More on the fishy Xbox 360 scarcity thing

We're not sure what's up with all of this Xbox 360 scarcity stuff, but something doesn't smell right about it. We have conjectured in the past that the whole scarcity thing is faked to incite demand, but we've also noted that perception of a shortage is enough to make that shortage real. At this point, it's probably all academic, because the meme is loose and it appears to be running rampant through the 99.9999% of the world that doesn't read video game blogs.

However, that doesn't mean we shouldn't continue to follow it, because we figure Sony and Nintendo will likely pull the same maneuver that Microsoft may have successfully pulled off here.

Here's what's fishy: (a) There's a very big incentive to fake a shortage. More on this later. (b) There are whispers that it's being faked. Read Slashdot story here. We have received similar emails, but we have no way to verify their authenticity. (c) We're still receiving emails from Barnes and Noble (sources through GameStop) that Xbox 360s are available for pre-order today. In fact, we got such an email just this morning.

And here's why a shortage makes sense:

1. A shortage reduces product returns to zero. If you believe you’ve got one of the only Xbox 360s in the land, you’ll hold onto it, even if you were initially unsure if it was a wise purchase. In other words, shortages are the antidote to buyer’s remorse.

2. Shortages increase perceived value of a product. The basic interaction of supply and demand makes any shortage factor heavily into buyer valuation of a product. Diamonds and gold are rare. Therefore we value them highly. They have no intrinsic value.

3. The traditional media LOVES product shortages stories around the holidays. Every single year, they’re looking for the “hot toy” that parents will be lucky to find anywhere. Every major news outlet will report on shortage of an Xbox 360. So while Microsoft might take a hit on short-term revenues by artificially depressing supply, they’ll accelerate post-holiday sales by an order of magnitude, and that’s what really counts. They need to maintain the buzz into the new year and they need to ensure that Sony and Nintendo don’t take over at this point.

4. You’ll increase positive word of mouth. People who don’t get a unit will complain at the holiday parties. People that do get a unit will gloat at holiday parties and gatherings. The result is that Xbox 360 will be on everyone’s lips around the holidays, greatly increasing general mindshare for the console.

5. Shortages get people going back to stores constantly to ask “did you get any in? did you get any in? how about this week?” Every time a buyer enters a gaming store, he takes a longing look at that Xbox 360 rack and perhaps buys another title that (surprise!) just showed up there.

6. There are no substitutes right now! The Xbox 360 is going to be the only next-gen console on store shelves, period, for the next six months at least. Why not press that advantage now, before real substitutes arrive?

All of this said, this isn’t evil. This is super-savvy marketing. Selling a product isn’t always about creating enough to fill immediate demand. It’s about sustaining demand over the long term. If this launch is played out correctly, long-term sales of the console should prove stronger than the typical console launch.

If someone has run the numbers on this, and if it can be determined that lower supply will result in higher long-term sales, they why not do it?

Crackpot conspiracy theories aside, maybe those Xbox 360 factories just had some glitches and didn’t produce as many units as expected. That’s the official line from Microsoft. Such things happen all the time, so there’s really nothing strange or crazy about such a story. And it is the first major global rollout of a console.