Why is this system selling so poorly? Bad marketing, that's why.

2008 was a banner year for Sony — they won the format war with Toshiba and cemented Blu-Ray as the next generation of storage media, they released two killer app games for their Sony Playstation 3 game console (Metal Gear Solid 4: Guns of the Patriots and Little Big Planet) and they saw two great pieces of software push PSP sales in Japan (Final Fantasy VII: Crisis Core and Final Fantasy Dissidia). The PS2 continues to sell strongly around the world. They continued to perform well in other consumer electronics markets as well with their TVs, digital cameras, and music players. Sony has always been good at making cool products, and from a design standpoint, they’re still going strong.

So why is Sony suddenly posting a $1.1 billion loss? I’d argue it’s because they’re so good at design that they neglect their marketing. And I’m not just talking about their advertising, either, but their entire philosophy of how products are developed for public use.

Sony’s always been a company that’s pushed innovative new products out to the marketplace. In the 1980s, Sony made a killing on portable electronics with its Walkman brand tape players. Sony also lost a pretty well-publicized format war against VHS with its superior, but less popular, Betamax format tapes.

Since Sony first launched the Playstation in the 1990s, it’s been the king of console systems, and by all rights, its beautiful Playstation Portable and Playstation 3 should be murdering the competition right now. But Sony’s having a really hard time with both systems, and though the PSP sales have been picking up lately, the PS3 continues to lag behind the Xbox 360 and the Wii. It’s not for lack of graphical power; the Ps3 is far more powerful than either system, and capable of a level of graphical prowess that outstrips the capabilities of most peoples’ televisions right now. It’s just that Sony’s done a terrible job of convincing people that they actually need all that power in a game console, particularly when there aren’t a lot of games that make the PS3 look like it’s worth the added expense.

I’d say it’s because Sony put the cart before the horse this time around and focused on technology instead of focusing on giving gamers what they actually wanted. Part of the problem, you see, is that Sony simply assumed that gamers wanted more power. And if they asked gamers via market research, “do you want more power in your console?”, they were probably assured that yes, gamers did. Who wouldn’t?

But what Sony didn’t understand was that they had to deliver something more than just a powerful piece of machinery. For starters, they had to deliver software. Sony was so used to being the market leader that they neglected this time around to line up good, exclusive titles. They were very lucky that the PS2 had hits like Grand Theft Auto 3 and Metal Gear Solid 2 early on, because the first year of software for the PS2 was dreadful. They were also lucky that Square came out with Final Fantasy X in the third year and that Capcom introduced Resident Evil: Code Veronica X and Devil May Cry early enough in the cycle to attract attention.

Sony was also very lucky that they decided to include a DVD player in the PS2, since people were purchasing the console around the same time they were upgrading their home systems to include a DVD player. It made sense to pay a little bit extra to get a PS2 that could play DVDs right out of the box, and Sony reaped the benefits of that decision.

But with the PS3, Sony’s been reacting to all sorts of problems, and often, in the wrong way. For starters, the original version of the system included backwards compatibility, memory stick slots and multiple USB ports. Sony’s since dropped these frills in favor of a system with fewer options. The PS3 can play Blu-Ray out of the box, but Blu-Ray doesn’t look much better than DVD on most peoples’ TVs, and there’s almost no noticable difference without an HDMI cable. Sony’s been promising a free online experience for awhile now, but they’ve failed to deliver, while the pay-to-play Xbox Live service continues to go strong.

Sony keeps insisting that people want its products, and that things like a soft economy are holding purchases back. That could be. But it’s more likely that Sony has just done such a bad job of marketing that they haven’t persuaded people that they actually need Sony products any longer. Sony hasn’t followed the basic premise of the marketing concept, which is to develop a relationship with your customer. Instead, they’ve focused on transactional marketing, selling gadgets that can do things, but that don’t necessarily do the things that people want them to do.

