P$P Go

A common refrain I’ve been hearing on video game podcasts and reading in internet gaming forums is the question, “Why is the PSP Go, Sony’s new handheld gaming device, so expensive?”

On the surface, the decision to price the device at $249.99 — $80 dollars more than the previous iteration of the hardware — is inscrutable. After all, the PSP Go arguably has less functionality than the current PSP on the market. The PSP you can buy now can play games downloaded from the PlayStation network (something that the Go focuses on to the exclusion of all else), yet it can also play all the games and movies released on UMD since the PSP’s 2005 launch. The Go has a smaller screen; it doesn’t have a UMD drive assembly; it has a smaller battery; and it’s based around the same technology that Sony’s been mass-manufacturing since 2005. The only significant additions are the 16 gigabytes of internal flash memory and support for Bluetooth connectivy, additions that shouldn’t significantly increase the manufacturing costs.

[[image:090612_pspgo.jpg:Time for a second job:center:0]]

Compare this to the recent hardware iteration from Nintendo in their flagship portable device. Unlike the Go, which is best described by relaying what it can’t do — namely, play discs — the conversation around the DSi is all the new things it can do. And on top of that, it isn’t nearly a hundred dollars more expensive than the previous version of the hardware.

There is a simple reason that the PSP Go is so comparatively expensive, though, and it can be summed up in a single word: margin. The PSP Go is a device built around digital distribution, but the device itself obviously can’t be delivered digitally. A frequently cited analogy in the world of retail is to compare things to razors and razorblades. The person who invented the razor gave it away for free, but got rich selling replacement razorblades. This is how the video game console business normally works: the video game consoles are sold at or below cost, and the companies make their money selling the video games and accessories. For example, you can buy a new Xbox 360 for $199.99, but to add a Wi-Fi antenna or hard drive costs an additional $100.

[[image:090612_razor.jpg:A razor for gamers! How convenient!:center:0]]

Sony can’t use that model with the PSP Go because no retailer would sell it. From the perspective of retail, this is a razor where the consumer never has to come back for replacement razorblades. Why would Amazon, Wal-Mart or GameStop sell a device they make little or no profit on if there are very few opportunities for the add-on sales that normally make selling game consoles profitable?

The high price of the PSP Go is a concession to retail. The cost you pay is significantly more because no retailer would carry the device if their wasn’t a much bigger profit margin than there is for the average console.

It is an unfortunately reality of digital distribution that even as Sony releases a device where once you buy it you aren’t going back to the store in order to get new games and you certainly aren’t reselling the games you’ve previously purchased, those stores that are getting taken out of the loop are the places Sony must rely on in order to get the console into their customers hands.

48 thoughts on “P$P Go

  1. Great post, and great insight. (Although I admit I had to do some soul-searching before setting it live with that title. In this case, fortunately, it was ultimately warranted.)

  2. The PSP Go = RIP OFF! $250 dollars is a LITTLE high.

    Save your money people.

  3. Enjoyed the post. I am thinking of getting a PSP still, but I think the 3000 is the way for me!

  4. So the issue then is where do we stand as consumers? Me, personally, I already have a PSP with a broken UMD drive and an internet connection, so there’s no incentive to spend the money to fix the drive now that I can just download everything (Of course, then Persona PSP had to go and offer a soundtrack pack-in…) but I’m not everyone. Will consumers spend that extra money?

    Not to mention, digital distribution is still a foreign concept to a good chunk of consumers. A lot of people didn’t even know their systems COULD connect to the internet in a survey I read about a week ago. Is it even worth the risk? Time will tell, I guess.

  5. Yeah, I came away from E3 thinking there was little to no reason to “upgrade.” The controls feel worse (that recessed analog nub is just awful), the sliding screen doesn’t protect the LCD display any better than the existing model, and as has been pointed out, I can already reap the benefits of Sony’s new focus on digital distribution with my current PSP.

