In a new booked called The Race For A New Game Machine, he describes how the project went off the rails, ending up with IBM engineers creating the processing chips for two rival video game consoles. In the process IBM sold parts of the cell processor design to Microsoft for their Xbox 360 and Microsoft benefited from over $400 million in R&D funded by IBM, Sony, and Toshiba. The R&D teams worked in the same building and in some cases Shippy met with Microsoft engineers right after meeting with Sony engineers. Ultimately Microsoft benefited a great deal from Sony’s work on the cell processor. Microsoft launched their Xbox 360 a year before Sony launched their PlayStation 3 and the rest is history.

Sony made two big bets with PlayStation 3. First was the cell processor which promised to be a breakthrough in computing power and bridge the gap between x86 architecture and specialized hardware. It proved to be challenging to develop for. The second big bet was on the Blu-rayDVD format. This bet was a mixed blessing. The shift from standard DVD to HD DVD has been much slower than other industry format changes. Sony ultimately won the format battle with Toshiba but they might have lost the war. The Blu-ray drive which is included in every Sony Playstation 3 causes the price of the PlayStation 3 to be $200 more than other consoles like the Xbox 360.

PlayStation 3′s run rate has a compounding negative impact on Sony. Game developers are less likely to build blockbuster titles something the PlayStation 3 has lacked.  Even more important are the third party royalties that come with licensing the PlayStation 3 platform and contribute a majority of profit to Sony’s gaming business. The PlayStation 3 has become a big boat anchor on Sony’s bottom line.

The Wii has been a run away success from a unit perspective. Nintendo cracked the code, broadening the gaming category by pioneering physical game play. Xbox 360 took the next gen gaming console to a new level by creating games in full HD. Microsoft also created an online service with Xbox Live that made games more interactive and social. Microsoft also addressed the expense of game development by creating a tools platform with XNA that makes it easily and cheaper to develop games. All in all Nintendo and Microsoft have both made significant strides in the console wars. Sony seems to be left in the dust.

The best part of the product is just watching movies. Netflix (NFLX) has standard definition movies and a limited selection of HD movies. I went on a 30 Rock marathon watching the HD version of season 1 and 2. The video quality was very good on a 1080p Samsung LCD. The speed of using the service was also impressive. Movies loaded fast and the navigation was pretty intuitive. But there were some areas that need improvement.  The setup process was a little complicated. I had to install the app on Xbox 360. Then I could sign up for Netflix in the Xbox 360 UI or sign in to my Netflixaccount. Once I signed into my Netflix account I had to go to my Netflix account and get a code to authenticate my Xbox 360 with my Netflix subscription. After that I thought I could just start browsing the movie catalogue from my Xbox 360. Wrong. I had to add the movies from Netflix.com to my Instant Queue. Once I added the movies they instantly show up in the Netflix app on Xbox 360. Once I got everything setup I was really happy with my experience. After watching several movies through the service I begin to wonder if Sony didn’t just waste a few billion dollars winning the HD DVD War. We might be getting closer to the world where I can get all my content digitally and I don’t need to go physically buy it any more.