Xbox 360 has rocky start at retail

[Reverend]

The next-generation console's debut is marked by long lines, stock shortages, parking-lot scalpers and the occasional success.

After years of speculation, months of hype, and a mixed bag of launch titles, the Xbox 360 is now officially on sale across North America. The chaos began on the East Coast mid-Monday, when an armed robber absconded with two units from an EB Games outlet in Virginia.

Later, legal purchasers of the console got their first crack at the console at 12:01 a.m. EST when Best Buy, GameStop, and EB Games opened their doors. Simultaneously at 9pm PST, the 360 also went on sale at Microsoft's Zero Hour event in the Southern California desert. However, the rest of the West Coast had to wait until various "Midnight Madness" sales.

At one Best Buy in suburban Seattle, Microsoft Chairman and Chief Software Architect Bill Gates showed up to help hand out 360s and engage in several not-so-impromptu Project Gotham Racing 3 sessions. "In the living room itself, Xbox 360 is our centerpiece and a product that redefines what goes on there," Gates told the Associated Press.

But for the vast majority of would-be purchasers, the quest for a 360 had less to do with visionary proclamations and more with rampant inconvenience--as well as the occasional anarchy. Problems were particularly prevalent in the San Francisco Bay Area, where members of the tech-obsessed populace were already lining up outside stores on Monday afternoon. By noon Tuesday, GameSpot staffers who had not pre-ordered Xbox 360s witnessed sell-outs of the console at dozens of locations, including Fry's Electronics, Costco, Circuit City, and Game Crazy. At the Toys-'R-Us in San Francisco's Richmond district, which quickly ran out of its two-dozen-odd allotment of 360s, a hysterical woman demanded the manager come over to her house on December 25 to explain to her young son why he wasn't getting a Christmas present.

Microsoft's official retail partner for the 360 launch was Best Buy, which has several locations spread around the Bay. By 1pm PST Monday, 35 people had set up camp outside the Santa Rosa Best Buy just south of Sonoma, which expected to receive 190 systems; four hours later there were over 100 people awaiting the outlet's "Midnight Madness" sale. Farther south in San Carlos, a clerk at Best Buy was already discouraging callers from showing up at the witching hour, saying the crowd outside would soon exceed the store's total allotment of 80 360s. In Rosevile, a throng of 300 customers waited hours, only to find the outlet had a paltry 57 units in stock.

Full story (GameSpot)

[Big Booger]

I wonder if Microsoft intentionally limit production and distribution just to create a sense of need at stores. People really want what they cannot have and if there are limited numbers of items, then it creates the type of chaotic atmosphere described above in Reverend's post.

Is this a form of marketing?

[egghead]

it would be hard to imagine that anyone would want to limit sales.

I think they just can't keep up with the demand.

In sales you want to get the product out there and to everybody because tomorrow they might buy something else instead

[Reverend]

Is this a form of marketing?

It's all about supply and demand,especially in the ever developing tech world. Until you realistically know what the demand will be, you have to limit your supply.

It's far more economical for a company to supply and produce lower quantities of a product so that they can initially gauge how well that product will be received,rather than run the risk of being left with a stockpile of unwanted, unsold goods.

Here endeth todays business lesson.

[rik]

But it seemeth that with all the hype in the previous days, they would have known how widely this product was waited for...

[Big Booger]

And I am curious, are they making money off the consoles themselves or off the games? If they are making money off the games, wouldn't it be sensible to put out as many consoles as possible to get more customers to purchase the games where the money is to be made?

[cash_site]

There is a big market on Ebay etc for X360s and massive mark ups... its true that a lot of people will be disappointed not having one for XMAS, how can you tell your kiddy no pressie tonight son!

[Big Booger]

Redmond will sell every Xbox console at a big loss, says researcher iSuppli. Not to worry, the profit is in the associated software.

Microsoft's newest gaming console marks an improvement on the earlier version in some decisive ways. To name a few, the pricier Xbox 360 is sleeker and more powerful (see BW Online, 11/22/05, "Xbox: How It's Designed to Thrill"). And unlike its predecessor, the Xbox 360 is being released months ahead of the comparable next-generation console from Microsoft's chief gaming rival, Sony (SNE).


But when it comes to profitability, the new machine won't change anything. Microsoft (MSFT) will carry on its tradition of taking a loss on the console, according to a preliminary analysis by market researcher iSuppli.

BREAKING IT DOWN. An up-close look at the components and other materials used in the high-end version of the Xbox 360, which contains a hard drive, found that the materials inside the unit cost Microsoft $470 before assembly. The console sells at retail for $399, meaning a loss of $71 per unit -- and that is just the start.

Other items packaged with the console -- including the power supply, cables, and controllers -- add another $55 to Microsoft's cost, pushing the loss per unit to $126. These estimates include assumptions that Microsoft is getting a discount on many components.

That was the case with the first Xbox console, which contained about $323 worth of parts and materials when released, but sold at retail for $299. It's certainly not going to help Microsoft reverse the trend of losses in its home-entertainment segment. In the fiscal year ended June 30, that unit lost $391 million on sales just shy of $3.25 billion. That's a little more than 8% of Microsoft's total sales of $39.8 billion.

A Microsoft spokeswoman said that the company's plan calls for a "gross margin neutral" strategy through 2006, meaning that between the sales of consoles, game software, and accessories, it expects to essentially break even. Profits should follow in 2007.

View: The Business Week Report

[Reverend]

But it seemeth that with all the hype in the previous days, they would have known how widely this product was waited for...

That may be so, but "hype" doesn't translate into quantities.

[egghead]

lots of reports of the xbox crashing at random

might be why they are in limited quantities atm

[Reverend]

If they are making money off the games, wouldn't it be sensible to put out as many consoles as possible to get more customers to purchase the games where the money is to be made?

Like i said earlier, when they evaluate the demand they will increase the productivity.

BTW, The PSP launch was probably talked about more than the xbox360. So why didn't a similar conversation crop up when Sony released the PSP which is also experiencing a shortage of supplies.

Nobody questioned Sony's motives, so i hope this isn't just another cynical M$ topic.

[Reverend]

There is a big market on Ebay etc for X360s and massive mark ups

From Reuters:

One sought-after Xbox 360 premium console was listed with a starting bid of $1,200 and a "Buy It Now" price of $2,500. That auction expired on Wednesday without attracting an offer.

[zipp51]

MS is not dumb in all this.I guess the release date is months ahead of the competition,so the jump alone along with it's superior parts and package will keep them ahead.If I'm not mistaken,the box is cross compatible with the last model.

[petard]

I suspect the shelves will be fully stocked in a week or so. They created the demand and frenzy at the right time. Xbox and iPod Nanos will be the two big things this season.

[cash_site]

That's right petard... all the normal folk will get those gifts... lets buck the trend... i want a LP player and Atari ping-pong!!