Wednesday, February 06, 2008

Console Post of the Week (Supplemental)

I originally intended this to be a long post about Microsoft, because I think they're looking at some serious trouble in 2008, but given the amount of data I need to include, I'm delaying that until Monday.

However, here are a couple of data points in the meantime.

First off, in the last three months of 2007, Nintendo sold 6,970,000 Wiis. That doesn't quite reach the stratosphere of PS2 holiday sales in the console's best years, but it's stunning nonetheless.

And that's with (still!) supply constraints.

I keep hearing analysts state that Nintendo is screwing up, that they need to change their pricing structure, that they're losing momentum, that they're a fad.

Please. 20 million units sold in just over a year and they STILL have unfulfilled demand. And they print money.

Nintendo understood that innovation plus the correct price point in the console market was the proper strategy. They, of all the console companies, understood that the console market is a price market first and a value market second. Now they are permanently as far ahead on the pricing curve as they want to be compared to their competitors. Oh, and they've been making gigantic gobs of cash the entire time.

I only hope I can screw up like that someday.

Now, on to what will be the focus of next week's post: Microsoft. This has been in development for some time, but I think it's fair to say that Microsoft has a full-blown crisis in Europe.

Why do I think that when it's incredibly difficult to even get sales numbers in Europe? Because of what Microsoft said, or rather, what they didn't say.

Has anyone heard Microsoft say anything about holiday sales in Europe?


Both Sony and Nintendo released specific numbers (Sony for the last five weeks of the year, Nintendo for the total installed base in Europe) touting their strength in Europe. But Microsoft? Absolutely nothing.

To me, that means the October-December period was very, very poor in Europe for Microsoft, so poor that they can't even find a number to polish and spin.

Here's what I think happened: the 360 was so unreliable as a piece of hardware that Microsoft had to wait longer than they wanted to lower the price. Remember, they trumpeted loud and long that the Entertainment and Devices Division was going to be profitable.

With an estimated failure rate of 30%, though, Microsoft was in between a rock and a hard place. They couldn't lower the price both because repairs were costing the a fortune AND because they didn't want to send any more units out into the field with that failure rate. Why sell 2X more units with a price but when you know that 30% of them are going to fail?

In that case, you can't lower the price until you fix the hardware problem, and I don't think it was a coincidence that both happened at roughly the same time.

As a result, though, Microsoft lost a tremendous amount of momentum in the April-July timeframe, and whatever momentum they had in Europe, they lost and haven't recaptured. Sony did everything wrong a company could possibly could do for most of 2007, but Microsoft screwed up enough themselves that they didn't fully take advantage of Sony's problems.

Like I said, more details next week, but I think it's fair to say at this point that both Microsoft and Sony are looking at serious problems in 2008. Microsoft, as it competes against Sony in Europe, and Sony, as it competes against both Microsoft and its own past.

Site Meter