Analysis: The Xbox 360 Shortage

The Xbox 360 shortage can be attributed to a combination of three factors: expected shortage, underestimation of demand, and production delays / component shortfalls.

The Xbox 360 is one of the first platforms to launch in several years without a direct competitor.  The Sega Dreamcast was the last “next-generation” console to launch without the direct competition of another manufacturer’s system.  (The PS2 came out over a year later, even though rumors had it launching only six months later.)  Thus the 360’s only real competition was overexposure, consumer disappointment, or product glitches causing bad publicity, or worse yet, liability.

From all indications it made sense for Microsoft to risk backlash because of shortages, rather than to risk products sitting on store shelves while the brand-new game library was being built up.  This factor is inescapable, as no one from Microsoft has been claiming that demand is outstripping expected demand; most analysts have claimed this situation would occur from many months previous.

Analysts have also pointed out that expected production is only a fraction of the needed amount for a non-competed next-generation.  Another factor, albeit one that Microsoft couldn’t control, was the quality of the first few key games to launch on the console.  Madden 2006 was the second-best seller, but Activision’s Call of Duty for the 360 took the cake with a reputed 77% sales penetration rate.  The several top sellers drive a new platform (reference Sonic for the Dreamcast) to a disproportionate matter.  Thus the fact that Madden, Call of Duty, and Gotham Racing broke open so strongly for the Xbox 360 make it seem that console demand would naturally have been that strong; where as a weak performance from EA and Activision on the new console would have doomed demand until the next wave of games came along.
 
Here are the facts as far as actual sales go: Through the November launch, Microsoft sold 325,000 units in the U.S., and 32,000 in Canada, according to data from the NPD.  Overseas, in the U.K. the system sold 75,000, but 30-40% of the Japan allotment went unsold.  By comparison, the original Xbox sold 556,000 in the U.S. in the same time frame.

Looking at other platform’s recent sales launch numbers, the Nintendo DS sold 1.22 million in the U.S in its first holiday season in 2004, and the GameCube sold 1.2 million units in its first holiday season in 2001.  The PS2 sold 1.1 million during its first season in 2000, and the Sega Dreamcast sold 1.8 million in the U.S. in its first holiday season (sales started 9-9-1999).