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."

Comments

Oh no!

[TimAbdulla]

It's too cheap?! Darn. I was just about to buy one too. Hopefully the PS3 can deliver in price!

Reaching

[AKAImBatman]

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.

Re:Reaching

[Shadow Wrought]

I don't think that that's necessarily what he's trying to say. Instead, by having the price between a 360 and OG Xbox be so close together, people who would ahve otherwise happily settled for an Xbox tried to pay the extra instead, and you have a crash of shortages. If they had priced it at say $500, then they still would have sold out, would have made more money, would not have shortages, and would have sold more Xbox's. It is certainly a stretch, but there is a note of truth in his logic.

Re:Reaching

[Goyuix]

The other assumption is ignoring the market reaction six months later when they cut the price back down to $400... lets say they really ramped up the price to an even 1K - which is what some systems sold for on eBay, using that argument - How many customers would just happily wait the six months for the system to drop back down. Yes it may serve to stave off the out-of-stock problems, but you are just going to aggravate your consumers and at the end of the day - not to mention store owners paying the inflated price, only to have MS cut it in half and deal with that hassle. The real answer is to launch when your inventory and production are sufficient to handle the demand. This is a fine point of launching a device in Japan, Americas and Europe at different times - it really helps the inventory problems. Not that I like waiting, but there is a WHOLE lot more going on than MS simply missing out on an opportunity to fill the cash bucket.

I really can't believe I am feeding the troll of this story.

Re:Reaching

[AKAImBatman]

I agree with you, but for the initial run of units, many (most?) DID sell far above the MSRP. JC Penny, for example, sold their stock at $799 a unit. Not to mention the eBay retailers who managed to sell units for upwards of $1000.

so in reality, a large number of units went for far more than the $400 price. i.e. The market self-adjusted the price. Microsoft may not have seen the profits, but that wasn't the point. Microsoft is selling the console as a loss-leader using the "razor blade" model. Advertising the system to be more costly would reduce demand, and thereby cut profits for Microsoft as fewer games got sold. With the lower MSRP, Microsoft was able to generate not only demand for games, but also buzz about the system. Buzz leads to more system sales (in the future), and more system sales can lead to more game sales. More game sales == more profit.

And that's without assuming that Microsoft isn't using its resources to undercut the competition in an attempt to monopolize the market.

Re:Reaching

[Life2Short]

I'm sorry, did you say something about the quality of Xplay?

I was staring at Morgan Breast's Webb.

Er, Morgan Webb's breasts...

Seriously, silly banter aside, the reviews are quite good in that they seem to know how to use a 5 point Likert scale. Most of their reviews are a 3/5. The distribution of many of the other reviews I see seems to be bimodal - the game either totally sucks, or it rocks "TO THE EXTREME!!!" At least I know that when I watch Xplay if they give a game a 1 it must really suck, and games good enough to earn a 5 are equally rare.

Re:Reaching

[ILikeRed]

Please stop saying this falsehood - most game consoles have NOT been sold at a loss. And the only reason MicroSoft can do so is because of the buttload of money they get from their OS and Office.

Re:Reaching

[Serapth]

ARRRRRRRRRGHHHHHHHHHHHHHHHHHH

I see this reference everytime mention of selling a console at a loss is mentioned. Hey, I love the Gord. I wasted many many many days at work reading the Gords awesome website.

That said, when the hell did some guy that owns a video game stores commentary become "the truth".

The Gord said it, thus it is true! And you know what... some guy at EBGames once told me that EA fired all its programmers and replaced them with monkeys. I thought this was insane at first, then it dawned on me, he works at a game store, it must be true!

Re:Reaching

[oGMo]

The Gord said it, thus it is true! And you know what... some guy at EBGames once told me that EA fired all its programmers and replaced them with monkeys. I thought this was insane at first, then it dawned on me, he works at a game store, it must be true!

Except Gord isn't an idiot, and he goes on to make a good case for his speculation. It's pretty simple math; read the article. If Sony lost $100 on each of the 1000000 consoles it sold at launch, it would be pretty damn hard for SCE to sweep a $100mil loss under the carpet. According to wikipedia they sold around 10 million in about 2 years; how do you hide a $1 billion production loss? You don't; billion-dollar losses are more Microsoft's area.

Re:Reaching

[xenocide2]

Loss leader economics only works when your production capacity is larger than the equalibrium price. Without the razor blade approach, there's a number of units to produce that maximized returns, and a set of numbers greater and fewer than that that result in less profit. The razor blade model says that it's okay to dip into the set of numbers larger than exceed the optimal production, because you'll benefit in the auxiliery market, video games sales. Ideally there is no shortage of the loss leader product-- selling out is a missed opportunity to expand the installed base. Yet shortages not only happened but persisted for some time (is the shortage even over? I see walmart selling online for 500 dollars =/). So while microsoft may have intended to be a loss leader, what we instead saw was the market raising prices in the face of scarcity. Microsoft was either unwilling or incapable of providing more 360s at the price listed. Effectively, they lost out on both the demand for the product at MSRP by not producing enough, and/or the profits they could have realized by pricing closer to the open market average.

Sure, you can say that they simply did far better than they expected, or that the shortages were intentional. But do you realize how many games you have to buy to justify the difference between 400 dollars and 800? My napkin math suggests somewhere between 8 and 20, depending on how much of each sale goes to MS. And this doesn't even include the fact that people who bought that JC Penny package still presumably wanted to purchase a game or two for it!

Microsoft would have made more money

[Threni]

> 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 right!

[gEvil (beta)]

He's absolutely right. I mean, look at the 3DO. The perfect price point got it the penetration that it needed.

Re:He's right!

[poot_rootbeer]

And keep in mind, the 3D0 was SEVENTY BETTER than the 360, hexadecimally.

Yes...

[bssteph]

...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.

Re:Yes...

[SirSlud]

Worldwide (because Microsoft and Nintendo operate furthur than your parents basement) the Gamecube outsold the Xbox.

Nintendo made SHITLOADS more money than Microsoft on their console businesses'.

What was your point again? That in the US, if you spend 10 times the amount of another company on advertising, even if the other company comes from Japan and you're the richest company on the planet, you can eek out selling about a million more units than your competitor (while losing to the winner by more than a factor of 3)?

Is that it? You'd be fired on a good day at any of these three companies for analysing their respective performances in the market that way. Nintendoheads? Thats so cute, attacking a bunch of ditto-heads with a similar ditto-head moniker.

Sony won the console wars. Microsoft lost it in a big way, in so far as their shareholders are concerned. And Nintendo kept quietly making hand over dollar wonder what all the fuss was about.

In retrospect maybe.

[Godeke]

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.

Re:Market forces

[wileyAU]

Microsoft obviously failed to find the appropriate point on the supply/demand curve for the market.

Consoles always make their money from selling games. Microsoft intensionally sold below the market curve for consoles in order to drive the sales of games which are priced about $10 higher than new PS2/X-box games.

I think that's what they wanted

[Sycraft-fu]

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.

Re:Mod article -1: stupid

[carbontetra]

The xbox 360 is still a toy. It's a dedicated machine to play games, and it's still a large chunk of money to drop on a dedicated game machine. Whether or not they do the damage to a pc instead is irrelevant to this discussion. It doesn't change the fact that $400 is STILL a lot of money to drop just to play some games, whether it be a game system or a video card.

Inflation?

[Cyno01]

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.

Re:Pre X-mas prices on Ebay

[MyGirlFriendsBroken]

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.