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Playing the Fool
How Sony inadvertently helped a competitor and lost position in the
videogame market.
By JONATHAN V. LAST
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.
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