To be specific, they are releasing two versions of the PS3, one will be a stripped down model that will sell for $499, and then there is the one that everybody will want that will sell for $599. The "base model" (they probably call it core or something) lacks wireless theworking, has a smaller hard drive and does not have an HDMI output. Microsoft tried something similar with the XBOX 360, offering a cheap model which sold so dismally that it was cancelled in just a few months.

Now everyone knew that the PS3 was going to be expensive, reports were that it might cost Sony as much as $800 to build each one. Still very few expected it to be over the critical $499 price point, much less $100 over that price point.

The $500 price point is a very very large psychological barrier, people look at a price of $499 and they may think "That's kind of expensive", add just $1 to make if $500 and people will say "That's really expensive". Add another $99 and people ae going to decide that you are way too expensive.

This price tag will restrict initial sales of the PS3 to only the most hardcore gamers with lots of disposable income. Practially all casual gamers will say screw it and wait until the price inevitably drops. Recently a study was published of how much video game systems cost in the past, adjusted for inflation only a couple cost more than the PS3, and not only are those consoles not around anymore, with one exception (Atari) they are brands that few people can even even recall.

Sony's tactics are rather obvious, it all boils down to Blu-Ray?. The Next Generation DVD format wars are just starting to heat up, with Sony pushing it's own Blu-Ray? format ahainst HD-DVD. Current Blu-Ray? players cost something close to $1000 so Sony is banking that people will see the PS3 not as an overpriced game console but as a barigan of a Blu-Ray? palyer that doubles as a game console. They are hoping that people will buy the PS3 for Blu-Ray? and that sales of the PS3 will cause Blu-Ray? to win out over HD-DVD.

The reality is that Blu-Ray? isn't a significant selling point, few people even know what Blu-Ray? is, those that do also know about the format war between Blu-Ray & HD-DVD, most will wait until a winner emerges before to avoid betting on a losing horse. Sony can't count on Blu-Ray? selling the PS3, it will have to sell as a game console, and as a game console it's simply ridiculously expensive.

If Blu-Ray? comes out as the winner in the format war, sales of the PS3 will certianly rise, if HD-DVD is victorious then Blu-Ray? will end up being essentially a proprietary format used almost exclusively on the PS3. Sort of like UMD is to the PSP.

It's already been pointed out that you could buy a XBOX 360 and a Wii for the price of one PS3, and I suspect that many people will do just that. For myself I know I'm not going to buy the PS3 until two things happen:

  1. Gran Turismo 5 is released
  2. The PS3 can be purchased for under $400 (preferably under $300 but we'll see gow good GT5 is)

Of course I could be proven wrong, people have shown time and again that they are willing to pay extra for anything with the word SONY emblazened on it but I think the PS3 will be the toughest test yet of that phenomenon.