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The 360 Is Too Cheap?
The always interesting GamerDad site is running a 'LongShot' column wondering if perhaps the 360 wasn't expensive enough? From the article: "The beginning of a console generation has typically been for those with deep pockets or an unhealthy hardcore jones for videogames. These people are willing to smack down big bucks for the latest technology. The price of 360 was too low to keep the launch confined to that group and it was a big mistake in my opinion. With a higher price tag, Microsoft would have made more money, made sure sellouts wouldn't have lasted for months after Christmas and still sold through all the units they had to sell before the holiday. The demand for a new system was far higher than most people anticipated, especially given the early demise of the original Xbox, a system that will probably be gone from store shelves by February 2007."
It's too cheap?! Darn. I was just about to buy one too. Hopefully the PS3 can deliver in price!
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That has to be the most reaching analysis I've heard yet. His basic argument is that gamers have grown up, therefore they're willing to spend gobs more money. I'm sorry, did he miss the $400 price tag? Many of the early units were sold for far more than that! If it was priced any higher, consumers would start to wonder why they shouldn't get a new gaming-rig computer instead! (Or at least a bigger HDTV and a load of HD-DVDs or BlueRays.)
If Dave of GamerDad wants to know why the 360 isn't taking the market by storm, he needs to look no farther than the games. As X-Play on G4* said, (and I'm paraphrasing here) "The XBox 360 needs to stop charging more money for less game." (In a review of Tiger Wood's Golf.) Microsoft and their affiliates need to realize that pretty graphics are not the only ingredient in making a good game. When you pay $60 for a game, you expect to get enough to entertain you until at least your next paycheck!
* No, I don't normally watch G4's game shows. I just happened to see their marathon of reviews this weekend. Which again convinced me why modern gaming sucks. Now, will someone please tell the hosts to stop nodding and making faces while the other person is talking? Also, get them into some adult-looking clothes without pockets. They look absolutely shriveled up with their arms so close to their sides. Last but not least, they need to eschew the ridiculous stream of bad jokes in favor of a few good jokes (read: not stupid!) and more off-the-cuff banter between the hosts. This practice of reading j0kes from a script really shows.
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> With a higher price tag, Microsoft would have made more money
Pure speculation, your honour. They'd have made more money per unit, certainly. That's about all you can say.
He's absolutely right. I mean, look at the 3DO. The perfect price point got it the penetration that it needed.
This guy's the limit!
Of course the 360 was too cheap. Look at what they went for on eBay.
Microsoft obviously failed to find the appropriate point on the supply/demand curve for the market.
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...that early demise which hasn't happened yet really hurt the Xbox...
*roll eyes*
The article calls Microsoft an "also-ran console maker in a Sony-dominated market" with respect to the Xbox. Please. Xbox had its problems (especially in Japan), but Microsoft went from 0% market share to beating out Nintendo's Gamecube, a company with established name.
They've sold 22 million units for chrissakes! There are ghosts of consoles (like the Dreamcast) that would have killed for that kind of "early demise".
Whatever.
Microsoft realizes that artificial shortages creating massive hype for their product even at an exorbitant price range (yes, 400 is too much for a toy) will allow them to sell more machines longer, rather than making them readilly available at a higher cost, and trying to sell them all immediately. Author is a moron. Article is very poor trollbait.
If Microsoft had realized the production problems they were going to face (or admitted to themselves they were going to have them, if they knew early as some say they did) then yes, a high price point causes the "per unit" loss to go down or even become profitable. If you only have N of something, you can charge a premium. The bundles proved there was a market for high end spending, but postulating that they could have moved *all* the units sold to date at a grossly higher price is a bit of a stretch.
To say that Microsoft missed the boat and the PS3 should be sold at a premium really depends on the actual costs at time of release. Sony already *tried* the high priced solution with the PS2 based media product in Japan. That isn't apples to apples though since it was competing with the existing PS2 installed base, which isn't a wise choice. If they expect shortages of Blue-Ray drives or the processors, perhaps they could try the strategy of $800 boxes. I think it is high risk though: the reviewers are going to tear you apart if you don't deliver a $800 experience.
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Slate magazine said the same thing four months ago:
The Great Xbox Shortage of 2005
Xbox Economics, Part 2
They have plenty of data about consoles launching in the $300 - $400 range and not flopping terribly. There haven't been any successful consoles (if any, at least that I know of) that have launched in the $700 range. lack of market data from previous launches like that makes a move like that extremely dangerous to do. And selling out is also a great way to build up steam for people to want it more. Reguardless of the price, if I hear console A is selling fast compared to console B that is selling slow, I'll be more interested in console A to see what people are so interested in.
In undeveloped countries, the consumer controls the market. In capitalist America, the market controls you.
