Xbox 360 Sales Surge, but Is It an Anomaly?

Microsoft saw its Xbox 360 video game console take the top market-share spot in the United States in July, a milestone it has achieved only a handful of times since the dominant Nintendo Wii appeared in late 2006. In fact, if it weren't for the release of Halo 3 in 2007 and a few months in which Nintendo couldn't meet Wii demand before that, the Xbox 360 would never have previously grabbed the top spot. So what changed last month, and does it signal a new trend, or is it just an anomaly?

First, the sales figures: Microsoft sold 444,000 Xbox 360 consoles in the United States in July—a 54 percent increase over the same quarter a year ago. Nintendo's Wii came in second with 254,000 unit sales, which is flat when compared with last year. Sony came in third, with its PlayStation 3 delivering 216,000 units, an also-impressive 44 percent improvement.

The Xbox 360's sudden surge was due entirely to the release of the new Xbox 360 S console, which features a brand-new form factor and, more important, quieter and more efficient underpinnings. Whereas previous Xbox 360 consoles are best known for reliability problems and a jet engine-like roar of sound, the Xbox 360 S is whisper quiet and more appropriate for living room use. (It's too early to rate the device's reliability.)

As is the case with other popular electronics, such as Apple's iPods and iPhones, most Xbox 360 S sales were almost certainly to existing customers, who have tired of the loudness and poor reliability of their existing consoles. So it's unclear whether the strong sales will continue in the months ahead. My expectation is that the console will experience another month of stronger-than-usual sales before settling back into its usual number-two position.

That said, there could be another contributing factor to the Xbox 360's success last month: After years of dominating the video game market, the technically lackluster Wii could simply be running out of steam. Surely, everyone who wants a Wii has one by now, and since Nintendo has never updated the console in any meaningful way, many existing customers have simply moved on.

It should be noted, too, that the PlayStation 3 also experienced a big sales jump in July, and unlike the Xbox 360, it did so without the benefit of a hardware refresh. (Sony previously revamped its PlayStation 3 last year.) And when you look at the top two video game software titles, both were versions of the game NCAA Football 11. The Xbox 360 version took first place, but not by the usual wide margins, outselling the PlayStation 3 version 368,000 units to 299,000 units. Perhaps the PlayStation 3 is poised for its own run.

Overall, the video game industry is down, further suggesting that the Xbox 360's run at the title is temporary: Overall videogame revenue in July was $847 million, down 1 percent. But software sales nose-dived by 8 percent to $403 million. Only hardware sales were up, by 12 percent to $314 million, most likely because of the new Xbox 360.

Of course, Microsoft does have a few more big releases this year that could keep momentum going. In September, it will release the eagerly-awaited Halo: Reach, the next installment of the blockbuster Halo series. And in November, it will deliver the Kinect motion-sensing hardware add-on.