In 2007, Nintendo, Sony, and Microsoft were locked into a fierce battle for control of the console segment of the video game industry. More than $35 billion was spent on video game consoles, game software, handheld game devices, mobile games, and online games in 2005. Next generation consoles launched by Microsoft in November 2005 and by Nintendo and Sony in November 2006 were expected to drive industry growth to more than $51 billion by 2010. The latest generation of game consoles that were equipped with powerful microprocessors, hard drives, Internet connectivity, and HD resolution graphics were believed would generate sufficient interest in video games by traditional gamers and current non-gamers to allow the video console segment of the industry to grow from $3.9 billion in 2005 to $5.8 billion in 2010.
Microsoft, Nintendo, and Sony each utilized differing business models to maximize revenues and profits and varying competitive approaches to build advantage in the industry. With the next generation battle in full swing in early 2007, the initial results made it unclear who the eventual winner might be. Microsoft's one-year head start with next generation technology had allowed it to build an installed base of more than 10 million Xbox 360 units by January 2007, while Sony's installed base of PlayStation 3 units stood at just over 2 million units. Nintendo had been able to sell more than 3 million Wii video game consoles between November 2006 and January 2007. Some analysts believed that Microsoft could sustain its early advantage and achieve a market leading position by 2011. Others were convinced that Sony's 100 million-plus dedicated PlayStation 2 owners would eventually migrate to the PlayStation 3-giving it another 100 million unit selling console by 2012. Analysts did not know how the market would ultimately view the Nintendo Wii, which was the winner of the 2006 holiday season sales battle. In fact, the combined sales of the Wii and Nintendo's handheld DS and GameBoy Advance systems allowed Nintendo to account for 55% of all video game sales during the 2006 holiday gift buying season. There was some thought that the Wii's innovative wireless wand controller would prove to be a fad and the battle would ultimately be between Microsoft and Sony. With the next generation battle already fierce, but only into its first months, there was ample opportunity for additional maneuvering by all three rivals.
...And the ConsoleWars Continue.