  6. Yeah, that makes sense, but I don’t care. :P Next week, I’m buying a PSP 3000 with 4 gigs of memory, a copy of Rock Band Unplugged, and voucher for a School of Rock download (… which I don’t really care about, but it’s there) for $50 less than what a PSP Go will cost.

    Seriously, if they can’t release it at a reasonable price, there’s no reason for anyone to buy it. It doesn’t matter if they can find it at a store or not.

  7. wow… Parish, I never really thought about it that way. As much as I pitched a fit about the Go!’s price, I am pretty sure I will pick one up eventually.

    Sorry… but your razor / razorblades analogy cracked my feeble brain at this ‘early’ hour.

  8. This is all well and good if the games end up costing less to download. As it stands, I can pick up a bunch of great used UMDs for as little as $10, sometimes less. Downloadable games won’t drop so fast.

    Plus there’s the whole “not physically owning it” problem. It’s a shame that custom firmware users abuse the system, because copying your games to the memory stick is such a great advantage.

  9. Well by the same arguement, couldn’t they offer to sell it direct via shipping and bring the price down? If they’re coing to cut out the middle man, why not go whole hog?

  10. Daikaiju– Sony still desperately needs retail support behind its other products, so cutting retail out of the equation entirely would be an act of business suicide. Also, Sony is probably not going to make enough money on digital distribution to break even on creating the infrastructure needed to fulfill those kinds of customer orders.

    Amazon is in a much better position with the Kindle: they sell the razors and the blades, and they already compete with the brick-and-mortar bookstores whose business model is threatened by digital distribution.

    An alternative model for the PSP Go would be price it appropriately (at less than the current model) and then institute revenue sharing for retailers from downloaded games. Slightly different firmware would tell Sony where you bought the device, and you’d get a branded PSN storefront: Wal-mart presents PSN.

  11. I’m not sure Sony will be able to sell their downloads for much, if any discount. While I realize it was “an experiment”, Patapon 2 costs the same in retail as it does on PSN, with the consumer benefit of a case, and Sony’s loss at having to manufacture and ship said case for a game that exists as 1’s and 0’s.

  12. remember that for the forseeable future, you’re gonna be able to buy downloadable games from retail–they’ll just be boxes with download vouchers inside. this is ostensibly for the grandmas buying games for junior, but the real reason is to keep retail happy.

    If i ran the company, i’d probably set up kiosks in stores where people could go and get downloadable games dumped to their systems–this way physical media is phased out AND retail still feels relevant. just send them discs with package files on them when the new games are released, and have them install into their kiosks for day and date release, and we’re golden.

  13. “If i ran the company, i’d probably set up kiosks in stores where people could go and get downloadable games dumped to their systems”

    Pretty sure that’s the plan.

  14. Most PSP games that are released on PSN are done so at considerable discount compared to retail. A lot of their legacy games that are put on the service are only 10-20 dollars. If you try to find the harder to find titles used, you might end up paying a lot more, especially considering if it’ll require taxing or shipping. Even new games are sold at relatively low low prices. If Patapon 2 was sold in stores, it would have been $30-40. It’s a $20 download. As much people here say it won’t ever get a price reduction, games get price reductions or sales on PSN all the time. If anything, price reductions are going to be more frequent because they won’t be screwing over retailers with devaluing their current stock of an item. If people look at their consoles as investments instead of one-time purchases, you’ll easily be saving money over the long-run going the PSP Go + digital route vs PSP lite + disks.

  15. I’ve always thought of the kiosk idea as a reasonable one too, Shivam. Nintendo did it in Japan way back with the Famicom Disk System and quite possibly one of the special types of downloadable carts for the Super Famicom. In addition to keeping retail in the loop, it presents an alternative for people who would rather not wait through lengthy internet downloads.

  16. Taidan — the downloads won’t be any cheaper than buying the games at retail, and will sometimes be more expensive than the physical media if you take into account markdowns and used games. The savings of digital distribution vs physical distribution isn’t going to be passed on to the consumer any time in the near future.

