More on the fishy Xbox 360 scarcity thing
by Vladimir Cole 
{ Nov 3rd 2005 at 5:30PM }
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:
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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.
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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.
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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.
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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.
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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.
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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.
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Reader Comments (Page 1 of 2)
ZildjianKX @ Dec 18th 2005 9:06PM
I'm hoping it is all hype and both 1st and 2nd shipments will come in on the same day like for the PSP. I can't see MS killing revenue by intentionally limiting their launch supply...
kojo87 @ Dec 18th 2005 9:06PM
nothing but a total marketing ploy. i have reserved many games and have gone to get systems on the launch dates and have never experianced any form of shortage depite what the internet and BestBuy guys say.
Rare Hare @ Dec 18th 2005 9:06PM
sony did the same thing with the ps2 when it was new.
Jeramy @ Dec 18th 2005 9:06PM
yeah, but diamonds are pretty and shit.
Blurrz @ Dec 18th 2005 9:06PM
Just checked the Barnes & Noble website--the only 360s available are in an $899 Bundle. Uhhhhhhhhhhh.
jack @ Dec 18th 2005 9:06PM
right now my pre-order is "2nd shipment" according to gamestop. the store i reserved at has said they were alloted three. however i also called my local best buy, who reported " we expect to get 60-80 units + for launch. They gamestop in dubuque shoud be getting at least 30." so which should i believe.
Twist @ Dec 18th 2005 9:06PM
Quit giving Sony all the credit for this scheme, Nintendo did it first with the N64 ;)
The Shizzlenit @ Dec 18th 2005 9:06PM
interesting, all of those reasons make sense for deflating supply so there is a shortage, but I thought that MS said that the first company to 10 million consoles wins and taking away supply could hamper this goal. they need to get as many units as possible out there before the PS3 hits, which will decrease 360 sales if it is great or not. also, the reported second shipment in several articles that appears later in the week of launch that will fill up stores for Black Friday (presumably) shows that there could be more units than they are letting on to.
i doubt that they are really holding back consoles because the ps2 had supply issues at its launch, and it didn't even have the worldwide launch to support, which will take a much larger supply for the whole world for everyone to get one than for just one territory. don't kid yourselves, there WILL be shortages, but i just hope that MS can ramp up production for '06 and beyond.
CGL @ Dec 18th 2005 9:06PM
I would think this would be more of a problem if this was Nintendo, but this is Microsoft. I doubt that they don't have enough manufacturing capability to produce enough, unless they started in October, which I doubt they did.
Donlo @ Dec 18th 2005 9:06PM
Ya because we all know that slashdot is a accurate source for news involving microsoft *rolls eyes* They just got the final spec'd hardware not too long ago, do you really think that in a 1 1/2 months they would be able to produce all that many units? I had to wait like 5 months to get my damn ps2 and that was after it had been out in japan for months, and microsoft is going for a very close world-wide release. Remember, just because you think any company with more the 5 employees and 1 million dollars in reveune are evil, doesnt make it true.
Hachi_roku @ Dec 18th 2005 9:06PM
Ummm... Diamonds arent rare. That large company im not sure how to spell it but it something like Debieers. They hord diamonds and make it look as thought they are rare. I think I saw it on discovery channel, and they had like a vault filled with diamonds.
OMGWTFBBQ @ Dec 18th 2005 9:06PM
UPSOLD EBAY PRODUCTS DO NOT GIVE MICROSOFT PRODUCTS. This is just a STUPID CONSPIRACY THEORY from some bored gamers who want to be COOL. There is VERY LITTLE benifit in PISSING OFF DEVELOPERS by GETTING LESS CONSOLES in the hands of potential buyers of games. I'm sick of seeing people report this stupid crap.
