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Xbox Shortages Continue, Console Meeting Goals
Eurogamer reports that Microsoft is finally beginning to get some more 360 consoles into the retail channel. From the article: "Xbox does not announce details of shipments, but I can tell you that we're on track to meet our 90 day forecast of 2.75 to 3.0 million units ..." Despite that level of success, Microsoft is still disappointed with production levels and sales.
There are many preorders not filled. Many of the preorders won't be filled by christmas as it is, not to mention lots and lots of people who want one but didn't preorder. Therefore, assuming that their factories are at maximum output, they could not have made a release by christmas. The entire game industry considers it important to release things near christmas, so it made sense that they tried.
I'll never make that mistake again, reading the experts' opinions. - Feynman
So what's better with releasing late and have many available or release earlier and just have a few?
Well ignoring the irony of saying that you shouldnt take other peoples word for it, yet you appear to only have other peoples word for it that the shortages are on purpose...
IT isnt clear at all that they're using scarcity as a factor, you dont leave a good chunk of your pre-orderers without there product. Those are you most valuable customers and they have very little impact on the walk in rush that gets the media headlines. Makes no sense for them not to fulfill those orders. There's also the fact that the 360 was a rush to get out, games printing before final checks, tweaks to the system being made right up to the beginning of production. Not to mention MS want to keep production costs down and getting production up to a level that would succefully fulfill demand would cost them vast sums of money.
There isnt any real evidence to support the idea that MS purposefully restricted supply and a host of good reasons why supply would be short. Nothing clear about it at all.
Yeah, releasing a product right before Christmas is always a shitty decision.
Anyone who'd have bought it in Spring 2006 can still buy it in Spring 2006. If they can't get one because they're all sold out now, they're not waiting any longer than they would have if Microsoft had held off the release as you say they should have.
Scenario A: MS is capable of making 500,000 units and delivering them to the USA. They do and sell 450,000 by the end of the year (I think they'd sell out, but I'll be cautious). They therefor take in 450,000 * $350 (average price of the two SKUs), or $157,500,000 gross.
Scenario B: MS is capable of making 500,000 units and delivering them to the USA. They make 300,000 and sell them all fast. They end up with tons of pent up demand (150,000 ready buyers according to my numbers). XBox 360s go for as high as $1000 each on eBay. MS makes 300,000 * $350 (because they only get retail) or $105,000,000 dollars. They lost out on a possible $52,500,000 which would be 33% or ONE THIRD of their possible gross intake.
So by making a shortage they:
I see ONE of those that is good for them. That means they traded $50 MILLION for good press. Don't you think that $25 million could have bought them good press?
Your logic makes absolutely no business sense. The only way your idea would work would be if (as someone in an article suggested, someone from Forbes or CNN perhaps) MS sold them auction format or on a sliding scale against demand so that when the 360s sell for $800, MS gets $780 of it instead of $330.
But they didn't do that. So a false shortage makes NO ECONOMIC OR BUSINESS SENSE. If you disagree, please (using my hypothetical numbers) show me how they would have derived more than $50,000,000 worth of benefit with the false shortage.
Comment forecast: Bits of genius surrounded by a sea of mediocrity.
Sony != Microsoft.
Microsoft doesn't generally announce numbers when they're meeting expectations -- they save numbers for the quarterly results. They warn when they're performing under expectations or well over expectations.
It's happening on eBay. I'm amazed people would pay that much for something that they know they could get at a regular price after the holidays.
Lane Myer: I have great fear of tools. I once made a birdhouse in woodshop and the fair housing committee condemned it.
Not only does it increase press, it increases demand as well.
When they flood the market after Christmas, hopefully (from Microsoft's viewpoint), that demand will still be there and people will gobble them up.
On the other hand, it is possibly that Microsoft is trying to cut losses while getting big demand and good press, since they actually lose money on each console they sell. Therefore selling more equates to more money lost for Microsoft.
What hard facts are you presenting Sherlock?
Yeah, it's like that whole Christmas tree thing...if people would just wait a few days later, they could find them out in the street!
No reason to lie.
Hey,
MS is using a sales tactic that has been used by other companies in the past. I have been in sales and marketing for nearly 20 years and have seen this many times.
