Xbox Can't Score on Hobbled Sony

Microsoft Still Mired in Delivery Mess

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YORK, Pa. (AdAge.com) -- Got game? Neither Sony nor Microsoft do.

Fortunes seemed poised to shift in the $8.5 billion game-console category last week as leader Sony took a beating in the press over revelations that the much-anticipated PlayStation 3 would be delayed until November. Score one for Microsoft, said pundits, predicting the gamers would storm the stores looking for Xbox. But they won't find Xbox there, either.

Five months after its massive $100 million advertising launch, Xbox remains as scarce as ever. The much-publicized shortage around the holidays has continued, and to date only 1.5 million units have been shipped, far short of the 5.5 million anticipated by June. And while the dearth initially looked like a velvet-rope marketing strategy, designed to whip pent-up demand into a frenzy, the ongoing problem now threatens to damage the Xbox brand and reputation with not just consumers, but also retailers and game developers.

Missed opportunity
Not to mention the missed opportunity to steal share from its rival. "While it was great, in theory, for them to get out a year in advance of Sony and get a leg-up on market share, they haven't quite gotten there yet," said NPD analyst Anita Frazier. "If inventory becomes more available very soon, it will help the situation, but they missed the biggest sales period to take advantage of their first market position [holiday '05]."

Just when that inventory will be available is still unknown. "With the recent inclusion of Celestica, our third manufacturer, we expect to meet strong consumer demand in the near future," said Molly O'Donnell, public-relations manager, Microsoft-Xbox. "We are on track to meet our full fiscal year console sales guidance of 4.5 to 5.5 million Xbox 360 consoles shipped by June."

American Technology Research analyst P.J. McNealy wrote in a recent research note that he expects inventory levels to be "consistently filled" by the end of March.

But in the meanwhile, patience is wearing thin among consumers still waiting for boxes after plunking down a $100 deposit months before the Xbox 360 was to become available. Those sick of waiting are paying well above the retail price on eBay or Craigslist.

A potential backlash is also looming from game developers whose software sales for Xbox 360 are languishing -- you can't sell software to people who can't get the hardware. Software sales are down 13% year-over-year in February, according to NPD Group, and large developers including Electronic Arts, Midway and Atari have laid off as many as 5% of their employees.

Electronics retailers have also struggled through the shortage. Microsoft said it is has kept its retailers abreast of efforts, but Ms. O'Donnell also added, "That said, Microsoft did not market or sanction a consumer-preorder program. ... The majority of those retailers [that accepted preorders] did inform consumers that preordering a system did not guarantee a unit on day one."

While conspiracy types might theorize a Microsoft marketing tactic, most industry insiders believe the shortage has been caused by real snafus such as underestimating demand, chip delays and other unexpected problems; not a huge stretch for a product that contains some 1,700 components.

Working out the kinks
"Meeting demand is always a tricky proposition," said Jupiter analyst Michael Gartenberg. "The issue is now the coming holiday season. Presumably Microsoft will have the kinks worked out by then, so Sony needs to make sure they get it absolutely right the first time."

Ms. Frazier added, "Yes, there have been hiccups, but ... gamers are a pretty forgiving bunch, or have short memories if there is content that they just have to have."

That means if Microsoft Xbox can rebound, there's still a chance to dominate in the next-generation war. "It is really annoying," Mr. Edwards said. "But PlayStation3 could have the exact same thing happen."

Of course, if Microsoft hasn't managed to sate the public's console desires come November, it will likely find itself competing for share of media voice with Sony, and possibly Nintendo, too, and that could mean a Christmas ad war-only a year later than originally anticipated.

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