With the development of a new technology, it seems man will always find new ways of making money, so was E-Commerce born with the Internet. According to Visa, E-Commerce activity in the region (Asia) has been growing at a rate of 80% to 100% a year. The largest growth has been from each country's own domestic online commerce. Korea and Japan, for instance, reported over 95% growth in terms of money spent on their domestic shopping sites. Huge conglomerates have since been moving more of their commerce onto the Internet. A recent giant that decided to join in the 'melee' is Sony with the launch of their much-anticipated PlayStation 2(PS2).
On 13 September 1999, Sony Computer Entertainment Inc. announced that it would establish a revolutionary computer entertainment system, PS2, as a platform for Internet-based electronic distribution of digital content in 2001. (Sony Computer Entertainment Charts PlayStation®2 Network Strategy, 13 Sept 1999)
According to the press release, PS2 users will be able to download extensive computer entertainment content to hard disk drives to be provided by Sony Computer Entertainment through a broadband access network. The PS2 will also carry USB ports and later on, connectors to mobile phones and PDAs, allowing the same Internet capabilities on TV as the smaller devices. More than just a games console, the PS2 will offer support for DVD Video, be able to function as a set-top box Internet access device and also feature a PC-Card interface through which it can be connected to broadband networks.
Besides the above features, what differentiates PS2 from 1 is the amazing graphics promised by its creators. PS2 is said to carry graphics like never before, humanizing each character in its games and creating life-like environments to immerse the player in. As such, Sony has named their new console the "Emotion Engine", meant to evoke real emotions for the characters that the player is playing. Some of the features on PS2 are listed in Appendix I.
Sony's Vision:
The Sony giant woke up when it realized that the future lay on the Internet. Having already established itself as a consumer electric and media group, it wanted to become an Internet company.
Today, there is a digital content market worth US $180 billion in Japan alone, and Sony wanted to be the first to tap into it when it moves online. Hence, the creation of PS2 was meant to capitalize on this market, in the hope that people would use the console to purchase Sony digital products online with its Internet broadband connection. They envisioned the day that consumers could go online, play, chat, browse, e-mail and download music and movies, whilst shopping for their favourite Sony product.
To do so, Sony is aiming to offer hardware, software, content and services that can be used with broadband access, as a one-stop solution to a person's entertainment needs. In particular, they hoped that PS2 could be used to sell all of Sony's entertainment content, where users can just 'pay-and-play'. However, it would seem that their E-Commerce strategy veers towards one of a closed market, where only Sony products are available for purchase through the console. However, their strategy would involve a greater streamlining of their marketing efforts to their target audiences.
Some of the changes that Sony has added into PS2 include changing its hardware and content, linking up with other conglomerates, having links with JP Morgan and taking over Sakura Bank, setting up web stores and providing better security for their E-Commerce channels.
In terms of hardware, Sony is building PS2 as a gateway product for the sale of their unique entertainment content online. They have also been developing unique content such as movies, music and games for future E-Commerce, a feat that has stretched much of their capital. Indeed Sony was taking going online seriously. Their ultimate aim was to develop a total Sony information and entertainment community for users.
As of June 2001, Sony had made multiple plans and signed multiple contracts with companies from all areas to serve their vision. Their initial goal was to launch the PS2 online gaming service in the fall of 2001. PS2 would include Web browsing, email, and chat. Hence Sony has linked up with companies such as network equipment giant Cisco Systems, RealNetworks' Real Player and Real Jukebox software, Sun Microsystems, America Online, RTIME and Sega to provide additional services to PS2 consumers to enhance the overall Web experience.
Some of the promised features of PS2 included incorporating Cisco's software into PS2 to give game users faster and broader access to the Internet, teaming up with Real Networks to bring streaming audio and video to PS2, which would include having Real Network's Real Player and Real Jukebox software on hard drives that can be added to PS2 consoles. With this add-on, consumers will be able to view video on demand, download music to be played off the PS2 and use the console as an Internet radio. With Sun Microsystems, the Java platform developed by Sun would be integrated into PS2 such that all Java applications can be run on PS2, and allows highly secured and easy communication with other Java-enabled clients such as wireless handsets, PDAs, interactive televisions and other network devices. An alliance with AOL was an obvious move intended to outflank Microsoft in the digital market. With PS2's new Internet capabilities, there was a need to give it a push forward to keep ahead of Microsoft's XBox, touted to have similar abilities in future. With this collaboration, PS2 players can use the popular instant messaging, chat, e-mail functions while playing a video game. Meanwhile, there are also plans to create a Netscape browser for PS2. According to Kaz Hirai, President and CEO of Sony's PlayStation USA, "It's the first step in moving the PS2 into a broadband environment."
