Sony had several strengths when it entered the video game console market in 1995. It had a strong brand image from its consumer electronics business, which translated to the console, as that was also seen as consumer electronics. The company also had excellent distribution channels, again based on its pre-existing consumer electronics businesses. Sony also benefitted from scale, in both production and marketing, as it was a large global conglomerate. So there were several advantages that Sony enjoyed, and these advantages allowed it to gain access to the market, and leverage a strong brand and marketing muscle to gain traction with the consumer base. While it didn't realize it at the time, there is tremendous crossover opportunity between Sony's movie properties and games, and vice versa. Sony countered this by working with many game developers, including the largest ones in the industry. Sony's reputation gave it instant credibility with developer, so the PlayStation had a lot of titles available within the first few months of its introduction, making that console attractive to the gaming consumer.
Sony did have some disadvantages, however. The biggest one is that it did not have prior experience in video games. For Sony, this disadvantage was fairly strong, because understanding the needs of gaming consumers is different than the needs of the mainstream electronics consumers. Sega was still strong in this market, having prior expertise in game development. For its part, Nintendo had already built some popular game franchises as well, again a barrier that Sony would need to overcome rapidly.
2. Microsoft had many strengths that would help it to enter the video game market. First, it was flush with cash, from its success Windows and Office products. Microsoft's strategy was essentially to throw more money into Xbox than its competitors were able to put in, in order to get a competitive advantage in technology and in distribution. It was able to launch the Xbox at an attractive price point, losing money on every console, as a means of entering this market and building share. The marketing budget was the highest in the industry as well.
Microsoft had a similarly strong brand what Sony had when it entered the video game industry. Moreover, Microsoft had game experience,...
In that sense, the Xbox was set up for success, as Microsoft had more advantages when it entered the market. Microsoft was also able to work with distributors and retailers, so that it had some channel strength and could gain access to the market.
What Microsoft needed, however, was to transform its brand image. While it had a strong brand, that brand was not associated with gaming that much. Unlike Sega and Nintendo, for example, Microsoft's prior gaming experience was relatively minor and not related too much with the new product. Where Sony's brand translated well from consumer electronics to its console, Microsoft's strengths were in software and operating systems, not hardware, so its brand strength did not translate as readily. It felt that it had to counter this weakness with a technologically superior product, based on software.
3. Sony and Microsoft took different approaches to entering the video game market. Sony came in with a perceived technological advantage, and this helped it to gain traction immediately. It was able to use its existing distribution channels, and it was able to leverage the strength of its brand to appeal to consumers immediately. Moreover, Sony was able to work with game producers. It felt that this was necessary, because the established competition in the industry already had strong titles. So for Sony, it was able to tell game producers that it was entering the industry with the intent of being a major player, and the producers immediately bought in. The result was that Sony had a strong stable of games.
Some of these strategies were also employed by Microsoft. The company's heft allowed it instant credibility with distribution channels, knowing that Microsoft was going to commit large sums of money in a long game to get into the business. That it could afford to undercut the competition on price was also appealing to retail channel partners, who could reasonably predict that strategy would be successful. Microsoft's relationship with game producers was a little bit different however. Sony had essentially been able to get game producers on board with its goodwill, but Microsoft was more or less bribing them to…