Sony’s marketing communication strategy, too, is horrible. They have to have one of the worst ad firms on the planet, and they never seem to answer the question of WHY people would want their products. They avoid talking about features and benefits, and instead try to focus on being cool. That’s a crummy strategy, and it suggests that Sony is stuck in the 1980s still, because people don’t buy Sony products because they’re cool anymore. People buy them because they’re reliable and they’re quality. If they happen to be cool, so much the better. But since the gap is quickly being closed between lower-end and higher-end products, Sony’s got to do more than just tell us how cool they are. They’ve actually got to start caring what people think about their products.

Here’s what I’d recommend for their two game consoles:

I love my PSP, and I usually take it with me wherever I go. It's that awesome.

Sony PSP: Anyone with a Homebrew-enabled PSP will tell you how potentially amazing this little game console is. The Nintendo DS might be innovative, but the PSP is gorgeous, with amazing graphics and awesome abilities. The problem is that Sony is too concerned about controlling the thing, and they keep locking users out of the cool functions because of fears of piracy. This is incredibly short-sighted, since one of the best things the PSP can do is play old PS1 games flawlessly. That’s right — with a homebrew-enabled PSP, it’s possible to play Final Fantasy VII, VIII or IX, or Xenogears, or Metal Gear Solid, or Tekken 3, or Castlevania: Symphony of the Night, or any number of classic PS1 titles. You don’t even need a disc — they play right off the memory stick. And the best thing is, these aren’t ports – they’re the original games.

And what’s Sony doing about this? Nothing, from what I can tell. They don’t seem to want to get into encouraging people to use their beautiful hardware to play old games. Instead, they want people to play the rather mediocre games that come out every year for the PSP. Are they absolutely nuts? Digital distribution would cost them very little to set up (they’re already doing it for the PS3!), and it would add a ton of padding to their bottom line since they’d just be selling digital copies of old games. This strategy has worked well for Nintendo and Microsoft; what is Sony waiting for?

Also, Sony has done a really crummy job of touting one of the coolest features of the PSP: streaming video. Using the RemotePlayer, you can actually stream video from your PS3 to your PSP, even if you’re not home. This has all sorts of awesome potential, but Sony doesn’t seem to want to talk about it. They might think everyone knows about it, but believe me when I say that most PSP an PS3 owners don’t know the half of what either system can do. Sony is really missing out here.

Sony PS3: Aside from telling Sony to work harder to develop better first party software, the real problem with the PS3 is that it has the right set of features for the wrong group of people. Does Sony actually think people are ready to upgrade to Blu-Ray? Many just upgraded to DVD a few years ago, and most don’t have TVs that are capable of 1080p. There was talk at one point about using the PS3 for digital distribution of films and TV shows, but Sony’s done a really poor job of that as well, despite the fact that they own large libraries of movies.

Clearly, Sony needs to cut the price, but more than that, they need to make a case for why people need this overpriced gizmo. More killer apps would help, but putting backwards compatibility back in the mix and using the Internet to throw a bunch of cool free add-ons to the system would also be nice. Maybe Sony should start allowing homebrew developers to create legal apps for the system, or maybe Sony should focus on releasing classic PS1 games for free for PS3 owners. Whatever they do, they need to bring back the idea of the “Playstation gamer,” communicating with their players and making them feel some pride in the platform.

As it stands, the PS3 is a beautiful piece of equipment that just doesn’t do very much because of the lack of software and options available. That’s a shame, because it could do so many cool things… if Sony would quit trying to insist that it’s the ultimate game system / Blu-Ray player.

Fortunately, 2009 is going to bring in a lot of changes at Sony, and maybe, just maybe, they’ll improve their marketing budget. (I hope they’ll fire their ad firm, too.) It’s much-needed; there’s no reason Sony products should be lagging as much as they are. But it just goes to show that if you put all your effort into making a product and forget about the customer, you lose in the end.