Wednesday, January 18, 2006

360, Your E-mail, and eBay

DQ reader Chris Kessel sent me an interesting e-mail, which I've excerpted below, about the Xbox 360 shortages:
Last night, I’d decided I had to have Guitar Hero. I don’t have a PS2, but I was willing to fork out $200 for a used PS2 and Guitar Hero. So I went to Game Crazy…no copies of Guitar Hero. I tried Target…no copies. I tried Toys R Us…no copies. Every freaking store was sold out. Yea, I could maybe find an online store that had it, but I wanted it right now, I had the money in my wallet. By the time I got home I was annoyed and decided it wasn’t something I needed anyway, so I didn’t order it online.

Now, I’m largely an impulse buyer on these sorts of things (games/gadgets). If it’s not there when I decide I want it, I very likely won’t end up getting it. By the time Guitar Hero is back in stock, some other new shiny object will have captured my attention. Whatever free time I had will be sucked up and that emotional entertainment void I wanted to fill with Guitar Hero will be filled by something else.

The same is true with the Xbox 360, though its lifespan is greater so I’ll probably get it anyway. Although, I said the same thing about the original Xbox and I never ended up getting one. Halo was the Xbox title I wanted and was willing to buy the system for, but I couldn’t get an Xbox. By the time I thought about the XBox again, Halo was out on the PC, which killed any desire to get a Xbox...

Moral of the story I guess is: No supply when my interest is piqued….no sale. There are so many entertainment choices, so many new bright shiny objects all the time…

That's all true, certainly. There's no question that impulse sales are lost if a product isn't in stock. In the case of Guitar Hero, I believe that demand has so overwhelmed supply (which has manufacturing constraints because of the guitar) that online is the best way to go.

Guitar Hero is also different in that I'm sure they've already sold more units than they ever expected to, and they're going to sell 5X units beyond that. So the game is already a staggering success.

Microsoft is different. They seem to have serious supply constraints and, by definition, need a huge installed base by the time the PS3 is launched. They added a third manufacturer recently, but nothing seems to be hitting the channel since that Wal-Mart January 1 flyer. I wrote a few weeks ago that the supply issues didn't seem to be hurting them at all--yet--but Chris's e-mail made me think of something.


Remember how eBay went berserk with 360 auctions, and how those units were selling at a gigantic premium to the retail price? Well, take a look at this:

Those are auctions using "Xbox 360" as a search term, listed from highest price downwards. You have to sort through some crap auctions to get to anything, but it appears that the market for 360 bundles has essentially collapsed. There's very little premium being paid, and in some cases, they're even going for less than retail.

Unbundled units still appear to be selling for a 15-20% premium, but that's a huge difference from three or four weeks ago.

In other words, people are starting to lose interest. And that's when supply issues do start to hurt you. So Microsoft needs to get this fixed very quickly--it's no longer a benign issue for them.

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