The 360 Is Too Cheap?

The always interesting GamerDad site is running a 'LongShot' column wondering if perhaps the 360 wasn't expensive enough? From the article: "The beginning of a console generation has typically been for those with deep pockets or an unhealthy hardcore jones for videogames. These people are willing to smack down big bucks for the latest technology. The price of 360 was too low to keep the launch confined to that group and it was a big mistake in my opinion. With a higher price tag, Microsoft would have made more money, made sure sellouts wouldn't have lasted for months after Christmas and still sold through all the units they had to sell before the holiday. The demand for a new system was far higher than most people anticipated, especially given the early demise of the original Xbox, a system that will probably be gone from store shelves by February 2007."

Reaching

[AKAImBatman]

That has to be the most reaching analysis I've heard yet. His basic argument is that gamers have grown up, therefore they're willing to spend gobs more money. I'm sorry, did he miss the $400 price tag? Many of the early units were sold for far more than that! If it was priced any higher, consumers would start to wonder why they shouldn't get a new gaming-rig computer instead! (Or at least a bigger HDTV and a load of HD-DVDs or BlueRays.)

If Dave of GamerDad wants to know why the 360 isn't taking the market by storm, he needs to look no farther than the games. As X-Play on G4* said, (and I'm paraphrasing here) "The XBox 360 needs to stop charging more money for less game." (In a review of Tiger Wood's Golf.) Microsoft and their affiliates need to realize that pretty graphics are not the only ingredient in making a good game. When you pay $60 for a game, you expect to get enough to entertain you until at least your next paycheck!

* No, I don't normally watch G4's game shows. I just happened to see their marathon of reviews this weekend. Which again convinced me why modern gaming sucks. Now, will someone please tell the hosts to stop nodding and making faces while the other person is talking? Also, get them into some adult-looking clothes without pockets. They look absolutely shriveled up with their arms so close to their sides. Last but not least, they need to eschew the ridiculous stream of bad jokes in favor of a few good jokes (read: not stupid!) and more off-the-cuff banter between the hosts. This practice of reading j0kes from a script really shows.

Microsoft would have made more money

[Threni]

> With a higher price tag, Microsoft would have made more money

Pure speculation, your honour. They'd have made more money per unit, certainly. That's about all you can say.

Yes...

[bssteph]

...that early demise which hasn't happened yet really hurt the Xbox...

*roll eyes*

The article calls Microsoft an "also-ran console maker in a Sony-dominated market" with respect to the Xbox. Please. Xbox had its problems (especially in Japan), but Microsoft went from 0% market share to beating out Nintendo's Gamecube, a company with established name.

They've sold 22 million units for chrissakes! There are ghosts of consoles (like the Dreamcast) that would have killed for that kind of "early demise".

Whatever.

Re:Reaching

[Goyuix]

The other assumption is ignoring the market reaction six months later when they cut the price back down to $400... lets say they really ramped up the price to an even 1K - which is what some systems sold for on eBay, using that argument - How many customers would just happily wait the six months for the system to drop back down. Yes it may serve to stave off the out-of-stock problems, but you are just going to aggravate your consumers and at the end of the day - not to mention store owners paying the inflated price, only to have MS cut it in half and deal with that hassle. The real answer is to launch when your inventory and production are sufficient to handle the demand. This is a fine point of launching a device in Japan, Americas and Europe at different times - it really helps the inventory problems. Not that I like waiting, but there is a WHOLE lot more going on than MS simply missing out on an opportunity to fill the cash bucket.

I really can't believe I am feeding the troll of this story.

Re:Reaching

[gEvil (beta)]

So instead of paying $150 for an original xbox, people instead decided to pay $300-$400 for a 360? That's not a trivial difference by any means. Not to mention, if you've waited this long to get an original xbox, you most likely aren't going to be an early adopter of the next one.

Re:Market forces

[wileyAU]

Microsoft obviously failed to find the appropriate point on the supply/demand curve for the market.

Consoles always make their money from selling games. Microsoft intensionally sold below the market curve for consoles in order to drive the sales of games which are priced about $10 higher than new PS2/X-box games.

Re:Mod article -1: stupid

[east coast]

yes, 400 is too much for a toy

No, this is a 400 dollar alternative to buying some kid a kick ass machine with a 400 dollar video card to play games on. The alternative to this alternative is to let the 12 year-old-know-it-alls beat up on mom and dads PC installing every demo that comes down the pike as well as all the crap the accompanies the demos for unknown reasons. I've seen what my nephews have done to my brother's PC and I can tell you 400 dollars is a small price compared to the pains that brats will cause you by fouling up your machine.

Most parents don't mind their kids gaming and the XBox 360 is economical in the face of the original XBox and the PS2 that are both living on barrowed time.

