Sony has to anticipate the customer’s wants before they want it. Even though the PS2 still sells by the truckload, each generation of videogames is very different and a company can easily fall from the top in only a few years (see SEGA). I think PS3 will still do well, because the demand for HD gaming & movies will only increase, but it will be a luxury item for a long time. What they should have done is released a cheaper non-HD PS3, without BluRay much like Nintendo’s strategy. I think Nintendo knows that HD adoption is still about 4 years out, so they can release an inexpensive 480p console now, and worry about HD later.

My take on what went wrong in this instance: they did not manage complexity.
They let it grow and grow and did not believe that ‘code debt’ was a reality. It soon took 10 times longer to make even the simplest changes because of the very poor state of the code.

I have seen this happen at several companies and it’s usually the same story. There are B and C level coders that don’t understand the dangers or code complexity or code debt and thus create loads of both. The A level coders that do understand this try to explain the growing problem to management. The management doesn’t know any better, so they see code cleanup as a needless expense that will only slow down rolling out new features and so they side with the B and C level coders. Of course, the irony is that development will eventually crawl to a near halt because the code is undecipherable. Along the way the A level coders get so frustrated with the state of the code base that they leave the company for greener pastures. This is the critical turning point since the B and C level coders will only hire other B and C level coders – and the project will die a slow death as the cycle continues.