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Microsoft Readies Cheaper 360
Officially Microsoft is putting on a brave face, saying they won't drop the 360's price even in the console's weakest market: Japan. Just the same (probably in anticipation of Sony's PS3 price drop), the San Jose Mercury news says the company is secretly working on preparing a lower cost Xbox 360 SKU. Called 'Falcon', it's a cost-reduced system using 65nm chips instead of the at-launch 90nm electronics. This ties right into Michael Pachter's expectation of such a cut; it should be noted he doesn't see the DS or Wii prices moving any time soon. Related to all of this, Newsweek's LevelUp blog has two great interviews today: a Peter Moore discussion harkening back to last week's warranty announcement, and a chat with Jack Tretton about the price cut and the 360's hardware issues.
Imagine the losses Sony endures after they cut their price with additional $100. And now the competition leaves them in the dust again. Let's say MS puts the price with $50 down (let's be conservative right). Note, the prices have been de-retardified for better comparison:
Wii: 250 usd
360: 350 usd
PS3: 500 usd
And the killer feature for each console:
Wii: totally new way to control games
360: the best online gaming experience of all consoles
PS3: Blu-Ray
Notice: PS3's killer feature isn't gaming related one. One reason gamers aren't very excited about it...
A price cut is not expected for the wii because it's still selling as fast as they can make it! Microsoft and Sony are having trouble moving stock at this point, so a price cut makes sense for them.
$rant = "Stop using SKU in everyday conversation."
For those of you who need it spelled out, run this at the command prompt: perl -wc split ('', $rant)
The correct term is 'model'.
Economically speaking, the Wii should see a price increase of $50-100, which brings it in line with the eBay price (which is roughly the true market price), thus stopping the shortage. However, the effects on long term customer goodwill probably wouldn't be worth it.
Not a typewriter
Am I the only one out her that is sick of the 360 and PS3 coming out with different systems? I feel that if I buy a 360 or PS3 now it will be a mistake and they will have a new version out in a year that has a 200Gig hard drive and folds my laundry. I want a next gen system that is set in stone where I am not going to feel like I got riped off in a year when they tweak it again.
The 360 "Elite" didn't fix the reliability issues, what makes anybody think that this new version will be any more reliable? Microsoft has had 20 months since launch and they still can't ship reliable consoles.
This really doesn't make economic sense.
Sure, after a while the prices of parts comes down. But in the meantime you've lost sales and market share to the competition. And since your revenue is dependent on game sales, this is only shooting yourself in the foot.
Furthermore, you get bigger discounts on parts when you order them in larger lots. So anything you might save is lost by buying in smaller quantities.
Finally, there is some truth to the idea that a modest shortage can help spur customer demand, but within limits. Too much shortage and people turn to the competition.
Nintendo claims that their problem is that they've contracted out manufacture and can't ramp up production as easily as if they had their own production lines. I don't think this is the entire story. There's tons of contract manufacturing capability in the world, and the Wii uses standard, mature (and therefore cheap) technologies. This has been going on long enough that they could have brought other manufacturers online if that were the only factor.
I suspect that the inability to ramp up production is related to the Wii's low price. It is certainly not the case that they could not have brought more production capabilities on line by now, but it may be that they can't build more at the price they need to build them. They may have structured their deal with Foxconn (the OEM) in such a way that it is cheap but not scalable. For example, they may have agreed to limit the number of units to a degree that can be produced by certain slack resources at Foxconn, that are otherwise engaged in higher margin work.
I'm talking through my hat here, since I know zilch about manufacturing. But I'm reasonably certain the problem is that they can't scale their production at the price they want to sell these things for. If they could, then they would, maybe not enough to keep everybody's shelves stocked to overflowing, but enough so that you'd consider driving around to find one. My son wants one for his birthday coming up, and I told him that while I'd be happy to shell out the dough, there was no way I'd spend the time it would take to track one down. They're losing market share to the competition because of situations like this.
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