From the commercial perspective, an alliance with RTIME is timely in helping to build the tools for developers to support the PS2 network. RTIME, Inc. is the leading provider of commercial networking software that enables real-time, multi-user applications over the Internet and broadband networks. This will allow gamers to do things such as talk to each other via a microphone or even see each other with web cams. However, Sony has made no official announcements about these possible features.
Finally, a surprising but nonetheless lucrative move on Sony's part, collaborating with Sega (NewsFactor Network, 5 June 2001). This would not only expand both of their online gaming market by at least two times but will also help each other to overcome other competitors like Microsoft and Nintendo. This is despite Sega's recent release of Dreamcast, which has been said to be a close competitor with PlayStation. No concrete plans of the collaboration have been released but it has been revealed that it would include the ability of both consoles to play each other's games online.
A third feature that Sony had intended to incorporate into PS2 was virtual banking. According to CNN, this surfaced in June 2001 and in tune with its E-Commerce plans, Sony was to launch a full-service online bank. (CNN Asia, 8 June 2001) Some suggested initial services include yen-deposit accounts, investment trusts, credit cards, bank transfers and bill paying. Sony's takeover of Sakura Bank and tying in with JP Morgan was intended for this purpose. This means that consumers will be able to use the PS2 in the living room to debit those Sonystyle.com purchases, downloaded through the Sony interactive television. These consumers will even be able to use a special Sony credit card to pay for their purchases.
The next strategy would be using the current PlayStation websites that are existent as a platform for E-Commerce. These websites provide places where the PS2 itself, its peripherals and other compatible games can be sold. Currently the website allows for online ordering and delivery offline, as to pre-empt their vision of E-Commerce. The online availability of demos in these websites give customers a hint of what they have in store for the potential consumers. Sony has also invested in a pan-European E-Distribution Centre, nine contact centres across Europe to support the websites, appointment of European transportation providers for direct-to-home delivery and finally three return centres to process returns and perform repairs on the PS2. (Accenture Case Study: PlayStation.com (Europe)).
This was no rash action on Sony's part for the current more primitive E-Commerce can help Sony establish its potential customer base. At present, the customer service department can keep the demographic information of the people who actually already buy their products online, thus allowing narrow casting in its marketing of the product. They would be able to anticipate what is the best way to target each group in encouraging sales in E-Commerce in future. Moreover, with the information they have from each current buyer, they would know that these are the same people most likely to be the opinion leaders of their launch of PS2, as well as the pioneer adopters of their future technology with the coming of broadband.
Buyers aside, even with the running of fan clubs like the PlayStation Underground, Sony can rally all its fans at a single area and do its selling there, for it can be ensured that most of the people who are members are interested in the PS2 and its capabilities. The presence of message boards and forums also provide areas where Sony can monitor for feedback on their product and services and learn how to improve on them. For e.g. Sony Computer Entertainment Australia sells PS2 Entertainment Centre online. Customers are able to browse through a product catalogue, collect their order over a secure connection. Other websites include PlayStation Europe (ref. APPENDIX II) and PlayStation America.
Lastly, Sony needed to do something to ease the fears of buying online. It announced that it would use technology from encryption software leader RSA Security to protect the privacy and security of PS2 users. The software will secure all data transmitted online during gaming and other entertainment activities, including Web browsing and E-Commerce transactions. The software also will protect data that is stored on the PS2's hard disk drive.
However, all this only shows how much time and effort Sony had spent in launching and revamping the PS2 for its online strategy, yet why did Sony choose PS2?
Sony chose PS2 with many reasons in mind. It wanted to use the game to swell the E-Commerce market before moving into networking. It had hoped to use PS2 to break into the E-Commerce market with the knowledge that the game already had a huge following. Moreover Sony as a brand name would also help to market the product as a safe and convenient way to buy online.
Firstly, Sony knew that much of its market of consumers lay with children and young adults who made up the bulk of their PS2 fans. Selling PS2 to its young adult fans would naturally sell the accompanying Internet capabilities and is an expected strategy. However, Sony also knew that children who wanted PS2 would in turn convince parents to purchase the game console and its accompanying capabilities. As children can be more persuasive of adults than Sony themselves, Sony 'employed' a case of indirect marketing. Thus, mothers and children would then be exposed to the online shopping concept, two demographic groups which at present have been left out in E-Commerce.
Besides the children and mothers, a new market that Sony was hoping to target was the 'baby boomers' generation, which have yet to be engaged much in the gaming industry. By adjusting their type of games and graphics in PS2, Sony hopes to convince this group to purchase the console, and since they have much buying power, also convince them to use the accompanying E-Commerce services.
The whole concept behind the above-targeted groups is to use the Sony brand name and people's interest in PS2 to overcome their fear and hesitation in trying out E-Commerce. Fears about privacy and insecure connections can be thus overcome and hopefully more people would buy online.
