That's basically it. While the Xbox and PS3 are competing over a relatively small market of serious gamers, Nintendo has chosen to broaden the market. I think it's problematic to say that all three of the video game consoles are competing with each other. Nintendo has sucked in the casual gamers and has reaped the financial benefits.
Eventually we will see Microsoft and Sony adjust their business models to tap into this market and compete directly with Nintendo.
The danger for Microsoft and Sony is the absurd profits that Nintendo is making right now. Most of those profits will be re-invested in research and development and market research. If Nintendo is smart about it, they can ensure that they have the technological edge to out-do their competitors and sell their customers what they want.
It's a game of catch-up for MS and Sony. Their business models are not profitable. Sony has lost millions of dollars making the ultra-high tech PS3 with the purpose of technologically dominating the gaming market. It hasn't worked, people didn't buy the console and the margins are too tight anyway to make any serious money. Xbox is a similar story, they tried to capture a large piece of the market by being the first entry. It resulted in millions of dollars of warranty issues and they only made money for the first time last year.
Nintendo has changed the face of the video game industry. There will always be a market for hardcore games but with sky rocketing development costs, we will see a swift scaling back of development into those type of games in favour of the cheaper to make, easier to sell casual games.
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