Xbox 360 Falters: Parts Shortages or Bigger Problems?

Microsoft is blaming inventory problems on a recent drop-off of Xbox 360 console sales, but with even Sony's lackluster PlayStation 3 outselling the Xbox 360 now, its unclear where the problem really lies. But this much is obvious, regardless of blame: The Xbox 360 is bringing up the rear in console sales so far in 2008, a condition that could relegate Microsoft's video game business to also-ran status.

For the second month in a row, Xbox 360 sales trailed those of its competitors, the Nintendo Wii and the Sony PS3. In February, Nintendo sold 432,000 Wiis, compared to 281,000 PS3s and 255,000 Xbox 360s. (The previous generation PlayStation 2 continues to sell well too; Sony sold 352,000 PS2s in February.) The Xbox 360 fell to third place in January as well.

Microsoft says the shortfall is due to inventory issues. "Our retailers are telling us that Xbox 360 is selling as fast as they can restock, but due to this high demand, Xbox 360 is experiencing temporary shortages," a Microsoft statement reads. "We are working as quickly as we can to replenish inventory."

That Microsoft could somehow be having Xbox 360 inventory problems over two years after the release of the console is somewhat farfetched. The company experienced hardware shortages during the 360's first year on the market, as did Nintendo and Sony when their newest consoles shipped a year later.

The big question is whether the Xbox 360's fall to third place is the start of a trend or a temporary condition. And Microsoft points to some numbers which suggest the Xbox 360 is still performing well: Overall, the 360 has outsold its rivals with almost 10 million units sold in the US, compared to 8.1 million for the Wii and just 3.8 million for the PS3. (However, remember that the Xbox 360 has been in the market for twice as long as the other consoles.)

Xbox 360 owners also continue to purchase more game titles per consoles than users of other consoles. In January, for example, consumers spent $159 million on Xbox 360 games, compared to $131 million on Wii games and $80 million for PS3 games, giving the 360 45 percent of game revenues that month. The attach rate of games to console is highest on the Xbox 360, at 7.2, nearly double that of the other consoles. Six out of the top 10 best selling games in February run on the Xbox 360. Also, thanks to its head start, there are more games available for the Xbox 360 than any other modern platform. Xbox 360 can choose from a library of games that's more than twice as voluminous as that for the PS3.

Microsoft also touts its successes with the Xbox Live online service as well. To date, over 10 million customers have signed up for the service worldwide, though Microsoft doesn't differentiate between paying and non-paying members. This compares to 2.9 million users of the PlayStation Network (US only) and 4 million users of Nintendo's online service (North America and Japan).

So what does this all mean? It may be too early to say, but Microsoft has hinted that it will experience another down month in March, giving its competitors more time to gain against the Xbox 360. If Microsoft's console continues to falter throughout 2008, Microsoft may very well find itself in the same position it was in during the previous generation of consoles: Last place. That doesn't bode well for the long-term viability of Microsoft's video game business, regardless of attach rates and online services.

TAGS: Windows 8
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