And if your kids are treating the new XBox like a five dollar nerf football than the problem isn't the "toy" it's the kids aren't taking care of it or are too spoiled to appreciate the value of it.

He could have a point.

[turbopunk]

It's hard to really tell one way or the other, but he could have a point. I think the price-point of the 360 was less a function of the value and more a function of the perceived value. If the system cost too much, people wouldn't think they were getting their mony's worth. If the system cost too little, people wouldn't take it as a serious piece of hardware.

I think the biggest problem was the enforced bundle. No, I'm not talking about the way gamestop raped their customers. I'm talking about the core vs. premium. I think MS could have had a much more effective launch by sellng a single $350 unit that was the system, wireless controller, play and charge adaptor, and s-video cables. Everything else could be an add on for a "reasonable" price. Think about it, the only thing missing is the hard-drive. Sell it at $75 dollars and force the early adopters to HDTV, who probably could afford one more perchase, to purchase the HD cables, and you have a console that implies the true capibilities of the system.

No, the supply was too low

[Belgand]

What they're basically trying to say is that the XBox 360 sold out because Microsoft priced it low enough that people could actually afford it. An apt comparison would be the recent HD-DVD launch. They've priced the damn things so high that nobody will buy them unless they're simply drooling at the possibility of being able to buy a shiny new toy. Early-adopters and the obsessed will typically buy new products for prices that are far above what anyone else is willing to pay. The statement then, is that the pricing was low enough that it wasn't restricted solely to the early-adopter/gotta-have-it/price-is-no-object segement. As a result the system sold out.

There are, however, flaws with this reasoning. First is the idea that the launch of a new product should be accompanied by a phase of normal people wanting it, but feeling the damn thing is just too expensive to drop that kind of cash on. Quite frankly this is idiotic. Sure the company might make a bit more money, but it doesn't help the consumer in the slightest.

The second problem is that Microsoft only intended this hard-core segment to purchase the Xbox 360 at launch. This is patently untrue. They hyped the hell out of it and barely let up. They wanted everyone to be rushing the stores to buy one just like it actually went down. The problem is that Microsoft screwed up and didn't have the stock they needed.

Quite frankly it feels like someone who was pissed because they couldn't easily get their hands on one and would have been willing to pay more so they could have.

Re:I think that's what they wanted

[maynard]

There was a fixed number of consoles manufactured prior to the Xmas season. By increasing price to the level of demand they would have upped their margin, which they might have liked. Or, perhaps unlike every other for-profit company, the simply don't care about such business-wonk stuff.

The original author claimed MS could have raised prices. The top-level comment poster disagreed. I argued back that high ebay prices showed what the market was willing to bear at that time. Your reply to me that they needed 'to get more consoles out there' is both true and irrelevant given what was available in the channel at that time. Are you arguing that MS could not have lowered the price once production increased to the point where the supply shortage ended?

Re:Reaching

[Serapth]

ARRRRRRRRRGHHHHHHHHHHHHHHHHHH

I see this reference everytime mention of selling a console at a loss is mentioned. Hey, I love the Gord. I wasted many many many days at work reading the Gords awesome website.

That said, when the hell did some guy that owns a video game stores commentary become "the truth".

The Gord said it, thus it is true! And you know what... some guy at EBGames once told me that EA fired all its programmers and replaced them with monkeys. I thought this was insane at first, then it dawned on me, he works at a game store, it must be true!

Re:Microsoft would have made more money

[DrShoe]

Unfortunately, that's not necessarily correct. Component prices are based on estimated purchase quantity. By raising the price so that fewer were purchased, you're also raising the price of the parts to make it. So it could turn out that you make less. Fewer customers at a smaller profit isn't a very good corporate policy.

Nope: try 40K units by 12-5-05

[maynard]

See this article [gamepro.com] which quotes Ebay CEO Meg Whitman, who claimed that as of Dec-12-05 of the 400,000 units sold at that time 10% had been resold though ebay. Pretty significant numbers, I'd say. If ebay is good for anything, it is to track current market rates for just about anything. The average pre-xmas price for a 360 was $718.00 [informationweek.com]. That's several hundred dollars lost to MS per unit (or gained by the reseller, if you prefer).

I agree.

[danwesnor]

Actually, I agree with him. From a pure supply and demand perspective, the 360 should have been priced $200-300 higher in the US at release. But the high demand would have only lasted for a few months, and then Microsoft would have had to drop it. Imagine how PO'd you'd be if a product dropped in price by 50% 3 months after you bought it?

Re:Reaching

[Anonymous Coward]

> That said, when the hell did some guy that owns a video game stores commentary become "the truth".

When said guy cites Sony's own annual report?