OMGWTFBBQ @ Dec 18th 2005 9:06PM
products = profit =p
Perfect Dark Zero @ Dec 18th 2005 9:06PM
Fear = demand = sell out first day = press
OMGWTFBBQ @ Dec 18th 2005 9:06PM
the benifit of marketing you get is NOT WORTH the COST of the PROBLEMS you will get from DOING so. Stupid conspiracy theory
soco @ Dec 18th 2005 9:06PM
however, there are some pretty big downsides to this enforced shortage-- specifically in the US. many people still do their shopping at the end of november. if the device is not easily on the shelves, and not easily accessible, many parents will just buy a replacement present. since it's so damn expensive, many people may not get another present this expensive until next christmas, at which time the PS3 will be out.
however, while it seems obvious MS is faking it, and maybe they are, i still think there probably is a shortage anyway. i mean, if you go back to the numbers of units produced every week being originally 100,000 and later 150,000 ,although these were just guesses from analysts, that's not a lot of units for a world launch.
i think you can easily say they're not making a million units a week, and even if they've made a million a month, that's only about 3 million since they supposedly started production in August. this doesn't even count the number of failed or dead units boards, which could be 10%. i mean sony was having problems getting the yield off of the cell chips high enough, which is why they downgraded it to the 7 useable SPEs and one redundant.
Tsunami @ Dec 18th 2005 9:06PM
The shortage is TRUE. 4 Different MS reps, including one from the East coast, said that the 360 shortage is due to Microsoft wanting to release the 360 in Europre a week after U.S. Launch. This is true, go ahead and got to Xbox.com and select any European country as your location. MS wants a big hold on the EU market, hence forgoing their home field. The local EBs allocations have been cut in half, and Nebraska Furniture Mart, one of the largest buying powers in the midwest, is getting 12 total between 2 stores. It's a horrible move on Microsoft's side, they're shipping some 400,000 units to the U.S. before Christmas, some 1 million short of the average. This shortage is true, plain and simple. Ask anyone that works at a video game store. Nevermind that GameStop/EB are the largest specialty retail store, Microsoft wants to do well in Europe, China, and Japan. Thanks for thinking about your roots. Asses.
PickyPants @ Dec 18th 2005 9:06PM
Not true.
I work as a marketer, (albeit for a different kind of product) and convincing people there will be a shortage of something is the best way to move product.
Rykin @ Dec 18th 2005 9:06PM
I think this "shortage" really depends on where one is getting the information from. I recall news and forum reports about the Halo 2 release in which kids lined-up at Game stores and one shop after another was quickly being sold-out of H2 copies.
However, when H2 was released, I simply walked into Gamestop the next morning, asked for a copy, and left. There was no hassle for me. I think in certain areas, this shortage might occur, but won't be a /complete/, wide-spread problem.
Adam @ Dec 18th 2005 9:06PM
I love the Xbox 360 marketing. Everyone i talk to, even people who don't care about games, know what the xbox 360 is, and there hasn't been one advert on tv here.
It seems word of mouth is the best form of marketing if you ask me.
waiting for the HD-DVD version @ Dec 18th 2005 9:06PM
There is no greater kiss of death for a console launch than "plenty still available at Best Buy!" the next day.
JollyGreenGiant @ Dec 18th 2005 9:06PM
Why does everything on the internet always have to involve a conspiracy? Why is it so hard to believe that there may be a shortage?
It wasn't that long ago that final development kits were delivered to developers so they couldn't have started manufacturing the system that long ago. Microsoft is doing a world-wide release so that is going to eat into the supply. Then you've got the fact that it's releasing around the holidays which automatically increases demand. Add to that a public hungry for a next gen system and you have a recipe for a shortage.