I'm still waiting for prices to drop on the plain vanilla XBox. Call me a cheap bastard for wanting a $100 USD console.
It's hard to really tell one way or the other, but he could have a point. I think the price-point of the 360 was less a function of the value and more a function of the perceived value. If the system cost too much, people wouldn't think they were getting their mony's worth. If the system cost too little, people wouldn't take it as a serious piece of hardware.
I think the biggest problem was the enforced bundle. No, I'm not talking about the way gamestop raped their customers. I'm talking about the core vs. premium. I think MS could have had a much more effective launch by sellng a single $350 unit that was the system, wireless controller, play and charge adaptor, and s-video cables. Everything else could be an add on for a "reasonable" price. Think about it, the only thing missing is the hard-drive. Sell it at $75 dollars and force the early adopters to HDTV, who probably could afford one more perchase, to purchase the HD cables, and you have a console that implies the true capibilities of the system.
Any and all profit they could have made on the boxes is totally insignificant to them. MS makes billions, a million or two from this doesn't matter.
What is more important is getting lots of those consoles out there. They want everyone to own one. Well this shortage goes a long way to that. For one it generated massive advertising, you can't buy advertising as good as the 360 hype. Also, it has lead to an aura of "specialness" about the 360. It's hard to get, so it's coveted so people will work for it. Finally, you don't want people getting the idea in their head that it's expensive, you want them to think of it as cheap. Absolute price plays a factor, but also the sellout helps that. If something is sold ou all the time, it's obviously cheap right?
Really, I think this has all played in to MS's hands magnicifently. By the time the PS3 launches, they should have a good pipe of supply going on and be ready for a rpice drop. So the PS3 comes out, they slash prices and flood 360s on the market, not to mention release Halo 3 which has conveniently been finished then. Go a long way to taking the thunder out of Sony's US launch, which is what this is really about. The overall name of the game and the money to be made is not on the consoles, but on being bigger than Sony in the market.
They could have sold through a lot more if they didn't ship 150k units to japan that only sold like what? 10k units? I think they wanted to believe so much that the 360 could take off in japan that they ignored reality. It wouldn't :)
That really hurt them at the beginning. I wonder if it affected the total number of possible sales?
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What they're basically trying to say is that the XBox 360 sold out because Microsoft priced it low enough that people could actually afford it. An apt comparison would be the recent HD-DVD launch. They've priced the damn things so high that nobody will buy them unless they're simply drooling at the possibility of being able to buy a shiny new toy. Early-adopters and the obsessed will typically buy new products for prices that are far above what anyone else is willing to pay. The statement then, is that the pricing was low enough that it wasn't restricted solely to the early-adopter/gotta-have-it/price-is-no-object segement. As a result the system sold out.
There are, however, flaws with this reasoning. First is the idea that the launch of a new product should be accompanied by a phase of normal people wanting it, but feeling the damn thing is just too expensive to drop that kind of cash on. Quite frankly this is idiotic. Sure the company might make a bit more money, but it doesn't help the consumer in the slightest.
The second problem is that Microsoft only intended this hard-core segment to purchase the Xbox 360 at launch. This is patently untrue. They hyped the hell out of it and barely let up. They wanted everyone to be rushing the stores to buy one just like it actually went down. The problem is that Microsoft screwed up and didn't have the stock they needed.
Quite frankly it feels like someone who was pissed because they couldn't easily get their hands on one and would have been willing to pay more so they could have.
I know its kind of offtopic but I don't understand why microsoft doesn't act like every other console maker and make a leaner looking lower priced version of the original xbox...which I might actually be tempted to purchase
Not expensive enough? Go to hell. It's a fucking video game system, not a goddamned Rolls Royce.
See this article which quotes Ebay CEO Meg Whitman, who claimed that as of Dec-12-05 of the 400,000 units sold at that time 10% had been resold though ebay. Pretty significant numbers, I'd say. If ebay is good for anything, it is to track current market rates for just about anything. The average pre-xmas price for a 360 was $718.00. That's several hundred dollars lost to MS per unit (or gained by the reseller, if you prefer).
