<Quote>
[Figures show that reporting on video console wars in 2007 were
misleading. Need to combine figures of units manufactured and figures
for retail units sold. Production numbers alone are misleading. Also
must distinguish US and non-US markets.]
...In the 2006 holiday season, Microsoft shipped a blowout surge of
units to stores just as Sony and Nintendo were struggling to launch
their new consoles and suffering through the inventory and production
problems common to any new rollout. This was no accident.
[Microsoft, Nintendo, Sony all try to channel stuff, selling units to
retail outlets that don't get sold to customers. Apple doesn't do it
because they own their own retail outlets.]
Nintendo simply couldn't stuff the channel because it couldn't make
Wii units fast enough to even meet demand. Sony worked hard to stuff
the channel, but also suffered some production problems. At the same
time, the high initial price of the new PlayStation 3 helped
accumulate channel inventory as many buyers were wary of throwing down
$600 for an unproven new game console that was clearly going to fall
in price.
Microsoft took the cake and ate it too in terms of channel stuffing.
As I presented in the middle of last year, the company met two key
goals in its first year, not by selling units to users, but merely by
pushing huge inventories into stores. Microsoft announced it would
sell five million units by mid 2006 and ten million units by the end
of 2006. Both targets were designed to suggest that the company would
overwhelm the market with 360s leaving little remaining interest in
the new offerings introduced by Nintendo and Sony for the 2006 holiday
season.
Sure enough, Microsoft hit its targets. However, after hitting each,
subsequent channel shipments trailed off dramatically. That indicated
that stores were stuffed with units they could not sell. After
supposedly selling eleven million units by the end of 2006 (which
required shipping 4.4 million units to stores in just three months),
Microsoft then only shipped another 1.2 million over the next six
months. It had initially planned to ship out 5 million new units in
the first half of 2007, but there just wasn't room. The channel was
stuffed.
The Death of Xbox 360.
Throughout all of 2007, Microsoft could only push out 7.3 million
units, a huge drop of 33.6% in unit shipments year over year from
2006's 11 million units. The Xbox 360 peaked in 2006 and is now in
decline, and the channel is still stuffed...
[Data on iPod, media distortion, comparison to XBox...]e.
The Sealed Fate of Microsoft Media Downloads.
After its peak year of Xbox 360 sales in 2006, Microsoft was still
failing to sell any significant number of digital downloads through
the Xbox, while Apple was selling 99% of online TV programs and 40% of
movie downloads through iTunes....
Microsoft doesn't release its media sales figures, but according to
NPD, it doesn't even figure as a full percentage point in the TV
downloads market, and in terms of movie sales it fights over the tiny
7% slice of "other" vendors outside the top four led by iTunes. Apple
had left Microsoft's online media business in the dirt even before
matching its Xbox Live features, including HD content and movie
rentals. As Apple's far larger iTunes media platform expands and the
growth of Xbox 360 sales shrinks dramatically, will anything stop or
reverse this trend?
[More on download market...]
The Real Story in 2007 Console Sales.
If the dramatic year over year decline in sales of Microsoft's Xbox
360 and its futureless prospects as a media center device come as a
surprise, wait till you see the plain numbers from NPD's monthly sales
reports. They simply unravel the entire sweater story Microsoft has
worked so hard to knit. According to media reports throughout the
year, the Xbox 360 seemed to consistently lead despite brisk sales of
the hard to find Wii and much to the embarrassment of Sony, which
couldn't even seem to sell any of the consoles it managed to build.
But things were not as they seemed. Microsoft's lead was only ever
based on its channel stuffing from 2006. Throughout 2007, the Wii
outsold the Xbox 360 every month outside of September despite being
nearly impossible to find, and even when only considering US retail
figures. Including sales outside the US, the Wii outsold the 360 by
more than 200% (15.4 Wii units vs 7.3 million 360s), again despite
severely constrained supplies of the Wii and abundant stockpiles of
the 360.
Of course, the Wii and the 360 aren't entirely direct competitors;
many gamers who own the 360 bought a Wii in addition to their existing
console, and use it to play different kids of games or in group
settings. The 360 directly positioned itself against the new Sony
PlayStation 3, and fewer gamers are likely to buy and play both
consoles. Still, the main competitor to Sony's PS3 wasn't the 360 but
actually the PS2, which Sony continued to sell throughout 2007.