Re:Reaching

[oGMo]

The Gord said it, thus it is true! And you know what... some guy at EBGames once told me that EA fired all its programmers and replaced them with monkeys. I thought this was insane at first, then it dawned on me, he works at a game store, it must be true!

Except Gord isn't an idiot, and he goes on to make a good case for his speculation. It's pretty simple math; read the article. If Sony lost $100 on each of the 1000000 consoles it sold at launch, it would be pretty damn hard for SCE to sweep a $100mil loss under the carpet. According to wikipedia [wikipedia.org] they sold around 10 million in about 2 years; how do you hide a $1 billion production loss? You don't; billion-dollar losses are more Microsoft's area.

What makes the PS3 worth the wait?

[Pulzar]

I've been noticing many tech writers talking about how the 360 is "taking the nation by storm" and "everyone has to have one," but I don't know anyone who has one, I've never actually seen one in any store, Everyone is waiting for the PS3, which will give three generations of Playstation gaming in one console and will probably be my very first Playstation purchase.

Well, I don't know anybody who is waiting for PS3 other than an occasional Slashdot post :). I have to ask -- what is it that makes you say that it will be your first Playstation purchase? So far, you know nothing about how the games will play on it, what kinds of games will be made, except that it will have Blu-Ray support, and Cell chips in it. Oh, and that it will probably cost a lot. What has the Sony marketing done to so thoroughly convince you that not only you should wait for it (instead of buying Gamecube, PS2, Xbox, or Xbox 360, all much cheaper and available *now*), but that you should also buy it when it comes out, without even seeing one?!

This isn't meant to be a flamebait, I really want to know -- I must be missing some information about PS3!

Re:I think that's what they wanted

[joshsisk]

By hot, I think the poster meant "in the news more than any other product". The average mom and dad saw dozens of news stories that showed the 360 as being a hot product, sold out all over the country. The 360 was the "Tickle Me Elmo" of Christmas 2005. Whether or not it will ultimately be a success, who knows.

Re:Pre X-mas prices on Ebay

[MyGirlFriendsBroken]

The premium was several hundred dollars above retail. Someone pocketed that profit and it sure wasn't Microsoft. It'd say the author's point is valid on those grounds alone.

I would disagree as it is about the price drops. You have to wait a certain amount of time before dropping the price, so your initial price point has to ensure sales for about a year say, not the first couple of months. Remember to original Xbox, when MS had to drop the price of that after a few weeks (which happened in the UK, I don't know about elsewhere), they had to give all of the people who paid they higher price accessories and games to compensate and smooth over the PR.

So Xbox 360 are in short supply to start with, but they get:

1) The hype of being sold out.

2) Good will amongst many customers outside the US, at least many more of us had a "chance" at a bite of the cherry..

3) A price which will last them till the PS3 comes out when they can drop the price without aggravating those people who already have one.

Re:Yes...

[DeadScreenSky]

The shortage excuse is over (Microsoft claims that they want to produce about 1 million/month) but they sold less than 200 000 in the US in March (IIRC 197 000), since they sell less in Europe and nearly nothing in Japan, that would be a total of maybe 350 000 worldwide, 400 000 if we are very optimistic.

How does MS get these new units to the market, teleportation? March wasn't going to show this lack of a shortage because the consoles weren't for sale yet. Shipping via boat takes at least a couple weeks, maybe more. IIRC most stores in the US had their major "Yes, we have X360s now!" ads towards the beginning of April, so this month's sales should reflect some of this difference. But next month's sales will probably be the real indicator, since the X360 will be widely available and potential customers can be assumed to know that. But it's still at least a couple weeks too early to see what kind of impact the lessening of shortages had on the X360's sales.

Re:Reaching

[Anonymous Coward]

Why does the loss have to be as much as $100? It could be less, besides economies of scale in the manufacture would kick in way before 2 years, the losses would be steadily getting less and less as time goes on. You are also forgetting R&D, which will probably show up in a different budget but still technically counts towards the cost of making the console, R&D would have to be factored in to the price of other pieces of hardware, but while it still has to be recovered for a console, it doesn't have to come directly from selling the console. So while the hardware could be selling at cost, there is still a loss from the R&D that will need to be recovered, so a console can still be counted as selling at a loss until that happens.

Re:Yes...

[indil]

Third place in which contest? If you mean numbers, then yes, I suppose GameCube came in third, Xbox second, and PlayStation 2 first. But then again, if you jump into this business with a few billion dollars to spare, anyone can initially succeed. What remains to be seen is whether MS can retain their followers in their second run.

In my experience, the enjoyment I feel while playing my GameCube console has little to do with what other people think of it or how many people own one and more to do with the games I play. In that department, I believe that GameCube won. But that is, of course, according to my personal preferences.

I suppose the moral of this post is that in the long run what matters is what your console and games mean to you, not what everyone else thinks or owns.