Before the Xbox 360 launched in November 2005, Microsoft announced 90-day and 6-month sales goals for the game system and noted that it intended to take advantage of its head start on the sales floor to secure dominance over rival next-generation systems from Sony and Nintendo. With the 2005 holiday sales season behind us, however, it's clear that sales goals for the Xbox 360 were too ambitious. Plagued by insufficient parts supply and manufacturing capacity problems and an arguably unwise plan to launch Xbox 360 in three major geographical markets within a span of weeks, Microsoft was unable to meet demand. Now, the company is focusing on how many consoles it can sell by mid-2006 because it will miss its 90-day goal.
"Nothing's perfect," Peter Moore, Microsoft's corporate vice president for Xbox marketing and publishing, said during last week's International Consumer Electronics Show (CES). "You've got a complex piece of hardware that includes 1,700 different parts. Every now and again, the line will slow down because something's happened and there will be a component that didn't make it that morning. That's just the nature of the beast, particularly when you're ramping up factories from ground zero all the way up to full capacity." To fix the capacity problem, Moore said that Microsoft was adding a third manufacturer, Celestica, which will make Xbox 360 consoles.
Meanwhile, demand for Xbox 360 continues to dramatically outpace supply. This short-supply situation has created a ripple effect for many companies in the video game market. For example, third-party developers experienced lower-than-expected holiday 2005 sales because the supply of Xbox 360 consoles (and thus potential customers) was smaller than expected, and many consumers waited to purchase any video game products until after they purchased an Xbox 360. Microsoft promises to release more Xbox 360 game titles over the next several weeks; only 18 games were available for the game system's launch last November.
Looming ahead, of course, is the release of Sony's PlayStation 3 (PS3), which is expected to outsell the Xbox 360, as PlayStation 2 did the original Xbox. Sony is still mum about a release schedule, but most analysts expect a Spring 2006 launch for the PS3 in Japan followed by a 2006 holiday season release in North America. Sony's system is technologically a match for the Xbox 360, and with the window closing on Microsoft's increasingly futile exclusive selling period, I think we can expect the PlayStation 3 to quickly outsell Xbox 360. Being first only matters, apparently, when you have enough product to sell.