What has happened is that MS wants to sell Japan more than anywhere else. They are ok with their sale here at home and so so in Europe. But they time and again have stated that they must sell in Japan.
There were several routes that could have been taken, and the one they have used is the most risky and only a very bold or arrogant company would attempt it i.e. Phillip Morris, but it can potentially give you incredible leverage in the market.
This is very easy to see if you have seen it done; which I have by many companies in the past. First you use your current business partners(EB and Gamestop)to field the market;doing presells to be able to project sales. This is something that is done on the wholesale level everytime a new product is brought to market, and occasionaly with retail to fine tune marketing strategies. What MS did was to give EB and Gamestop an allocation of guranteed product by a specified ship date. EB and Gamestop did not oversell their preorders, instead MS cut their initial allocation by 60 percent.This is unheard of for presells, normally the product ship date is readjusted to a time when the presells could be met,this protects the distributors.EB and Gamestop were being used by MS, both of these game distributors have wrestled with console launchs before and do not want to damage their relationship with their customers.MS launched with the shortfall at the expense of their loyal distributors.
However this is the risky part of this sales strategy, in order to create a demand in a non existing market you must limit supply in existing one.Example; I don't ship the C store near your favorite candy bar, I tell that C store that I cant get enough from manufacturer. I then go down the road and sell it to another C store that has never bought them from me before but now is ready because the people who couldnt find them other places is in his store now asking for them.
As I said it is risky because you jeopardize your relationship with your current customer base, but it is a way to get in another market without very much extra advertising. If the shortage in USA and the craziness on EBay had worked, Japanese consumers would have bought them as many people here have simply for their resale value, which doesnt' matter just so long as it generates positive sales figures.
I think that MS has used the shortfall in USA to gain ground in Japan, the reason you all are having a hard time thinking that is because it seems to have failed at this point. That is why few companies will risk it.
MS is not the first to exploit their customer base and will not be the last.
I've been to the malls and such every day this week, and a couple last week (but I'm definetly out before 9 a.m.) I've seen XBox360s everywhere. I went to Toy's R Us this morning for nephew gifts, and lo and behold, there were about 6 of each SKU on the shelf, just sitting there. I've seen them in Kay Bee, EB and god knows where else, I stopped noticing.
I don't want one right now, but I can't understand why I keep hearing about the shortage continuing. I could easily buy 20 right now if I had the cash.
-- I have fans? Wow.
Shortages like this almost always happen for any popular new console release. Even if Microsoft could have met demand, there are some good practical reasons not to.
1. Product defects: You don't want to get too many consoles out into the channel only to bring them back if some real show stoppers are discovered in the wild. Once you're sure everything is okay, you can make minor tweaks for the subsequent production runs using what the first run taught you.
2. No Dust Please: Too many consoles would mean some sitting on shelves gathering dust and people beginning to mumble about waiting for the first price drop. To the space conscious retailer, oversupply is probably worse than shortages.
3. Games Make Money: Each console is sold at a loss. You make your money from game royalties. Right now the number of available games is not very high and there really aren't any must have system sellers to speak of. (The Dead or Alive 4 delay killed the Japanese launch.) A console shortage minimizes money lost while game publishers catch up and hopefully produce the killer games that sell systems. *Cough*Halo 3*Cough*
Of course, I could be wrong about all of this, but in the end it does seem that something in short supply becomes all the more desirable, as long as it doesn't suck too badly.
To the making of books there is no end, so let's get started
The solution is to ship the consoles from Japan to the US.
Because of slow start for xbox in Japan and massive discounts
Grundgesetz * 23. Mai 1949 - 30. November 2007 - http://www.vorratsdatenspeicherung.de/
That doesn't make any sense. Shortages are never good. The only argument you could make is that they wanted to be "the hot item for Christmas", but that makes no sense. It's a well known product that fanboi's have wanted since it was announced.
Holding off two weeks wouldn't have helped supply. Assume they are building as fast as they can, using far east slaves working factories around the clock. All they could have done to improve the shortage on release would have been to start building EARLIER, stockpile and release more initially, but as we developers know, that would have meant pushing up deadlines and maybe cutting corners on testing. In all probability they targetted november for delivery, but the compromise was that the designs didn't get to the factory in time to build up a huge number of units.
