Game Platforms and the Future of the Internet

The launch of the Sega Saturn and the Sony Playstation, the impending launch of the Nintendo Ultra 64, and the announcements concerned 3DO technology all make game platforms sound really hot. Is there any rational reason for this? Or is it another case of media enthusiasm (or even -- dare we say -- hype)?

Since the e3 conference in May in Los Angeles (and well before then with our clients), we have been pointing to the enormous gap between those segments of the population that own PC's and those that own Videogames. In this brief note, we will refer to a key exhibit we used at the e3 conference and argue that it points conclusively to the emergence of a new platform that will embody PC functionality, but will not be a PC.

This note is prompted by some comments in a recent column by Bob Metcalfe, Publisher and Internet Editorial columnist for Infoworld. (See InfoWorld, October 23, page 59). Prior to Metcalfe's column, Larry Ellison (chairman of Oracle) and Scott Nealy (CEO of Sun Microsystems) had both, and separately, forecast -- and even promised -- delivery of a low cost ($299) internet access device. Metcalfe then reports on the "buzz" at Agenda, a conference for industry leaders at which this topic surfaced again. In Metcalfe's comments, and in the references of other spokespeople, videogames come up as an important point of reference.

The reason why is clear.

In our Computer/Videogame Benchmark study, which we conduct annually in the late fall of each year, we consider the characteristics of households with various platforms and the characteristics of those who intend to purchase or upgrade to various platforms. The results of the '93 study showed interesting skews in the distribution of PC households -- toward upper income, well educated, white households. The '94 study confirmed this skew -- and even more importantly, showed that it was not moving. More recently, our study of Windows '95 buyers (see Windows '95: The First 30 Days) confirmed the upper income, well educated characteristics of PC users.

And here's the point: if the PC is the gate through which one has to pass to gain internet access, the internet is going to be a rich boys toy for a long time. But if one had internet access through a low cost, plug and play console (ie, an advance videogame system), the consumer market potential for the internet would triple at once!

The consumer data speaks volumes.

The results of the '94 study are summarized below. In this table, the following definitions apply: HH means households; household income is annual income as reported by respondent; percent with children refers to households with children under the age of 18 living at home; VGS refers to Video Game System (any model) and PC refers to personal computer (any brand or generation).

In this table, we are talking about a total of 40.1 million US households out of about 95 million -- or just under half the total population. The total number of Videogame households 26.9 million (VGS Only plus the PC and VGS households); the total number of personal computer households is 20.5 million (PC Only plus the PC and VGS Households). Note that the date of the field work on this study is the first week of December 1994. More recently, we have measured total PC households at about 29.4 million. (See Computer Ownership for more details.)

Infrequently in the analysis of consumer behavior patterns do we see such distinct differences between the owners of products that are often linked together in the same category. The PC household is older, has higher income, is less likely to have children at home, and is white. The VGS household is younger (on average, by 6.5 years), has lower income (about $20,140 less), and is more likely to be "of color". These two groups are radically different.

Interestingly, the household that has both a PC and a VGS is like the PC Only household in some ways (better educated, higher income) and like the VGS Only household in others (average age, percent with children, and percent non-white).

Markets -- With Limits and Without

The conclusion we draw, and have argued repeatedly, is that the PC market has yet to show that it can break out of this "upper income ghetto". Therefore, it is a limited market. This is not a theoretical argument. This conclusion is the result of careful study of the demand side of the new media markets -- a side of the equation that is often overlooked by commentators focusing on suppliers. And as a limited market, Mr. Gilder and Mr. Negroponte would then both be wrong about the future of the PC!

The PC market can continue to grow, however, because there are households with these demographic and social characteristics left who have yet to buy their first computer. And increasingly, we're seeing a trend toward multiple PC's in households that own PC's. But this is not a mass market.

A product that was priced right (like a videogame machine) and that was easy to set up and use (like a videogame machine), however, could indeed find a mass market. Videogame systems are generally found in households with children (some young adult households also have them); but the new media platform that these numbers point to could easily appeal beyond those households to the general public.