Unless somebody's got some hard evidence of a scheme maybe we should just wait and see what happens instead of making wild conjectures.
nightshadow @ Dec 18th 2005 9:06PM
well i know this.....i spoke with a eb games manager today.....this is what she told me.....after what i mentioned what i have read today on the net to her.....she said..well im not suppossed to tell you this but yes we are going to be in shortage were not sure how much but know this.....if you have an xbox 360 on preorder and it is already paid in full...you are guaranteed an xbox 360....so your best bet boys is go and pay that badboy off...TODAY! she said anyone who is on the list and has it paid in full is first in line....not the guy who got there first in line and doesnt have it paid off......remember money talks
G @ Dec 18th 2005 9:06PM
#1, "less likely to return?" What the shit does microsoft care if you return your product to the retailer?
I could address the others individually, but they all can pretty much be summed up as inventing resons to support a claim. "Increase positive word of mouth?" How is people bitching at a christmas party "positive word of mouth"? Of a product isn't available when a parent wants it, they will find a different product.
Vladimir Cole needs to learn the difference between manufacturer and retailer, and their respective goals. Microsoft's goals are:
1. Market saturation
2. Game licensing
Neither of these will be accomplished by a shortage, real, artificial, or percieved.
G @ Dec 18th 2005 9:06PM
And "nightshadow" would be well advised not to take "hot insider tips" from a fucking retailer, particularly one who has hyped this shit nearly to death with their ridiculous bundles, and yearlong preorders! EB games will tell you anything to get you to put in a preorder.
OMGWTFBBQ @ Dec 18th 2005 9:06PM
Pricky.. I dont give a #%#@% if you work as a MARKETER or whatever. IT still doesnt outweigh the CONS of faking a Shortage in this industry. you people are so goddamn gullible. Where there is chance for speculation there will be however profiting always stays the same. you people are so challenger
jp @ Dec 18th 2005 9:06PM
well microsoft are known for super aggresive marketing and i believe, even with loss of some profits, it for getting huge amount of attention from all.
LaughingTarget @ Dec 18th 2005 9:06PM
As above said, diamonds are very common. They are hoarded by DeBiers AND there is an entire strata under the Earth's crust that is nothing but diamond. If I recall, it is about a quarter of mile thick and there is enough down there for us to use it as glass panes on ever building on the planet.
Anyway, first we have to define shortage. Shortage means there are more people that want to buy the product than there are units available. It is very much likely that the shortage will be real, but no one with any sense can predict it ahead of time, unless the pre-order sales have already surpassed the available stock on launch day. It would be foolish for Microsoft to engineer a shortage, because if there is a real demand, they've lost out on sales. Microsoft makes no more money because the percieved after-market value is higher. They are pricing it at $399 and aren't selling them for the $900 some sucker will pay for it on EBay. Companies want to sell as many units as possible as early as possible, selling them later is a bad thing.
Ross @ Dec 18th 2005 9:06PM
I can confirm that amazon UK sent me an email today saying that they doubt I will get my console before xmas, I placed the pre-order in August! They also state on the website that any orders placed now will not me met until 2006
Remember the PS2? @ Dec 18th 2005 9:06PM
A "shortage" is the only way they will sell these machines with a lackluster launch lineup. The launch is so weak, they won't even confirm what the launch is. So a "shortage" will ensure that people are buying the console. Which is exactly the point. They don't want to be the next Dreamcast. (The last console to come out before a Sony next gen console)
ALEX @ Dec 18th 2005 9:06PM
Just like what happened with the PS2: purposely shipped less to make people go "OH! THERE'S NOT A LOT!? I WANT ONE!" And guess what: it worked.
Matt @ Dec 18th 2005 9:06PM
LOL, you cited a slashdot story as a good piece of evidence.
the_gee @ Dec 18th 2005 9:06PM
I would like to say this is rediculous because I know that with the hype I wouldn't even bother to go try to buy one till say... next July, BUT I'm probably not the typical brain dead christmas shopping zombie as I know most of *coughamericans to be. Along with the fact that your average high power MS marketing rep is prolly out of touch with the wee man it could be real. The real question is, who cares? If I had to actually put money where my mouth is I would say they rushed crap (ie. buggy shit falling off the assembly line) to retail because by being the only show in town they will have even the PS nuts buying like it's platinum (bling bling) out of boredom, at least for the four months leading up to what ever PS3 viral ad campaign they dream up. Are we really suprised by any strange marketing ploys from MS or anyone else? did I mention who cares?!
