The Beginning of an Annualized Console Cycle

"Well that's a stupid name. Why would they call it the Xbox One if it's the third Xbox? That's going to confuse the hell out of people." These were my thoughts a couple of weeks ago when watching the unveiling of Microsoft's upcoming console. Now I know that complaining about the names of consoles is rather stupid and pointless in the endgame, but a name like this clearly has to have some sort of philosophy behind it. It may be that Microsoft wanted the console to be the One box in your living room, the only One you will need. Yeah that would make some sense. But the name may in fact imply a much larger change in the way Microsoft is looking at its latest machine. Perhaps we will be seeing an Xbox Two much sooner than we might think.

The iPhone. What comes to your mind when you hear that word? A couple pieces of glass with a bunch of wizardry in between. The Apple logo, iOS and maybe Angry Birds. What most people certainly don't think of is the first iPhone. The bulky piece of plastic which now might as well be from the 1990´s. But that phone (or actually the iPhone 3G) was the phone which launched the iOS app ecosystem. Now I know that I'm suddenly talking about telephones and not video game consoles, but I'll get right back there in a minute.

Apple has built its app ecosystem slowly and methodically through several hardware and OS iterations. Games on the platform have evolved monstrously during the years, but you can still play those older iOS games like Angry Birds on modern Apple devices. On the other hand if you've decided to stick with your iPhone 3G you are not able to play some of the newer games which require an iPhone 4 or newer to work.

The Xbox One is essentially built around retail computer components. This kind of hardware is easy to develop for and most importantly, you can theoretically upgrade the console hardware without any issues with backwards compatibility. There has been a lot of talk about how Microsoft will start selling these consoles through service provider subsidies. Much like Apple is selling its phones.

What if Microsoft were to annualize the console hardware cycle? It's a fact that the Xbox One is underpowered compared to the PlayStation 4, although developers will not reach the limits of this set of hardware for a long time. When the time comes however, Microsoft could just put out a new box on the market with added performance and a new form factor. We're already used to manufacturers refreshing the console hardware visually a couple of times during the console generation.

But why would Microsoft (and likely Sony as well) want to alienate their customers by coming out with new hardware once a year or maybe every two years? Well what if the games designed for the Xbox Two would also work on the Xbox One, just not quite as well. Since these consoles are built around computer hardware it should be rather easy for developers to include equivalents of low, medium and high graphics settings in their games. A few years down the line Xbox Four games would still work on the Xbox Two, but the first gen hardware would start to slowly get phased out. Since these consoles will be sold through a subsidized model, people would probably want to upgrade their box every two years anyways.

This way we would see a much more gradual evolution in game graphics, similar to the PC. Developers would also theoretically never have to fully push the limits of the console hardware and all games would be backwards compatible in the same way as all your games from a few years back still live on your Steam account. From a business standpoint on the manufacturers side they could of course reap the benefits of selling successive consoles to customers instead of the one every seven years they have in the past.

Now there has of course been failed attempts at extending the life of the console cycle through hardware add-ons in the past. These past systems however required separate media to function and the games were not compatible with their original systems. So games developed for the 32x for example could not count on the install base of the Mega Drive (Genesis for our American cousins) for game sales. With digital game sales this problem is no more. As long as the game supports a separate lower visual fidelity standard it would work on the previous iteration of the console.

After seeing how the PS3 and 360 started showing their age during the last couple of years I for one would be ready for a more gradual evolution with these new consoles rather than the revolutionary jumps we now see once in eight years.

They lose money on the hardware, it's heavily subsidised, and it takes years to build an install base large enough to make that money back. I find it hard to believe that what you are suggesting would be possible in the current environment, especially given the tight margins on AAA games. You also need to remember that it takes quite a while for developers to get up to speed with the new dev kits & explore the boundaries of the new hardware.

I very much doubt it, but and interesting and well written post is always welcome =)

Consoles are a one-off thing. I don't think the user base would appreciate that some versions of games would be slower on old versions of a console. Like what you said if it would be just like a PC then why not just buy a PC? After all, the DRM that would be implemented this gen are almost similar to that of Steam.

If it's annually re-released I think it would be just a redesign to lower the cost of production. Apple can afford to throw some minor updates every other year or so and plaster a new price because of its brand name and mobile devices have more market share than consoles.

It is surely an interesting idea. Though I think that the annualized phone model works because there was (is) still a lot of progress to be made. But you already see that slowing down. The difference between the second and third generation of iPhone or the first and second Samsung Galaxy S was substantially larger than the difference now between respectively the fourth and fifth or third and fourth iteration. I am (still) on my Samsung Galaxy S2 and I notice around me people are holding on to their phones longer. Sure the current economic climate has a hand in that but I also believe it is because there is less reason to update.

I believe this is even more so for consoles: For years the PS3 and 360 were on par or even better than most PC games and as such what was graphically possible. It is only for say the last year or so that the differences are becoming truly noticeable. So why would I spend $300 dollars every year to get a slightly different box and a marginal upgrade?

What you are actually proposing is making closed PCs. Look at PCs: Games can be played on different settings. This means that the same game can be enjoyed by some on low settings, by others on ultra and by the majority on everything in between. So when do most upgrade? When they are 'forced' to either because they cannot play a certain game or because they do not enjoy low graphics or long loading times. The by far largest group of people upgrade when they feel their hardware is outdated and they feel it is worth spending money on an upgrade. For consoles this would mean small incremental updates that first generation buyers probably won't upgrade until generation 3/4. Which would mean that the second generation would probably run at a loss.

