Founding History of Sony’s PlayStation

How would you compare how Sony competed with Sega and Nintendo?

When Sony entered the business, there were a lot of puzzled looks as to what on earth was going on. How could an electronics conglomerate compete with a multi-faceted entertainment business, where there were two very, very strong brands? This is a really good disruption story, in a way. You can look at the classic, what value was the new entrant adding, to be able to break into what was a relatively controlled, established marketplace?

There were two types of value which really allowed Sony to compete. The first was around the way that Nintendo and Sega structured their supply chain and the medium they were using for distribution. If you think back to the distant past, games were largely distributed on cartridges. Those cartridges were expensive; they contained a solid-state memory. Every time you were buying a game you were, effectively, buying what is now a memory card or equivalent. So they were expensive. They were really slow, in terms of the process. If you were going to launch a game, you needed to place an order, get a slot off the manufacturer of that, because it didn’t scale that well and wait two to three months for it to come through. If the game was a hit, you’d have to wait another three months, by which time, the demand may have evaporated. Highly risky; if you over-ordered, you had a huge amount of stock and you couldn’t really do just-in-time delivery, for this kind of machine.

The other limitation created by the format that they had was that they weren’t very big. We’re now used to memory cards with massive 32gb, 128gb; they didn’t exist in those days. These cartridges were tiny. Sony came along with the idea of publishing on CD. CDs were not huge, but they were many, many times bigger than the other models. They were cheaper, they were quicker to produce. They could be churned out, very quickly, in factories, in Europe, Japan and the US. So it changed the economics.

There’s an interesting story around why Sony got into CDs for games, because the game CD format is different from a normal audio CD, or indeed, a CD-ROM. That’s because some of the demands and characteristics of gameplay are different. In fact, Nintendo had spotted its weakness, early on, and had asked Sony to develop this format. Sony and Phillips, at the time, were the primary patent holders and technology leaders, for optical discs. Nintendo came to Sony; the relationship was very strong and they asked Sony to develop a CD format that would work for games. The founder of PlayStation, Ken Kutaragi, did exactly that. He worked very hard and, with some creative effort, created a new optical disc that would work well for games, with very fast read times, etc.

What happened then was that Nintendo got cold feet. Miyamoto and some of the development teams were worried about a couple of things. Firstly, they were worried that they weren’t used to it; the consumers might break the CD. Children wouldn’t be able to deal with it; they’d have lots of customer problems. From a user experience point of view, they were worried that a CD wouldn’t be quite as immediate as hard memory. So they pulled out. Having developed and got this technology and, at the time, Sony was quite cash rich, they decided to deploy it. They way that they deployed it was to build what become PlayStation 1.

The advantages of a CD over memory were also there for the consumer. Because there was all this extra memory you could do, what we then used to call, 3D gaming. When we talk about 3D gaming, we’re not talking about 3D visuals. We’re talking about a 3D world, where the player can roam in more than two dimensions. Obviously, that took memory and graphics. That was the first big shift. With the extra memory, the consumer could have a bigger world, a better world. That created consumer benefit and business benefit. That allowed a change and disruption in the market.