|Xbox 360 units vanished from the shelves almost as soon as they were stocked in stores this week. The $300 product was generating bids as high as $5,000 on eBay.
The much-anticipated and widely promoted new game system hit the store shelves yesterday but in insufficient quantities to meet demand.
While cynics accused Microsoft of purposely creating a product shortage, industry insiders said a confluence of real events is responsible. Final specs for the product were only completed six months ago, allowing just those few months for manufacturing. Meanwhile, Microsoft marketing hyped the product well before its availability, as far back as March, with electronics stores taking pre-orders even before they knew how many devices they would be allotted.
And the resulting sudden shortage has turned on-the-fence buyers and even non-gaming bystanders into interested consumers -- or at least re-sellers.
“Part of what we’re seeing is the phenomenon of consumers who were not interested seeing the shortage, and now they are interested. It’s human nature. But it’s also generating unexpected, and even more, demand,” said Jupiter Research analyst Michael Gartenberg.
Not purposely creating shortage
He and others don’t believe Microsoft is purposely creating a shortage to spur demand. Because Microsoft is first with this next-generation video-game console (Sony and Nintendo won’t have boxes ready until next year), it has no competition.
Even as the controversy rages, Microsoft will continue its comprehensive and aggressive marketing, including the culmination of the Zero Hour event in California's Mojave Desert, where thousands converged for a sneak peek (and the chance to buy) the Xbox 360; multimedia ad campaigns; and national retail demo-and-play kiosks at stores including Wal-Mart and Target.
Marketing will continue not only through the holiday season, but through 2006, said Mike Harris, senior VP-global strategy director on Xbox for McCann Erickson, San Francisco, which created the global campaign.
Courtney Buechert, exec VP and general manager of McCann Erickson, San Francisco, said, “It’s not a shotgun blast and bombs dropping. It’s about inviting people into special forums and in groups.”
Though Microsoft is first to release a new game system in its timely pre-holiday 2005 launch, it will soon be followed by Sony’s PlayStation 3 and Nintendo’s Revolution, expected to arrive in spring and summer 2006. While Microsoft hasn’t said how much it’s spending on marketing, analysts believe the total will likely eclipse the $500 million lavished on the launch of the first Xbox in 2001.
In the $8.5 billion console-gaming market (which includes games and accessory sales), Microsoft trails Sony, with about 22 million Xboxes sold to date compared with Sony’s 91 million units sold since its launch of PlayStation 2. Nintendo is third with about 20 million Game Cubes sold, according to Jupiter Research. The Xbox 360 arrives in two different versions with a base model selling for $299, and a premium version that includes a hard drive and wireless game controller retails for $399.
So will consumers unable to get an Xbox this year be turned off on the brand? Analyst David Cole of DFC Intelligence thinks not. “This is a long-term battle. These systems have a five-year life cycle and so the first year is fairly minor compared to years two and three. It’s really all about building mind share this holiday season.” And there’s no doubt Microsoft did that.