Sony Changes the Game

Fresh Eyes, New Vision

The first thing a visitor to Play-Station headquarters notices is how fresh everything looks. Cubicles and offices are spangled like dorm rooms with posters, plants, and sci-fi monsters. The Foster City staff looks like it should be running a college newspaper, maybe an independent record label, but not a multibillion-dollar division of one of Japan's most powerful companies. Top management sports remarkably few gray hairs.

The look is appropriate; almost everything about PlayStation represents a fresh take on the industry. Kaz Hirai is just 36 years old. Almost everyone in his management team is in their 30s -- too young, they say, to have much regard for the status quo. "Young people don't have preconceived notions about how things should be done," says Phil Harrison, SCEA's vice president for third-party relations and R&D. "They just come up with solutions -- without even realizing that they've arrived at success in a 'strange' way."

Harrison personifies the point. At 27, the tall, amiable Englishman works with outside game developers (Electronic Arts, Lucas Arts, Crystal Dynamics) to create a relentless stream of killer PlayStation titles. It's a role for which he seems born: ambitious, bright, and deeply interested in computers and video, he programmed his first game at 13 and at 16 quit school to become a consultant. Six years later he joined Sony and was assigned to a top-secret project known only as PSX. After two years of work, PSX became PlayStation. Harrison, still a kid, became an executive.

But the leaders of PlayStation aren't just young. Most of them are also outsiders -- a status for which they make no apologies. Back in the late 1980s, when Sony was creating its enormously successful music division, it staffed the venture almost entirely with people from outside the music industry. "We didn't want people from the record business," explains Hirai. "They would just bring their old ways with them. We wanted people who would have to figure things out all over again, who would question everything, people who 'didn't know any better.'" Sony took the same approach to PlayStation. Half the unit's top personnel, including Hirai, came from Sony Music rather than the video game business. "The last thing I want to hear is, 'We tried that last year and it didn't work,'" Hirai says. "Our business changes constantly. What didn't work a year ago might work today."

Those fresh eyes saw a number of strategic vulnerabilities at Sega and Nintendo -- and created a business model to take advantage of them. The most serious vulnerability was vanishing variety. Although Sega and Nintendo made some undeniably exquisite games, the two giants were increasingly unwilling, or unable, to develop successful titles outside a few proven genres. "In 1994, there were something like 16 baseball video games," says Kelly Flock, 43, president of Sony Interactive Studios America. "It was a perfect example of the dying creativity of a stagnant industry."

This timidity was understandable. The early 1990s were littered with failed attempts to develop "second generation" consoles, and gaming companies had grown wary of big risks. The industry's economics also worked against innovation. Nintendo, for example, has always sold games on proprietary cartridges that are expensive for developers to buy (a blank cartridge sells for up to $35) and take months to manufacture. It expects its partners to bear these costs. Nintendo insists that third-party developers place huge orders for cartridges and pay their manufacturing fees upfront. Forget just-in-time inventory; long manufacturing lead times mean retailers have to bet months in advance on which games will be hits.

The result? Developers worked only on games with huge market potential. Retailers featured a limited selection of titles. Video games, like Hollywood and book publishing, became a business of blockbusters, sequels, and knockoffs. "As a business model, a creative platform, and a consumer value, the industry had run out of steam," says Phil Harrison.

Hence PlayStation's first strategic innovation: maximize the number and variety of titles available to customers. "This industry is full of dreamers," says Kelly Flock. "But the technology and economics had been limiting creativity. We believed that we could inspire the creative side of the industry, that we could help the artists and engineers do the things they had been dreaming about."

PlayStation's second big innovation involved customers themselves. In PlayStation's view, Nintendo and Sega had focused too narrowly on traditional gamers -- boys between the ages of 10 and 16. It was an undeniably huge audience; the worldwide installed base of video game consoles exceeds 30 million. But PlayStation concluded that its long-term growth prospects were with the tens of millions of people who had stopped playing games or were never interested. (See "Different Market, New Message," on p. 124) This audience was older and more sophisticated than young boys, with harder-to-predict tastes. No one knew what kinds of games would resonate. The only way to find out was to experiment.