Moreover game consoles lack the large audience phones have and do not hold the same status phones do. Having a new shiny hot phone looks good in public. Nobody (really) cares about the look of a game console. In the worst case you just hide it.

To summarize I don't think annualizing consoles would work for the same reasons as people don't buy new tv's or cars every two years. The cost isn't worth the upgrade you get.

Then there is the other side, what is the advantage for Sony/Microsoft? The current long cycles means that the hardware gets cheaper to make by time. The profit margin on these consoles grows over time. They would lose that advantage and as I said earlier I don't believe game consoles have the same attraction as new phones where people would want to buy a new one each year.

One cannot forget that Apple and the other smartphone manufacturers are in the market of selling hardware and the software thing is a bonus. Apple makes tons on money off each iphone/pad/pod sold and it is their core business-thus selling a new model every year makes sense. Traditional consoles, on-the-other-hand, are usually sold at some sort of loss with the thought that the money made from lifetime software sales will easily recoup the loss taken in from the hardware. If they annualized the console, then the cost of manufacturing wouldn't really go down and you would alienate some gamers as well has eliminating the one real advantage consoles have over the PC--standardized hardware that a developer can design specifically to.

I think the only way this works in phones is because a phone is needed to connect you to one thing:

a service.

Because we as people feel like we need that service, we seek out devices which providers are then able to subsidize the cost of in order to rope us into their service. In order for Microsoft (or Sony) to be able to subsidize hardware like that, they'd have to be able to provide a service that one would want almost in spite of the console itself. I feel like neither of them make a compelling argument for that on a wide enough scale--it would likely have to be a service that appeals to nongamers as well.

The problem with what Microsoft offers--and I'm speaking mostly towards them because I don't really know what Sony's plans are--is that, if you're not a gamer, their service is mostly a yearly fee to be able to access your other subscribed services. In order for there to be a demand on that scale, they would have to offer something as universal and desired as "making a phone call" (though that desire has since come to include much more services such as text, interenet, etc though they all still fall in to the one service).

Now, perhaps, gaming itself could become that service. In this darkest timeline we're painting, I could see the possibility that FutureGamingCompany decides the Okama Game Sphere is a console you buy for $199. "What a deal!" you say, jumping up and down. However, when you get home to plug it in, you find yourself staring at a screen that says "Congratulations on your purchase!" it says. "In order to play your games, you first must subscribe to our PlayYOurGame Online service! Enjoy!" and then we all lose.

@isomeri: if they are going to do that, then they really need to subsidize the hardware cost through Xbox live subs. They have to go all-in to make that work.

I.e. $99 Xbox1 with a two year sub to Xbox Live Gold etc.

but I could see it happening. Especially if Apple were to enter the console market

@jcgamer: @cleron: If I'm not mistaken I remember hearing that both Sony and Microsoft have declared that they are not ready to sell these consoles at a loss. At least not at such margins as with the PS3 and Xbox 360 during launch. We usually see a price drop with consoles after two years on the market, a bundle product maybe even earlier. Console manufacturers could still implement this price drop while bringing a new revised product to market, again like with the iPhone model. They could maintain the same profit margins on consoles as before. In the current price drop model manufacturers are merely selling the console to a new market which was not able to afford it earlier on in the cycle. If they were to include added performance in the revised model, they would be able to sell the new model to some existing customers while broadening the market with a lower price alternative at the same time. Most people probably wouldn't upgrade immediately, but eventually after a couple of years customers would start buying new boxes.

@redcream: @nictel: Most people don't want to plug personal computers into their televisions. Actually most people don't probably even own a PC anymore, but surf the web on tablets and laptops in stead. And even if you do play games on a PC you should be used to upgrading your hardware every couple of years or so. A new decent graphics card costs at least 200 dollars, and a lot more if you want to future-proof your machine. And if you'r going with a complete PC rebuild you will need to invest hundreds more. Wouldn't it be easier and cheaper to essentially buy a new 400 dollar console every two or three years? This way PC games would perhaps never again leapfrog consoles in graphical performance and Microsoft and Sony would not have to lose business to Valve. Since current console manufacturers are clearly moving towards a monopolized digital sales model one of their most prominent competitors is Steam. And I doubt that Valve would be able to negotiate similar subsidy models with internet carriers as Sony or Microsoft, thus making a 700 dollar Steam box much less appealing for customers than a subsidized 199 dollar Xbox Two or PS5.

@slag: @crosstheatlantic: I don't believe the theory that the next Xbox would be subsidized through Xbox Live subscriptions. Since XBL only costs around 70 bucks a year it would be very difficult for Microsoft to make back its money on a subsidized console this way. The console/consoles will likely be subsidized through internet providers, and internet is the service that CrossTheAtlantic was referring to since both consoles will require a form of internet connection to function properly. Even if through some miracle Sony would be able to avoid necessitating an online verification for games they still want you to buy your games through them. I'm sure that internet providers would be all game for this scenario as well. With people "cutting cable" many service providers are losing a lot of income, and they have been largely unable to create subsidy relationships with customers when it comes to broadband connections the same way as with cellphones. Subsidized consoles would give them the power to keep charging (too much) for your broadband internet while securing you for a customer for at least a couple of years. I don't remember what people pay for internet in the States, but for example my internet now costs €10 a month. By raising that to €25 a month over a two year period my service provider could easily sell me an Xbox One for €99 in stead of an assumed retail price of €450.