NPD monthly sales Wii PS2 PS3 Xbox 360
Sony vs Sony.
Microsoft couldn't continue to sell its original Xbox because once the
360 was released, nobody would want it and its availability would
severely detract from Microsoft's new console were it priced
competitively. In 2006, Sony sold its PS2 against the new Xbox 360 and
easily outsold Microsoft's new console, all the while making profits
on the PS2 while Microsoft lost money on the 360. In 2007, Sony
continued selling the PS2, and priced it to compete against the Wii.
The result was that the cheap PS2 nearly matched sales of the 360 in
the US (4 million PS2s vs 4.6 million 360s) and blew past it
internationally (12.7 million PS2s vs. 7.3 million 360s). The PS2 even
approached sales of the Wii, and in doing so helped mitigate the deep
losses Sony suffered on the new and far more expensive to build PS3.
Nobody ever talked about PS2 sales despite its being the second most
popular console of 2007 by a wide margin.
What also went entirely unsaid in media reports was that the
struggling PS3 actually sold in decent numbers next to the 360 despite
competing against its own cheaper PS2 cousin while the Xbox 360 had no
cannibalizing competition of its own at all. While selling only a
little more than half as many PS3s in the US as the Xbox 360 sold in
2007 (2.6 million PS3s vs 4.6 million 360s), Sony sold 6.5 million
PS3s worldwide, a stone's throw from the 360's total of 7.3 million.
Suddenly the PS3 doesn't look like the dog Microsoft worked so hard to
make it out to be.
2007 Wii Playstation and Xbox 360 market share
Sony's Big Risks.
And now a different picture emerges: Sony was competing aggressively
against itself and still won. Adding all PlayStation sales together
(which will no doubt cause Xbox fans to spin into an apoplectic fit),
Sony sold 6.5 million consoles in the US and 19.2 million worldwide.
Again, Microsoft's console sales were just 4.6 million and 7.3 million
respectively.
Anyone talking about PC market share would collectively consider
Windows XP and Vista both as Windows, and not exclude XP's numbers
just because it came out in 2001. Similarly considering Sony's total
consoles sales collectively drops the Xbox 360 into third place in the
US (above right), and a very distant third place worldwide (above
left).
Sony's overall profitability certainly didn't match Nintendo, which
sold all of its 15.4 million Wii consoles at a decent profit. However,
Sony achieved two things: it maintained its dominance of the console
market while also establishing its next generation HD console and its
Blu-Ray HD disc format. It certainly paid dearly to do this, but so
did Microsoft. The difference was that Sony had the ability to
continue selling a profitable Wii-class product in volume while also
introducing a risky new venture in the PS3 that bet on big future
payoffs in both gaming and media.
Microsoft not only ended up blocked from expanding outside the US, but
also had its HD-DVD format and its related VC-1 and HDi initiatives
skewered by Sony's PS3 strategy of bundling Blu-Ray with the new
console. Just as Sony risked drawing attention away from the PS3 by
continuing to sell the PS2 on the cheap, it also took a big risk in
including an expensive blue laser optical drive with its console.
Microsoft's Cheap Strategy.
In contrast, Microsoft hoped to strip the 360 of features and hit a
cheap price point against the PS3; it only offered an HD-DVD drive as
an option, left WiFi an $99 accessory, scratched the hard disk from
its base model, and even left HDMI output off of a device being sold
as an HD system for media and games.
All those stripped accessories ended up costing buyers more in the
long run. Microsoft claimed this year that US consumers spent more on
the Xbox 360 platform in 2007 than on any other gaming platform, not
because they bought more Xbox consoles, but because they had to spend
more on higher margin options that were missing out of the box.
Microsoft has consistently worked to set up false price competition to
suggest that its products are cheaper when in reality they typically
cost far more than rivals when configured as they would actually be
used. Throughout 2007, Xbox fans couldn't stop talking about how much
cheaper the 360 was compared to the new PS3, but after matching its
basic features, the 360 was actually more expensive. Sony's big risk
in delivering a fully equipped console with an expensive Blu-Ray
drive, hard disk, wireless, and HDMI ended up providing its 6.5
million customers with a system they'll be happier with and with fewer
reasons to immediately pay for missing upgrades.