vaylen @ Dec 18th 2005 9:06PM
when you see a thousand auctions on eBay selling a new Xbox360 bundle the day they are released and nobody is bidding on them, you'll understand that this hype is just that. Remember the story about all the PSP's sitting on the Japanese shelves unbought amidst the hype of the American release? Expect more of the same. I see lots of unsold bundles on store shelves in December.
Dan @ Dec 18th 2005 9:06PM
Just called my EB and they just found out they are getting 20 on the 22nd... I am #19... whewwwww
Brymo @ Dec 18th 2005 9:06PM
I called my EB again today.
I am for sure getting mine midnight the 22nd.
Badison @ Dec 18th 2005 9:06PM
Nice write up, but it is a bad idea to assume manufacturers can meet demands of these amounts. I don't know if people realize you can't produce infinite amounts of things. Look at other electronics markets, sometimes the hardware can't be produced in the proper quantities.
Also, people don't realize these devices aren't made BY microsoft, the chips and assembly and other parts of the process involve numerous suppliers. Also, delaying consumers from getting what they pre-ordered can have backlash as far as public image, right?
OMGWTFBBQ @ Dec 18th 2005 9:06PM
Weak Lineup? Last I heard PG3, Condemed, Kameo were Perfectly Fine Games and clearly next gen. you sir are challenger
dude @ Dec 18th 2005 9:06PM
well i work at gamestop.... there is no way anyne can get one in my store... it is long done preordering.... but the shortage, for the preorder..... thats crap
Lee Harvey Oswald @ Dec 18th 2005 9:06PM
I was the patsy in an elaborate government conspiracy where the CIA secretly used a "magic bullet" to kill the president before they framed me.
vc @ Dec 18th 2005 9:06PM
"What the shit does microsoft care if you return your product to the retailer?"
Returns lessen the install base. Remember, the console is the loss leader. Like Gillette, MS is selling you the razor body and hoping that the LTVC (lifetime value of a customer) is pumped up by repeat software sales. That's why returns suck. Returns also indicate an unhappy customer who is likely to create negative word of mouth.
"learn the difference between manufacturer and retailer, and their respective goals. Microsoft's goals are:
1. Market saturation
2. Game licensing
Neither of these will be accomplished by a shortage, real, artificial, or percieved."
If demand is a function of marketing, then a shortage creates all sort of great marketing that you simply can't buy. It gets everyone talking about (and buying) the console, and that's the point.
Let's say that a shortage now means a loss of 1 million units sold. In exchange for that, the company gets millions upon millions of dollars in free advertising and creates a froth of hype for the console. That hype will sell many more consoles over the long run than they would have sold by sating demand during the holiday season.
"There is no greater kiss of death for a console launch than "plenty still available at Best Buy!" the next day."
Quite true. Hype drives sales in this market.
"if the device is not easily on the shelves, and not easily accessible, many parents will just buy a replacement present."
They'll try, but they won't satisfy Jr.'s demand for an Xbox 360. He'll still hit them up after the holidays for the console that they promised. He'll be that much more insistent as a result of the shortage.
"the benifit of marketing you get is NOT WORTH the COST of the PROBLEMS you will get from DOING so."
Enumerate those problems. What are they?
"UPSOLD EBAY PRODUCTS DO NOT GIVE MICROSOFT PRODUCTS. This is just a STUPID CONSPIRACY THEORY from some bored gamers who want to be COOL. There is VERY LITTLE benifit in PISSING OFF DEVELOPERS by GETTING LESS CONSOLES in the hands of potential buyers of games."