    Shivam– pretty sure the downloadable vouchers for specific games won’t be widespread. If, as Sony claims, they are going to do a DLC and UMD version of all games from now on, retail will get the physical media only, not both. Retailers don’t want to confuse their customers with two versions of every game. PSN cards can pick up the slack for consumers who want digital downloads but don’t have/want a credit card to pay for them.

    Roto13 – Something I can’t wait to see is if the rumored kiosks for loading up a memory card with games comes to pass. It would solve more than a few problems, including consumers who don’t have internet access (as many rural gamers do not) and might be a way to keep retail in the loop. Of course, the DVD rental kiosks have shown that you don’t have to ghettoize that kind of initiative to specialty shops. In fact, something like that has already happened in the short history of video gaming: Famicom Disk System and the kiosks where you could take rewritable floppy disks and have new games copied over your old ones

  17. Ken-

    Patapon was a $20 title and only available via UMD. Patapon 2 was a $20 title and only available via PSN. I’m not seeing the savings.

    I bought Jeanne d’Arc for PSP for under ten bucks. The digital version is more than twice that. I also sold my copy of Jeanne d’Arc when I was done with it and made almost all of my money back. Good luck doing that with your digital download!

    PSN versions of PSP games won’t be cheaper than their retail counterparts because than retail won’t order the UMDs. Like it or not, we’re still at a point in the cycle where retail matters a great deal. When and if we get to the point where retail isn’t a concern anymore, you still won’t see any kind of savings because there won’t be any competition!

  18. Well-reasoned explanation of their mysterious price hike. It doesn’t excuse it or convince me I should swallow that extra cost, but that’s not your job!

    BTW I bet this PSP Go-es over like a lead balloon in Japan. They are often willing to pay more for less around here (case in point: Japanese Wiis do not come bundled with any software) but not if it means using the spooky *gulp* INTERNET to buy and download all their games.

  19. Just pointing out that %-wise the DSi and PSP Go have the same price increase over their respective ancestors. I wouldn’t be suprised if they used that as a guideline for their pricing.

  20. I dunno, the Japanese LOVE buying shit online with their mobile devices, so how is this any different?

  21. The point is that the new DS offers increased functionality for the cost. The PSP Go offers less functionality. The DSi price increase is easier to understand because of this, whether that is a reflection of reality or not only Nintendo’s accountants know.

  22. I’ve purchased every other model of PSP, and I have to say that I 100% agree with you about the new PSP. How can they ask more for less? I’m going to save my money and maybe if the price goes down significantly (someday when it’s in a clearance bin) I might pick one up. Maybe.

  23. I found the article to be pretty insightful, but I think it dodges the elephant in the room. Can Sony turn a profit on this new system? Can it make a substantial movement into retail’s market share? Can it succeed or is it going to be one of those devices we lament in a few years as “ahead of its time”?

    I personally don’t think the device will do as well as the DSi at launch, but a good advertising campaign could give PSN some increased market share over time. Sony’s renewed focus on the PSP is likely to net a few more consumers, but I doubt the PSP Go or PSN can really make any headway against the DS or the retail conglomerates.

  24. Somebody else suggested it’s to counter the losses Sony has been taking on the PS3, and that they seem to be targeting the people who are looking at the iPod Touch, which is at a similar price point.

  25. I could be wrong, but aren’t the retail margins on iPods remarkably slim too? Other than accessories, how does the retailer make any money on these?

    And I’m with Cartman up there, I figured it was priced so it would place itself in league with the iPod Touch and separate itself from being a game console, to be an all encompassing media player that just happened to have a library of a few hundred games for download. It seemed like part of Sony always wanted it like this, anyway.

  26. I’m not sure expecting the GO to cost less at retail than the PSP3000 is reasonable. Your trading the UMD for 16GB of flash, which is certainly not an even swap in terms of cost, but there is also the cost of re-engineering the device itself. It’s not just a matter of shrinking things down, but redistributing electronics into a completely different package, with mechanical slide in between which would require extra connections, etc.

    The GO still seems overly pricey, even taking that into account.

