A lot of companies grab a top position by being the best. Apple did it with the iPhone, though it was doing well with the iPod. Apple defined what smart phones are supposed to be, but now they face intense competition and have to deal with consumers looking for great deals or better features. Google did it with the search engine. I remember when Google was the go to only for people who were well versed in Internet lore, which was before it became a verb. Google has still managed to stay ahead of its competition, though despite all its initiatives its revenue is mostly from advertising on the search engine.
Both of these companies rely on consumers who actually tend to shift to the newest fad. Apple has great products, but the cult that it seems to have built around itself has shrunk a bit due to cost and the iPhone 5 being only moderately different from the iPhone 4. If you want to maintain a consumer demand level that Apple has you need to give people thing they can’t get anywhere else. Apple is not headed to $0, but it is sharing the field with a lot of players and that hurts returns. Is it any wonder that the stock is at $400 instead of $700? Its not really the company’s fault it is still a beast when it comes to making money, but expectations were insanely high.
Video Game Transition
The real lesson from these two titans is that there are times where everything can change and big things can happen. It could be multi-year or it could be for a few weeks. We are entering one of those consumer driven periods in the gaming industry. It is a battle between Microsoft (MSFT) and Sony (SNE) with Nintendo (NTDOY) falling in third. People said the same thing about the current generation even though the Wii sold a massive number of units. It is not just casual gamers though. The Nintendo console has games you cannot get on the other consoles. Exclusives on those were not of the caliber that a Mario game would be, but the Wii U is already out so it probably will not be part of the transition.
Microsoft and Sony will continue playing off each other. Microsoft has clarified, backtracked, some of its statements that angered people and made them love the upcoming Playstation 4. With this there is less to differentiate the two consoles, though the Xbox One will still require the Kinect to stay plugged in. It will still come down to consumer choice. Consoles do more than play games so it will be a balance between gamers and people interested in all the other features. This holiday season will be important for the direction the two company’s stock. All the recent press releases have moved each company depending on how people react to them. I don’t imagine consoles are huge parts of the company’s and most of them generate a loss upon release, but winning the console wars would be good for either company. It would help them with licensing and pushing proprietary content. The Xbox 360 is the big winner for the current generation. Even if the numbers of consoles match up, the Xbox 360 is much loved in North America. That does not count for much going into the next generation. The lines will be redrawn.
The Whole Web
Keeping used games in the mix also means that Gamestop (GME) will continue to benefit from the ultra-high margins of the used game market. When a transition happens you should look for all the benefits. With Microsoft’s backpedaling on used games, Gamestop jumped 6%. Identify what companies will benefit from whichever console sells more. That way you are prepared to jump when the preliminary numbers come in about which one is selling more. This is not something you need to see out for months, because with good timing quick gains can be had.
There have been plenty of transitions that offered time to benefit. When the iPhone was selling there was still time to get into Apple. The numbers for the iPhone were amazing and there was no competition. Since Google became a verb it has done nothing but gone up, though this one is not something you can properly time for. When the iPad was released it changed how we think about portable computers and tablets. When those numbers came out Apple did well. The thing about Apple is that everyone was looking at it. While the console wars are interesting there is not this huge community surrounding Microsoft and Sony’s stock. Nothing to the level that Apple had when it was breaking through level after level.
Consoles are big business because there is a whole ecosystem around them. Each company will scramble to have features. Both will have Netflix, but which will have Amazon Prime capability or another service. Do not forget the video game developers that might be able to benefit from new consoles. Usually for game companies it will just be releasing a title for the new console with no breaks. The more dramatic shift is going to be the console makers, but you should watch the whole web of companies to see if you can benefit.
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