game sales they can't subsidize the hardware and will thus have to sell it with profit. However that will make it too expensive for its target group and nobody will buy it.
Apples business model for a Console
So here is how I suggest Apple should do it. Since Apple already makes computers they can save a lot of R&D costs, because what they simply do is to make Console that is very similar to existing Macs hardware wise. What will be different will be the business model. Unlike the other Mac models it will be sold at below manufacture cost.
But before they can do this they should try to exploit their current mac market share for their console. Otherwise there will be no particular reason for anybody to get a Mac console over another console. They could do this by creating a game API. Preferably based as closely as possible on existing technology like SDL and OpenGL.
By targeting the API, developers should be able to create games that run on both regular macs and a mac console. To prepare for a console Macs could be bundled with a game controller, so that games could be designed around it.
So in the first instance developers would make games for Mac, as before but they would be adjusted so they could fit a future console. When a critical mass of games has been made Apple could then introduce a console. The Console would have a critical mass of games to be able to sell a certain amount. Of course Apple is getting no royalties from games to subsidize the hardware so this strategy is not sustainable.
To deal with this the old Mac games that now run on the console could be view as first generation games. The second generation games that can utilize the full power of the console will require special license for the game developers, that require them to pay royalties to Apple.
And now developers will be willing to release games for the console because a lot units will have already been sold because of the first generation games. The license should also allow the games to be run on regular Macs. This is actually a win-win situation for both parts. If people buy a console game to run on a Mac, the developers don't lose any money, it cost the same. Apple probably makes more money because they make a profit on regular Mac's unlike the game console.
This strategy has two benefits, for Apple it means that the Mac platform will get more games, which will increase the Mac's attractiveness as a multipurpose computing platform for the whole family. For developers it means that a game can always sell even if it console sales are not great because of the existing Mac market.
If this is so smart why don't other do it?
For Microsoft this strategy would make no sense. They don't need to make the Windows PC more desirable as a multi purpose platform because it already is. Besides they are almost already doing it. Since porting from XBOX to Windows is not that difficult. Nintendo and Sony don't control a computer platform like Apple.
What the console should and shouldn't be
For the strategy to work, it is essential that the console has quite similar hardware as a Mac. This creates some limits. Apple can not use esoteric designs like the PS3. This would limit the possible raw power of the console. They should thus not attempt to compete with XBOX or PS3 on power, but instead use a more Nintendo like strategy of making cheap consoles with good games. The goal here is not to become the most dominating console but to expand the Mac platform user base and make regular Mac's more attractive.
Like the iPod and iLife apps it is all about expanding the Mac ecosystem and creating more compelling reasons to chose the Mac platform. By tight integration and the digital hub idea they could create some unique user experience and possibilities. E.g. the iPod could be used as memory stick on the console, or perhaps firewire target disk mode could be used to use your Mac as a hardrive for the games console. Thus there are a lot of ways one could shave off cost for the console without sacrificing utility.
posted by Adam Smith at 12:41
0 Comments:
Post a Comment
<< Home