Another major factor about PS2 that will set Sony above the rest is its already established websites and fan following. With the websites in place, Sony has been building trust and relations with its fans on the PlayStation websites, where the people who visit them are most likely to be avid fans of the PS console. This actually collects their targeted market at a certain point and makes marketing so much easier for Sony. These people are also most likely to be IT-savvy and capable of using whatever new features that the PS2 will carry.
Hence, indeed it would seem PS2 is the key for Sony's success in the E-Commerce market. To date, Sony PS2 has been already released for sale in Japan and America. So did it fulfil all the promises that Sony thought it would?
Unfortunately for Sony, since then development costs and production glitches mounted, eating into profits in Sony's better-performing electronics division. This arose from the sluggish PS2 game console sales, its costly handset recalls, and the recent slump in Japan's PC market. The PS2 game console chalked up heavy losses due to development and marketing costs for its launch, and a graphics chip glitch. This was worsened by the inability of Sony to match up to the initial demand for the game. Since its release, Sony made the mistake of accepting more online orders than it could fulfil resulting in a major backlog in delivery. This caused dissatisfaction among its potential customers and a loss of the trust they need in order to encourage E-Commerce in the future.
Other supply complications have arisen as well, which forced Sony to limit production. The U.S. and Japan have reportedly asked Sony to halt plans that would have resulted in the PS2 game console being made in China. The request is due to fears that the DVD capability of the PS2 could be converted to military use, according to published reports (E-Commerce Times, Mar 2001). Military experts were also quoted as saying that the PS2 contains a graphics processing facility quick enough to help guide certain types of missile, such as the Tomahawk, towards their target.
Already under such pressures, Sony still has to deal with the fear that its competitors are close on its tail. The appearance of rival high-tech consoles from Nintendo's Gamecube and Microsoft's XBox has threatened PS2's position and the hype over PS2 means it must deliver as promised, which it did not.
However, according to ZDNet News, PlayStation 3 is in the works (to be launched in 2nd quarter of 2003) and Ken Kutaragi, CEO of Sony Computer Entertainment and Father of the PlayStation revealed that Sony hopes to merge content from other divisions such as Sony Pictures and Sony Music (ZDNet Asia, 7 July 2001). They hope to establish a direct chain of distribution with the PlayStation 3 serving as the platform hub. Additionally, Sony's plans for the PS3 include online shopping functions, online banking, and other interactive Internet services.
Sony has hopes of making the next PlayStation 1,000x as powerful as the PS2, with specific plans for developing advanced graphics chips for the console. However, with the PS2 in relative infancy, specific details regarding its successor won't be revealed for some time. However, it is interesting to note again Sony's strategy in leveraging its other divisions by further proliferating the PlayStation brand in the mass market.
However, one can say that Sony's plans are fraught with dangers. For one, both broadband and E-Commerce adoption rates have been slower-than-expected. It is estimated that by 2005, maybe only 30% of the population will be connected to broadband and according to Reuters, US has been experiencing a slide in online purchasing behaviour (Reuters, 30 Aug 2001). The current experience with PS2 has also lost the trust of many of its fans and it would take time and effort to regain it. Not to forget that there will always be the presence of Sony's competitors breathing down its neck.
Lastly, although Sony has promised security with its new software for online transactions, security can never be guaranteed. Even if they do so most people will remain suspicious and sceptical. This is because with all the bad publicity about hacking and virus attacks, people have already grown wary about the Internet.
Conclusion:
Based on present reports, it would seem unlikely that Sony can still conquer the online digital content market first. With all the bad publicity and disappointment over PS2, many have lost confidence in the console to do the things Sony promised. Reports from the IDC Media Advisory estimate that only 20% of the installed-base units in PS2 will get online by 2004. True Sony is now developing PS3, which it promises everything that it had once promised with PS2. It is déjà vu all over again and one cannot help but be sceptical about it.
Besides by the promised date of release of PS3, it is likely one of its competitors would have caught up and done what Sony hoped to do first. This is especially when with all the publicity of Sony PS2, competitors have seen what they hoped to achieve, and Sony has lost the element of surprise. The publicity has only made it easier for competitors to follow or even do better. One certainly hopes that for Sony's sake, PS3 can provide the turnaround that it needs so badly now.
APPENDIX I:
Specifications and Features of the PS2: (Available: http://www.cnn.com)
CPU 128-bit "Emotion Engine"
System Clock Frequency 294.912 MHz
Main Memory Direct RDRAM
Memory Size 32MB

Graphics "Graphics Synthesizer"
Clock Frequency 147.456MHz
Embedded Cache VRAM 4MB

Sound SPU2
Number of Voices 48 channels plus software
Sound Memory 2MB

Input Output Processor I/O Processor
CPU Core Enhanced PlayStation CPU
Clock Frequency 33.8688 MHz or 36.864 MHz
IOP Memory 2MB

Disc Device CD-ROM and DVD-ROM
Device Speed CD-ROM-24x speed
DVD-ROM 4x speed

Interfaces
Two USB ports
One IEEE 1394 port
One Audio/Visual Multi-out port
One PC Card/IF Type III slot
Two Memory Card slots (for 8 MB Memory Card)