Developers are already committed to the platform. A temporary, 2-month shortage is not going to cause a developer to scuttle a project that they've invested millions of dollars developing. Furthermore, if the shortage does indeed increase post-holiday sales above what they would have been without the shortage, then developers will ultimately be happier.
"Diamonds arent rare. That large company im not sure how to spell it but it something like Debieers."
Diamonds are rare because DeBeers stockpiles them and controls a good portion of the supply. It's an artificial scarcity, but it doesn't matter if the scarcity is man-made or natural--the net effect is that people are willing to pay more for them.
"just because you think any company with more the 5 employees and 1 million dollars in reveune are evil, doesnt make it true"
Never called Microsoft evil. I think it's smart. A good marketer knows how to generate demand for the products he's selling. They seem to have nailed it here.
" Companies want to sell as many units as possible as early as possible, selling them later is a bad thing."
Generally true. A dollar today is worth more than a dollar tomorrow. However, if you could forego 1 million unit sales over the next two months for 10 million incremental unit sales over the next 8 months, would you? How about foregoing 1 million unit sales over the next two months for 20 million incremental unit sales over the lifetime of the console? Nailing this launch window before Sony and Nintendo arrive is critical and has long-term implications far beyond holiday season 2005.
PenZillA @ Dec 18th 2005 9:06PM
great post vc
JasonG @ Dec 18th 2005 9:06PM
Can someone PLease tell me who actually knows. Is this whole shortage thing meant for people who will be looking for the 360 for x-mas, or is this a shortage that should worry a person going for a 360 on november 22 @ 12midnight???? like at best buy..??? thanks all
markymark @ Dec 18th 2005 9:06PM
Amen.
PS3 News @ Dec 18th 2005 9:06PM
This is a common tactic used for the release of something high profile like this that has so much hype behind it. Make people feel like they have to act quickly and buy things that they really don't need, or at least not right away.
madbecausewearegetting24systems @ Dec 18th 2005 9:06PM
its not fake. EB is getting jack shit for their Shipments.
how do i know?
i work their and we are getting the shaft and we are a big store in a nice location
Ninjao @ Dec 18th 2005 9:06PM
As far as I know, its all real. I work at Toys "R" Us in Ontario, CA, and we are only getting 12 for preorders. And we dont know how many we are getting in and when after the first shipment.
ZeroCorpse @ Dec 18th 2005 9:06PM
Jeez... Of course little pissant places like EB and GameStop will suffer shortages. They don't get much of ANYTHING, EVER.
I can speak for Best Buy, though, and tell you that we're going to have a pretty good supply of 360s, depending on each store's sales numbers. High-volume stores will get more 360s, while low-volume stores will get fewer.
So--- If you want one on launch day, go to one that has a lot of business, and not the Best Buy in the middle of a cow pasture with few customers. Those low-traffic stores will only be getting very small numbers of Xbox 360s.
tnod yub ynos @ Dec 18th 2005 9:06PM
truth be told if you want one you will get one. only places like gamestop and eb will sell out. Think about it this way. In my area alone we have a bestbuy, gamestop,eb,circuit city, fye, kb toys, toys r us, 2 wal marts and a kmart. If each store only gets 50 consoles, that still makes 500 ready for launch with a new shipment coming in a week. that makes 1000 360's in this 5 mile area alone before dec 1st. we need to think for ourselves and stop believeing every thing we read. Im getting my 360 on launch day and im not pre ordering or standing in a line on the 21st at midnight. Pay for an item before it exist, give me a break.
Thryon @ Dec 18th 2005 9:06PM
I just spoke to my local TheSource, a large chain of small stores owned by Circuit City in Canada (formaly knows as Radio Shack). The rep indicated that they (Circuit City in Canada) where allocated 6000 Xbox360 units and out of that, only 700 units will be available to TheSource...that is 700 consoles for 800 stores. This shortage may be legit. I am #3 and 4 on my local EBGames list. They are guaranteed 10 per store. Everyone figured I was mad pre-ordering in May, but I am now glad I did so.