Playing the Fool
How Sony inadvertently helped a competitor and lost position in the videogame market.
Like dynasties rising and falling, videogame systems enjoy periods of ascendancy and popular support, only to be thrust aside by a new and conquering power. First came Magnavox Odyssey (in the 1970s), then Atari consoles, then Nintendo, which dominated the market for the better part of the 1980s. In the early 1990s, Nintendo's Super NES and Sega Genesis battled each other for supremacy. Each found enough competitive room to lay the groundwork for the modern videogame console, which has become something like a dedicated personal computer.
It was in the mid-1990s that Sony dropped Playstation into the console market -- a graphics powerhouse that featured games for adults as well as for kids. Playstation was a huge success, selling more than 100 million units. Its 2000 sequel, the Playstation 2, was an even bigger one.
For the system's ambitious third iteration, though, Sony wanted an entirely new processing architecture. Most computer processing chips are built on the foundations of the chips that are already in use. Designing a new chip from the ground up is a costly and time-intensive process. So in 2001 Sony partnered with Toshiba and IBM to create the so-called Cell processor -- a chip so powerful that it would redefine PC-scale power.
David Shippy, as it happens, was in charge of designing the brains of the Cell, the processing core. In "The Race for a New Game Machine," he and his co-worker Mickie Phipps tell the story of the whole effort to build the Cell. They also describe how the project went off the rails, ending up with IBM engineers creating the processing chips for two rival videogame consoles and, along the way, delivering to Sony Corp. one of its greatest business failures.
When the companies entered into their partnership in 2001, Sony, Toshiba and IBM committed themselves to spending $400 million over five years to design the Cell, not counting the millions of dollars it would take to build two production facilities for making the chip itself. IBM provided the bulk of the manpower, with the design team headquartered at its Austin, Texas, offices. Sony and Toshiba sent teams of engineers to Austin to live and work with their partners in an effort to have the Cell ready for the Playstation 3's target launch, Christmas 2005.
But a funny thing happened along the way: A new "partner" entered the picture. In late 2002, Microsoft approached IBM about making the chip for Microsoft's rival game console, the (as yet unnamed) Xbox 360. In 2003, IBM's Adam Bennett showed Microsoft specs for the still-in-development Cell core. Microsoft was interested and contracted with IBM for their own chip, to be built around the core that IBM was still building with Sony.
All three of the original partners had agreed that IBM would eventually sell the Cell to other clients. But it does not seem to have occurred to Sony that IBM would sell key parts of the Cell before it was complete and to Sony's primary videogame-console competitor. The result was that Sony's R&D money was spent creating a component for Microsoft to use against it.
Mr. Shippy and Ms. Phipps detail the resulting absurdity: IBM employees hiding their work from Sony and Toshiba engineers in the cubicles next to them; the Xbox chip being tested a few floors above the Cell design teams. Mr. Shippy says that he felt "contaminated" as he sat down with the Microsoft engineers, helping them to sketch out their architectural requirements with lessons learned from his earlier work on Playstation.
The deal only got worse for Sony. Both designs were delivered on time to IBM's manufacturing division, but there was a problem with the first chip run. Microsoft had had the foresight to order backup manufacturing capacity from a third party. Sony did not and had to wait another six weeks to get their first chips. So Microsoft actually got the chip that Sony helped design before Sony did. In the end, Microsoft's Xbox 360 hit its target launch in November 2005, becoming its own success. Because of various delays, the Playstation 3 was pushed back a full year.
Mr. Shippy and Ms. Phipps view the delivery of the Cell processor and the derivative Xbox chip as victories for both companies. "Both Sony and Microsoft were extremely successful at achieving their goals," they write. But this is true only in the narrowest sense. The new chips certainly set the standard for technical virtuosity. Yet the current generation of videogame console has been dominated not by Sony or Microsoft but by the Wii, Nintendo's modest machine that relies on an older, cheaper and less powerful chip. With an input device that allows players physically to interact with games, the Wii has been yet another runaway success, selling almost as many consoles as the Xbox 360 and Playstation 3 combined.
In fact, the Playstation 3 now runs a distant third in sales. (And the trend is downward: On Monday, The Wall Street Journal reported that "U.S. sales of the PS3 fell 19% last month from a year earlier, while sales doubled for the Wii console and rose 8% for the Xbox 360.") For Sony, the Cell processor was such a debacle that two weeks after the Playstation 3 finally appeared in stores, the company fired Ken Kutaragi, the head of its gaming unit, who had championed the Cell and built the Playstation line. The lesson, lost on Mr. Shippy and Ms. Phipps, is that technical supremacy divorced from sound strategic vision is no virtue. It can even end up in disaster.
Mr. Last is a contributing editor of the Weekly Standard.
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lol. I bet that stings. Reminds me of when nintendo backed out on partnering with Sony...pushing Sony to make the PlayStation. "oops.' Gotta read the contracts and think about who ELSE can benefit. Like...you know...the competition. I presume Nintendo's CPU also benefits in some way from Cell R&D, as it too was made in Fishkill.
(side note: my advisor is one of the senior VP's at IBM. we've actually discussed this and several other issues related to the development of these consoles. you'd be surprised to know which he thought was the best console)
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