Console Wars Explained by Network Effects
During my early adolescent years, I thought about one war of sorts far more often than any armed conflict. This was the competition between the seventh generation of home video game consoles, often dubbed a “console war.” The most vitriolic front in this war did not involve the Nintendo Wii, the console that sold like hot cakes and introduced many more casual gamers to the hobby. Between 2006 and 2013, the most shots were fired between the consoles with the most in common – the high-powered duo of the Playstation 3 from Sony and the Xbox 360 from Microsoft. In 2008, my dad brought home a Playstation 3 (often referred to simply as the PS3) and I was given a side in this conflict. However, over the next few years I often asked myself if mine was the correct side. The reason for this uncertainty is the concept of tipping point; namely how the adoption of a certain product among peers impacts when an individual will decide to also adopt this product.
Countless articles and forum posts have attempted to declare a victor in the seventh generation console war, looking at factors such as processing power, available games, price, and online services to separate the PS3 from the Xbox 360. However, in the world of junior-high boys, these factors were not all that were considered when asking for a console for Christmas or a birthday. What mattered most was which console your best friends played. Playing on a console that no one you knew owned was a lonely experience when your peers were telling tales of their intense Call of Duty matches or wacky Halo 3 games.
I grew up in a small town where everyone knew everyone else and many families stayed in town for generations. This kind of environment is interesting for a network analysis since there are undoubtedly clusters of friends present without a massive number of external ties. So what happened with the console choices of teenagers? Most of the people I knew chose the Xbox 360 as their console of choice. The Microsoft takeover began with a few early adopters in late 2005 and early 2006, about a year before the PS3 launched. With this head start, the seeds were planted for an Xbox cascade. When the PS3 finally launched, a select few people, including me, decided to buy Sony’s latest offering. By around 2010, the battle lines were drawn, and I was grossly outnumbered. I had barely any friends to exchange games or play online with.
It follows that network effects would influence which console someone chooses; more people, even acquaintances, who owned the same console would mean more chances to try out games before buying them, more people to play online with and more people to enjoy the hype surrounding certain game releases with. So why did I never flip my support to Microsoft? I believe part of this decision can be attributed to the fact that in this case, there is a third choice; owning no console at all. Ties with people without a console would not be in either console’s favor, and only two of my close friends owned a console at all, one PS3 and one Xbox. This fact interacted with another aspect of consoles to make the threshold for switching consoles very high. Once someone owned a console, they would earn a significant payoff from the simple ownership of the console and having even a couple of friends with the same console. Given the high cost of video games and their consoles, the reservation prices that individuals place on them are relatively low. That is when someone already owns a console and has a library of games for it, they are not as willing to pay a high price to have its counterpart due to feature overlap.
https://www.pcmag.com/article2/0,2817,2405305,00.asp