MS is using a sales tactic that has been used by other companies in the past. I have been in sales and marketing for nearly 20 years and have seen this many times.
It's strange, then, that you never saw the "enter" key.
It's possible that Microsoft didn't expect quite as much of a demand as they have seen, but didn't want to admit it. If you look at the game lineup for the 360, it's ok, but not amazing. There arn't any real "must have" games for it in my opinion. The compatability with the original Xbox titles isn't perfect, and it will take a while before all of the really great game titles will run properly on the 360.
So, with this in mind, it's possible that Microsoft expected high demand for the holidays, but not quite as much as they found from the initial launch. No Microsoft exec would EVER say that they didn't expect their newest product to sell out on launch, but they might have thought it going into the launch.
Production issues due to the power supply overheat problem may also play a role in the limited amounts of 360 consoles we have seen until recently.
In the UK, it seems that whether or not you can get a 360 is more or less a post-code (zip code, for our cousins across the Atlantic) lottery, particularly with the Premium Pack. I got my own Premium Pack from Argos of all places - a fully little catalogue store that most gamers will know as the place where their parents buy rubbish furniture and the chavs buy their imitation-gold rings. Not that Argos ever actually admitted to having them in stock - but after hearing a rumour that they had some about a week after launch (when Dixons had failed to honour my August pre-order), I phoned up to check.
Initially, I got the brush-off from their customer-service person - a generic "sorry, none in stock, don't know when we'll get any" answer. However, when I asked very, very nicely if she could just check with my local depot (all Argos orders are ultimately handled by local depots), she came back to say that they actually had a couple of them in stock. Of course, I ordered one and promptly dropped a line to a lot of friends who'd also been trying to get them. The results were interesting. Central and South London had loads of units available, as did Newcastle. North London, Manchester and Edinburgh didn't seem to have any. Now, I'd have put this down to the perculiarities of a single retailer, if this picture hadn't been replicated by most other chains since then.
Provided you get in before lunch time, you can generally pick up a 360 Premium from central London most days - it seems that a lot of shops have been getting small, but near-daily shipments since about the 10th. The same, I'm told, goes in a lot of the other locations where you could find the stores in the shops early. I've even seen Cores sitting on shelves neglected, as the initial panic-buying subsides and people realise what a bad deal the Core really is (I could have had a Core on launch day, but even then, I wasn't *that* desperate). However, I don't actually know anybody in Manchester (where I know a good half dozen people who are looking) who've managed to find even a Core for sale on the shelves.
All highly bizarre. I honestly don't think it's deliberate - there's a lot of ill-will towards Microsoft building up in some of the regions and once Christmas has passed and people find themselves in the financial-hell that is January, I wouldn't be surprised if a few people gave up looking.
For what it's worth, the system itself is more than worth the money. I've never seen so many vested interests in the gaming journalism and outright-fanboydom community positively willing a system to fail. In the longer term, I think they're going to be disappointed.
it just comes-down to straight-up incompetence?
Let me get this clarified..
one of the biggest, most powerful corporations on the planet - with approximately four years to plan this event - is having production/distribution problems?
Yup, incompetence. Case solved.
Perhaps Mr Gates would be better off donating the money he'd lose on this generation to charity.
TheN, he could leave the iNdustry to a real game coNsole compaNy.
"If you disagree, please (using my hypothetical numbers) show me how they would have derived more than $50,000,000 worth of benefit with the false shortage."
Your fancy formatting and bullets don't change the fact that your thinking is critically flawed. The black market activity which you described does not reduce the amount of consoles sold in the long term. Microsoft is betting that the black market activity will actually create hype to increase the demand for the systems in the long run, which contradicts what you argued.
Don't believe me? Lets assume that the market for xbox 360s is willing to purchase 450,000 systems as you previously stated. If the shortage of 300,000 systems is produced then the market is still demanding the extra 150,000 systems. Microsoft does not lose out on the profits, they just cannot recieve them until more xboxes are released. Your flaw is in the middlemen. It doesn't matter how many people profit or are invovled with the process between the supplier and the consumer. Even the might Ebay cannot change the number of units supplied, and the number of units that the consumers demand.