  27. Apparently the UMD drive costs more than 16 gigs of flash memory. And I believe it, since UMD drives are only used in the PSP and nothing else.

  28. At the end of the day, it’s $90 more. I, along with everyone else on the planet, was expecting a touch screen AT LEAST, and maybe an extra analog nub (less realistic, but Sony already did that with the PSOne). This model makes sense for Sony, but not much sense for existing PSP owners and retailers. And quite honestly, if I were a new consumer, there’s no way I’d buy this. UMDs are awful and having all games on one system is great, but only if the price is tolerable. It works on PSN and Live Arcade as a place to release small projects.

    Then again, Apple gets away with selling a single song for $1.00, so what do I know.

  29. Anyone who was expecting anything like a touch screen or second analog nub was deluding themself. This isn’t the next generation of PSP. It’s a new version of the existing PSP. They’re not going to do anything with it that would drastically change the way games are played.

  30. The issue isn’t one of it not being the same generation hardware, it’s that the changes to the hardware (basic form factor alterations, built-in flash memory, bluetooth, UMD drive removal) don’t justify the markup of close to $100. All of the basic functions can be performed on any previous model of the PSP, and none of those models received anything more than $30-40 IIRC over the ones they replaced upon release.

  31. Interesting analogy, but such a situation hasn’t prevented any of those retailers from selling MP3 players.

  32. They don’t offer them yet? Huh. A little surprising. Given that Nintendo points have been available at B&M retail, I don’t see why Sony couldn’t follow suit.

  33. Thanks Levi. Honestly articles like this should have been the first and only thing people wrote about after the announcement at E3. As far as I’m concerned, I refuse to buy a PSP Go at least until retail’s margin on the system drops dramatically. I want my systems and games, but don’t feel I should have to buy them in stores. If Sony had sold the Go direcct to consumer for ~200 I wouldn’t be complaining.

  34. I think this is yet another situation where Sony is pushing an agenda in the face of reality. From the consumer’s perspective, this piece of hardware has no reason to exist. If they really wanted to change business models, they should have waited and changed it when they introduced the next portable platform. As it is, you’re buying a more expensive console with a smaller screen and fewer features to play games that are going to be more expensive, since you can’t wait for a price drop and can’t sell old ones to subsidize the cost of new ones. It’s just a terrible deal from any perspective except Sony’s.

  35. I agree completely. The PSPgo is a total waste of 250.

    However, there is a solution to the digital distribution vs. retail problem. It’s one that Apple has been happy to exploit for a long time. iTunes cards.

    It would, in theory be a simple thing for Sony to implement a system similar to that. Gift cards with a certain amount of PSN store credit placed on it. Or even cards that will specifically let you download one game. These are cheap to produce, and give you something to place on the retail shelf.

    This may seem silly to some of you, but iTunes cards sell like a TON, people use them a lot more than you think, especially for gifts. There hasn’t been a birthday or holiday in the lsat 4 years where someone I know didn’t either give, or receive one of those. Beyond that, my wife has never ever put a credit card into iTunes, and only buys iTunes cards when she wants new music, out of fear she’ll just run up her credit card. So the cards give her a measure of control.

    I think this model would work very well for PSN, Wii Store, and Xbox Live. It’d be even better if the big three could agree on a unified system—but now I’m reaching for fairies.

  36. Again, PSN cards are already a thing. :P (And so are Nintendo and Microsoft points cards.) And actually, the news broke today that PSN cards are finally available in Canada! Hooray!

  37. Stiv – Adding games and accessories onto a PSP sale is how retailers make a profit on the product — even if the customer rarely if ever comes back for new games. There is a potential for profit with the PSP that the GO lacks, and I believe the higher price of the GO is a concession to retail because of that.

    That is not to say that it is not also true that retail will be happy to consolidate their PSP sections. Shelf space is one of the most valuable things in a retail store, and every inch of a store’s layout is analyzed and amortized. Getting rid of slow selling UMDs is something that was probably inevitable regardless of the GO being released or not.

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