Can you buy an Xbox?

by MaxPower

Over the past two or three months the Microsoft marketing machine has been in full swing preparing consumers to shell out $500 bucks plus for the next generation gaming machine – the Xbox 360 (or as I like to call it “Bill Gates’ booty”). I have had the opportunity to see that buzz in full effect through attending a couple of Xbox-related marketing events (see R4NT’s previous article on X’05 held in Toronto HERE). Running up to the release and subsequently, the mainstream media caught a hold of the Xbox story and ran with it (months too late as R4NT as well as the gaming media had been talking about the 360 for months – but points to them for trying). Predictably the mainstream media’s stories related to the Xbox 360 being the forerunner for the next generation of gaming machines and a “hot” item. Much of the media buzz related to the discussion of the media buzz surrounding the new product (like articles which stated that the buzz that had been created will lead to product shortages).

I recognize the irony that this little article is now an exploration of the media buzz which was looking at the media buzz around the launch, oh what a twisted web we weave. Most media outlets focused on line-ups by hardcore gamers who didn’t pre-order an Xbox to get the Xbox machine at midnight or first thing in the morning on November 22, 2005. You’d think most hardcore gamers would have pre-ordered, but I guess some people like waiting in lines. At least some people like tormenting people who like to stand in lines and you can see an example of this at www.smashmyxbox.com. Anyway, the human interest aspect of the story was what the media really wanted and most of you likely saw that now famous picture of a guy holding up an Xbox 360 over his head in Seattle looking like he had just secured the most precious substance on earth while Bill Gates looked on benevolently.

I understand the marketing behind creating a shortage of goods at a product launch. Scarcity means an object is more desirable. This is a fundamental principle of marketing and economics as the phrases “be the first kid on your block to own one” and “economics is the science of scarcity” come to mind. By creating a shortage (artificially or not) of Xbox 360s on the launch day, Microsoft is able to show a strong demand for its product but more importantly, create the impression that everyone who is anyone wants one. So that is great – from that point of view Microsoft hit a home run with the Xbox 360 product launch.

However, there is a fine line between product scarcity to drive buzz and product scarcity that is bad enough that it doesn’t allow people to actually buy one. Microsoft is well into the latter. Let me give you some anecdotal examples:

• EB Games – a major supplier of Xbox consoles for gamers that tend to be the harder core had to cancel some pre-orders for people who had been “guaranteed” supply from Microsoft on the original shipment. Apparently many EB Games stores were short shipped and people who ordered their 360’s in mid to late October (over a month before!) may not receive a console until January 2006. The EB Games store we contacted in downtown Toronto stated that it was calling 83 (!) customers who had pre-ordered to tell them that they would not be receiving consoles period.
• Future Shop in Canada was also short shipped. The Future Shop store in downtown Toronto only received 40 consoles in total and they had pre-sold 23 consoles (their limit) leaving only 17 available for those who waited in line at 8:30AM on November 22. I know I wasn’t going to show up on the off-chance I was one of the first 17 as I’m just not that hardcore. If they said oh we have 100, I would have probably swung by at 8:30 to see if I could get my hands on one.
• Xbox 360’s are selling for outrageous sums on eBay. Note to anyone who bought a “premium priced” system on eBay and thusly demonstrating that they possess no common sense – I have a $5 bill here that I want to sell you for $10.
• Calls to most of the retailers in the Greater Toronto area before and after the launch stated the same thing – it was highly unlikely that they’d get in more than 40 – 50 consoles during December – quotes: “one shipment” and “come back in January”.
• Game retailers are now cutting earnings estimates as Microsoft ships fewer than expected Xboxes – shares in Europe’s largest game retailer (Game Group) fell as it slashed expectations of sales due to low Xbox 360 shipments to Europe.

Now whether this future scarcity is real or imagined (i.e. maybe the stores will get more stock in than anticipated or demand will be lower) these examples show the supply issues surrounding trying to launch a major product globally. If Microsoft can’t pull it off with its massive distribution capacities, one must question the logic behind “global supply launches”. I know for myself, I am interested in spending $750+ all in to buy this console and I can’t get one as I didn’t pre-order (just never got around to it… *cough* lazy). It is likely I will wait until January when 360s are readily available in stores because honestly, my time is worth too much to spend hours per day phoning around to see when the next shipment comes in and then run over to the store. I know for a fact a lot of the young professionals in and around my age would feel the same way and that the buzz will die a quick and painful death. Microsoft has essentially built this buzz but had failed to deliver enough product to their key target market. There will be a lot of disappointed 20-somethings this Christmas as Santa failed to get his Xbox 360 shipment because he was foiled by the supply chain gremlins. I’ll be watching the PS3 launch closely to check out Sony’s supply chain prowess.

MaxPower