Microsoft had two choices with the amount of systems to release. The first choice was to release as many as they could produce. Everybody who would want a system would get one, they would sell games, and then nobody would be talking about the system anymore. The second choice was the shortage option. I will stick with your numbers so with this choice 150,000 people did not get a system. They still want the system, and Microsoft is willing to bet that these people will be talking about it, and the added spotlight in the media will increase the demand.
"Oh, but our shortages of the PS2 at launch? They were definately real. Definately."
Seeing as Sony have bought the main stand for CES2006 which starts on January 5th, so it's pretty blatant that they are going to be releasing details on the PS3. If I was microsoft I'd be trying as hard as I could to get 360's on shelves before then, because as soon as people know when that console is coming (if it is anytime soon) microsoft will immeadiately start losing customers, people will either say "i'll wait for the ps3" or "i'll wait and see which is better"
Business Voyeur
Maybe... but if Microsoft says they expect to sell 3 million hardware units in 90 days, then they should at least produce 3 million hardware units in about 60 days... They somehow seem to expect selling more units than they can make.
After 3 days without programming, life becomes meaningless
- The Tao of Programming
No, selling more doesn't equate to more money lost for MS. They've already sunk R&D, marketing, development and manufacturing costs into the console. To get a good price on the components they've probably had to order a fair number. So, even if they do lose money on each box sold, they lose way more by not selling them. An xBox360 sitting in a Target somewhere does MS no good whatsoever. Each unit sold mean more potential game sales, more potential xBoxLive gold accounts, more interest from third party developers.
"...bad press everywhere including mainstream media"
Are you kidding me? Both on Launch day and last Sunday when Best Buys recieved another huge shipment every single channel was running a positive story on the Xbox. Pretty much every BB in my state had all 70 or so 360's claimed about 15 hours prior to opening.
I don't know if the shortage was deliberate, but it worked. The buzz around this system is completely unparalleled. People were waiting in line for 20 hours a month after launch date just to get one. That is unbelievable.
Ok, we'll start from the day MS decided to build the 360. They needed to spec the thing out, work with IBM and ATI to develop the tech, then figure out how to build the box. Since it is a console, the price has to be pretty low, so they probably signed agreements with their suppliers (at least IBM and ATI) on a certain minimum number of units. IBM would sell them the three core chip at say $70 if MS purchased 3 million of the suckers.
The point of all this is that MS has sunk a huge amount of cash into the 360 before a unit saw the glow of a HDTV. Selling them is the ONLY way to get that cash back. Selling lots of them fast makes their money back faster. Very simple.
FTS:"Despite that level of success, Microsoft is still disappointed with production levels and sales."
If you meet your goals, but are disappointed with your sales... that means your goals are too low.
Goals should be set at a level where you aren't diappointed with your results when you attain them.
Of course, from a PR perspective, you've got to set goals that you can't miss -- otherwise you're a goat to the public. Your future sales, as well as your market cap, will reflect poor performance.
What MS should be saying, is that they are meeting their expectations, but sales are falling short of their real targets (their goals).
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
Hmmmm.... I like how your example of a "hard fact" begins with the words "in my opinion". The truth is, noone can prove or disprove anything about people's wants, so why try to do that with Microsoft?
Duck the Femocrats
Well, you're right, long live Nokia's N-Gage [qd]!
Whaaa? You said you work in sales and marketing? Then, how about this...
Microsoft makes money on these (in order of highest profit):
1. XBox Live Marketplace point cards
2. XBox Live Gold subscrptions
3. Acessories like extra controllers, Wi-Fi adapaters, and faceplates
4. Games
In order to use these items. YOU MUST HAVE AN XBOX 360!
During the holidays, people are the most willing to splurge on the aformentioned extras. Retailers want to move these items NOW! They won't move after Christmas and retailers will be stuck with unsold product (and not ordering more from the MS mothership). No X-Mas Xbox, no Xbox accessories sold. It's that simple.
It makes no sense to cook-up a shortage. A shortage prevents you from selling the extra items that really make the profits. Its the old "razor" vs. "blades" analogy. Or, the "printer" vs. the "ink cartridges" for us techie people.
I personally think the "shortage" resulted from MS busting butt to get out of the starting blocks before Sony. Because, once the PS3 lands, MS will have to almost give the 360 away to gain marketshare. Pre-mature release is the cause of the shortage, nothing more.
Sure, Windows PCs dominate the market. But so do cheap toupees.