I think i saw something, maybe on here, someone had the launch prices of all major consoles adjusted for inflation. Actaully i just googled it and here it is from IGN
Atari VCS launched in 1977 for $249.99 __________________ $811.21 in 2005
Nintendo Entertainment System launched in 1985 for $199.99 _ $354.91 in 2005
SEGA Genesis launched in 1989 for $249.99 ______________ $389.67 in 2005
NeoGeo launched in 1990 for $699.99 ___________________ $1041.12 in 2005
Super Nintendo launched in 1991 for $199.99 _____________ $282.21 in 2005
Jaguar launched in 1993 for $249.99 ____________________ $328.69 in 2005
3DO Interactive Multiplayer launched in 1993 for $699.95 ___ $920.30 in 2005
SEGA Saturn launched in 1995 for $399.99 _______________ $497.66 in 2005
Nintendo 64 launched in 1996 for $199.99 ________________ $242.75 in 2005
SEGA Dreamcast launches in 1999 for $199.99 ____________ $228.09 in 2005
PlayStation launched in 1995 for $299.99 _________________ $372.01 in 2005
PlayStation 2 launched in 2000 for $299.99 ________________ $333.15 in 2005
Xbox Launched in 2001 for $299.99 _____________________ $325.34 in 2005
GameCube launched in 2001 for $199.99 _________________ $216.89 in 2005
So according to this, the launch price for the 360, when adjusted for inflation is actually below the historical average of $453.14, and probably only a little above average if you ignore the NeoGeo and 3DO. This also means that the Nintendo Revolution, if it launches at the predicted $149 or even $199, is going to be the cheapest console ever. And, unless sony pulled some piece of patent infringeing crap out of their ass at the last minute, the most technically advanced, not counting pure graphical performance.
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Actually, I agree with him. From a pure supply and demand perspective, the 360 should have been priced $200-300 higher in the US at release. But the high demand would have only lasted for a few months, and then Microsoft would have had to drop it. Imagine how PO'd you'd be if a product dropped in price by 50% 3 months after you bought it?
Well, it USED to be a decent show when it was on tech TV. They had to add Morgan's boobies and dumb adam down to 5th grade level to make it geared more their targeted audience.
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I've been noticing many tech writers talking about how the 360 is "taking the nation by storm" and "everyone has to have one," but I don't know anyone who has one, I've never actually seen one in any store, Everyone is waiting for the PS3, which will give three generations of Playstation gaming in one console and will probably be my very first Playstation purchase.
:). I have to ask -- what is it that makes you say that it will be your first Playstation purchase? So far, you know nothing about how the games will play on it, what kinds of games will be made, except that it will have Blu-Ray support, and Cell chips in it. Oh, and that it will probably cost a lot. What has the Sony marketing done to so thoroughly convince you that not only you should wait for it (instead of buying Gamecube, PS2, Xbox, or Xbox 360, all much cheaper and available *now*), but that you should also buy it when it comes out, without even seeing one?!
Well, I don't know anybody who is waiting for PS3 other than an occasional Slashdot post
This isn't meant to be a flamebait, I really want to know -- I must be missing some information about PS3!
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For those of you who have forgotten, Microsoft intended for these shortages to happen. They allocated units and set pricing to make this happen. This scheme was leaked out before the 360 even went on sale. They priced and shipped it to get the headlines: New Microsoft XBox 360 Sells Out on First Day. Best publicity they could arrange.
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The premium was several hundred dollars above retail. Someone pocketed that profit and it sure wasn't Microsoft. It'd say the author's point is valid on those grounds alone.
I would disagree as it is about the price drops. You have to wait a certain amount of time before dropping the price, so your initial price point has to ensure sales for about a year say, not the first couple of months. Remember to original Xbox, when MS had to drop the price of that after a few weeks (which happened in the UK, I don't know about elsewhere), they had to give all of the people who paid they higher price accessories and games to compensate and smooth over the PR.
So Xbox 360 are in short supply to start with, but they get:
1) The hype of being sold out.
2) Good will amongst many customers outside the US, at least many more of us had a "chance" at a bite of the cherry..
3) A price which will last them till the PS3 comes out when they can drop the price without aggravating those people who already have one.
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Basic economics would say that efficiency for both the consumer and producer is maximized at the point where aggregate supply equals aggregate demand. Though we have the gift of hindsight, even Microsoft probably knew that the unit was underpriced for what demand would ultimately be at launch. However, here's the crux of pricing at equilibrium (in a real world setting). As the early adopters group gets their boxes, demand shifts left (or down) because the aggregate preferences of the group changes to a lower price point because the group of consumers itself has changed. Now the 360 is overpriced. In an ideal world, they would just lower the price. Well, you can't exactly do that in the real world because it would piss people off, chipping away at your brand. Sure you can do it, but it builds in distrust toward your company -- not the sort of thing you want to do when you're launching a 5-6+ year product line. I would posit that Microsoft was playing the pricing game for a year down the road, not at launch. This price point puts them in a position to battle Sony effectively on multiple fronts.
I'm not even going to discuss the 360. I did for a while want an original Xbox (almost half just for Xbox Media Center, but then Front Row came out, so my interests in the console has waned considerably), but the price was always (and continues to be) way too high. I might have paid $100 for it. Now that the 360 is out, I was hoping used prices would plummet, but nothing like that has happened so far. At this point I've almost completely lost interest.
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After explaining how Microsoft should have charged more for the XBox 360, he pointed out to the teacher that she forgot to assign homework.
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