Microsoft's corner cutting to create an illusion of savings means the
majority of Xbox users-who bought the first 11 million consoles in
2006-have no HDMI outputs. Many also went without a hard drive, which
is required to use Xbox Live media downloads. Microsoft's cheap
strategy therefore gave its users fewer reasons to try HD media
rentals in Xbox Live, sacrificing its future plans in media and the
value of the console in order to create the temporary appearance of
domination back in 2006. That leaves the company's gaming and media
ventures wide open to competition from the increasingly affordable
PS3, the increasingly available Wii, and media downloads through Apple
TV and iTunes.
In addition, the rushed to market 360 has suffered more than its fair
share of problems, with retailers complaining about a 30% return rate
and Microsoft being forced to set aside a billion dollars to service
warranty work for machines that overheat, scratch optical media, and
make lots of noise.
There Is One More Thing.
If all those numbers sound really bad, consider why they're actually
worse than they seem. Recall that I'm comparing two sets of numbers in
parallel: manufacturer's total worldwide shipments and NPD's US retail
numbers. These numbers overlap. When Microsoft stuffs the channel, it
counts millions of units as shipped. When stores actually sell those
units, NPD counts them again as having sold at retail. If Microsoft is
indeed stuffing the channel unmercifully, NPD's retail sales should
demonstrate that. They do.
While I stated that Xbox 360 sales were 4.6 million for the US and 7.3
million internationally, I really meant that NPD counted up sales of
4.6 million units in the US and Microsoft managed to stuff another 7.3
million into stores. Microsoft did not neatly sell the difference of
2.7 million Xbox 360s overseas; whatever number the company actually
sold internationally is still hidden by the piles of boxes in the
channel at the beginning of 2007.
That explains why NPD reported that Microsoft sold 721,000 units in
the first quarter of 2007, despite Microsoft only reporting having
replaced them with 600,000 new units worldwide. It wasn't selling a
negative number of units outside the US! Instead, Microsoft had run up
a huge channel inventory balance worldwide by the end of 2006, and
continued to slowly sell those boxes while it was forced to scale back
new shipments from 4.4 million to 0.6 million quarter over quarter at
the beginning of the year.
In comparison, Nintendo sold over a million units in the first quarter
in the US but distributed over 2.6 worldwide, and Sony sold a half
million PS3s in the US while shipping out 1.9 million worldwide. From
the first quarter on, it was obvious that Microsoft hadn't actually
sold as many units as it was saying it had. For the rest of the year,
the Microsoft not only fell into third place in the number of console
units sold, but also saw its year over year sales shrink significantly
as its rivals expanded their markets rapidly.
Where Are the Missing iPhones Xbox 360s?
Pundits have been desperately searching for the 1.3 million iPhones
that were sold but not immediately activated, but haven't demonstrated
any interest in finding out why Microsoft has shipped out a total of
17.7 million Xbox 360 units with free Xbox Live subscriptions, only to
have only 10 million activated subscribers to announce. Where are the
non-activated 7.7 million Xbox 360 units with as yet unclaimed free
Xbox Live subscriptions, good for the free game Microsoft threw in as
a bonus?
That's a big number! It's more units than Microsoft actually produced
in 2007. A year's supply of Xbox 360s have gone missing and nobody in
the media has batted an eyelash. That's on top of a dramatic 33.6%
decline in unit shipments for 2007.
To recap:
[The iPod...]
Xbox 360 sales are down 33.6% year over year to 7.3 million units in
2007, and pundits are congratulating the company despite anemic
international sales and having never turned a net profit on an end of
the road platform with little prospects for expanding in any new
direction.
[More on iPod...]
Weak Xbox 360 sales are not only down precipitously year over year,
but the channel is stuffed with enormous inventory. Competitors are
both outselling it and out maneuvering it, leaving the Xbox 360 tied
to the dead HD-DVD format and an unappealing media store that only an
insignificant few are actually using.
Anyone fawning about the Xbox 360, Microsoft's overall strategy, and
the platform's future prospects can simply have no credibility
whatsoever.
</Quote>
http://www.roughlydrafted.com/2008/01/31/video-game-consoles-2007-wii-ps3-and-the-death-of-microsofts-xbox-360/#more-1531
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