Upwards and onwards

Recently, I scratched a little itch I had and  knocked up a quick graph of console lifetime sales (based on the data over on vgchartz, as I suspected it'd show something interesting about the current generation of consoles.  And this was the result:

What I found interesting about this was the fact that it confirmed the reason for the traditional "5 year" cycle: hardware sales have generally peaked by year 3 and are rapidly heading towards zero by year 5.  There are a couple of exceptions: the DS proved to be incredibly resilient and the PS2 was boosted by the introduction of new models (e.g. the slim model) and Sony-led price discounting when the PS3 was launched.

Even the mighty Wii hasn't proven immune to this phenomena.  But curiously, the PS3 and Xbox 360 have so far managed to dodge the bullet somehow: five years after the PS3 launched and six years after the Xbox 360 launched, both are continuing to grow their userbases; if current sales-growth trends are maintained (15% and 40% respectively), then between them they could shift over 35 million more consoles this year.

The question is: how are they accomplishing this?  And what does it portend for future generations?

Unfortunately, I'm not sure there is a single, clean-cut answer.  But here are some hypothesis, of which zero, one or many may be true!

1) The introduction of new hardware has extended the console lifecycle

Following the huge costs incurred by both Sony and Microsoft this generation, the introduction of Kinect and Move were intended to help extend the life of each company's console.  However, both Kinect and move were announced at E3 2009 - year 4 for the PS3 and year 5 for the Xbox 360.  Then too, they weren't launched until Q4 2010 (i.e. year 5/6), during which time both consoles have continued to see sales growth.

In other words: while the new peripherals are almost certainly a factor driving the uptick in the sales curve (seemingly more so for Microsoft than Sony), they're not responsible for helping both consoles to survive beyond the 3-year peak

2) Price drops

There's some merit to the idea that price drops have helped to maintain consumer interest; sales of the PS2 drastically rose in 2006 when a lower price (from $149 to $129) was introduced.  However, the biggest price cuts didn't arrive until 2009 (year 4/5), when both companies dropped their prices for the Thanksgiving sales period - and while the graph suggests there was an mild impact on the Xbox 360, there's no such change for the PS3.

3) Explicit announcements that a new console would not be released

Launch of an "improved" product often leads to sales of the previous version declining (or at least a significant price drop, as per the PS2); indeed, if a new product is announced too early, it can kill sales off too early, depriving the company of the funds it needs to launch the new product (as per the semi-mythical Osbourne effect).

However, in the games-console economy, the "3 year" downturn in sales generally occurs before any announcements of new hardware.  For instance, while the dip in Xbox sales coincided with the announcement of the Xbox 360, sales of the PS2 started to decline in 2003, two years before the PS3 was officially announced and similar applies to the Gamecube and Wii (the GC peaked in 2003; the Wii was accounced in 2004.  Then too, Microsoft deliberately forced the Xbox into early obsolecence ; partly because of the legal battle with Nvidia and partly due to the desire to get a head-start on the PS3.

As such, the decision from both Sony and Microsoft to not launch a new console within the standard 5-year cycle may be a factor, but it's secondary at best.

4) Influx of gamers migrating from the PC

The seventh generation was a revelation: for the first time, the PS3 and Xbox 360 offered graphical experience comparable to a high-end PC (at least in the first few years; Moore's law has marched on and PCs are now offering significantly higher graphical quality) as well as a number of online features (DLC, multiplayer, etc, video streaming) which were previously only available on the PC.  And hand-in-hand with this, a number of high-profile titles have switched to being console-only - or ported to the PC from the console.  And console gaming also removes a lot of the complexities of PC gaming - lengthy installs, aimbots/cheats, manual driver/patch updates, etc.

Unfortunately, quantifying the impact of these changes is difficult, but the ongoing trend of "game consolisation" could well help to explain the lack of a 3-year peak, as more and more PC gamers move to where the games are.

5) Initial uptake limited by price/quality issues/rise of casual gaming

This one is more of a philosophical muse than a hypothesis, but here goes.  The Xbox 360 may have gained an advantage by launching early, but it was then crippled by production quality issues, which led to Microsoft issuing an extended warranty and taking a $1 billion write-down for the RROD issue.  Meanwhile, Sony was not affected by quality issues, but the inclusion of Bluray technology led to an expensive system, forcing them to enter several rounds of cutting out features from the PS3 in an effort to cut costs - PS2 backwards compatibility, memory card slots, USB ports, etc.

It's therefore possible that people elected to not buy either console until both price and feature sets had stabilised - for instance, by 2008, consumer interest in PS2 backwards-compatibility would have significantly dwindled.

Concurrent with this, there was also the hype around the relatively low-priced Wii and it's local-multiplayer capabilities.  Gamers who tend to enjoy "semi-casual" gaming (e.g. mass-market titles such as Madden, Call of Duty, etc) may well have opted instead to buy a Wii for it's local-multiplayer capabilities, rather than a PS3 or Xbox 360.  With the novelty of motion-controls wearing off and the Wii offering relatively few mass-market games, these gamers may then have opted to buy one of the other consoles to return to their semi-casual gaming.

6) Lack of external competition

In the past, there was always significant competition for game consoles: there's generally been at least 3 major hardware manufacturers (Atari, Sega, SNK, etc) tussling over the same user base - as well as external competition from home computers, arcade technology and the like.

This generation though, things have changed.  Most of the traditional rivals are now history - Sega being the last to pose any kind of serious threat to the current imcumbents.  Meanwhile, Nintendo opted to blaze it's own trail away from the traditional "hardcore" realm and Sony/Microsoft have been too busy dealing with internal matters to take any significant pot-shots at each other.

And on the technology front: as per point 4), even 5/6 years after release, both consoles still offer an gaming and media-consumption experience comparable to a home PC, without the complexity that comes with maintaining the PC.  You can watch movies, stream music, review photos, post on Twitter and even (on the PS3) browse the web and use the machine as a DVR.  In some ways, they're even easier to use than a PC; if nothing else, they come out-of-the-box with a wireless controller which allows you to both control the machine and switch it on/off in the same way as your TV/DVD-player/etc.

In short, there's very few compelling reasons to pick a different solution for your media-consumption needs.  They may not be the best at what they do - a PC running XBMC is significantly superior as a media player, for example - but much like the Wii proved to be, they're Good Enough for the majority of players.  Especially as the price of the hardware has continued to drop over time.

That's all folks: if anyone has any further thoughts on what could drive the sustained popularity of both consoles, I'd be interested to hear them.  Personally,  I suspect the key drivers are a combination of points 4, 5 and 6...

In any case, if we assume that's the case, what does this portend for the future?  How long can these two consoles continue to grow their sales?

Sadly, its difficult to try and predict this with any certainty.  I'd certainly expect both to maintain their current sales trajectory through 2011, as nothing is going to impact any of the points above: hardware prices will continue to drop, interest in the Wii will continue to decline (and the Wii U won't offer any significant threat until it's launch in 2012) and the additional power offered by a PC is more than offset by the convenience, services and huge backcatalog of media offered by both consoles.

However, I suspect 2012 will prove to be the high-tide mark: with the Wii U due for launch, both companies will have to respond by announcing their new hardware (while aiming for a 2012/2013 launch).  Then too, as Moore's law marches on, PCs will be visibly more powerful and it's possible that even handheld devices (such as the next generation of Apple's iOS devices) will be effectively as powerful as these increasingly aged machines.

[There's also a question as to how big the "hardcore" market actually is.  But that's a subject for another time...]