Xbox: Cool Despite the Games

Profile · Posted 2003-05-09, 11:45 PM

A look at the Xbox and Microsoft's future plans for the platform through the eyes of Xbox Group PR Manager, David Hufford.

Microsoft's Xbox has quite a future in store. Twelve months ago, stock analysts said the only reason Microsoft had not lost more money on Xbox was because it was selling so poorly. The retail price of $299, they said, did not come close to covering the cost of manufacturing the console. Hence, by a strange anomaly, Microsoft lost less money in 2002 by not selling out.

Over the last 12 months, Microsoft has lost more ground in Japan, dropped the price of Xbox hardware even lower, and fallen even further behind in its efforts to establish a reputation as a viable game publisher. Amazingly, analysts and retailers are mildly impressed.

Microsoft may be in third place worldwide, but company spokespeople sound more confident than ever. Here's why...

Right on Course

"Last year we told everybody that we would have between 9 and 11 million units sold by the end of this fiscal year," says Xbox Group PR Manager, David Hufford. "We are right on track to deliver in that range."

"No one thought we could come into this market and do so well within one and one-half years. It's unheard of. We launched the console, we have 300 games in the library, we have Xbox Live service up and running it's safe to say that we have exceeded our own expectations so far."

In an industry with a notoriously short memory, the Microsoft Xbox miracle may look like an unprecedented success, but it has only been eight years since Sony broke into video games anew and captured all three international markets (North America, Europe and Japan) with its original PlayStation.

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According to the latest NPD Funworld numbers, Microsoft has sold 5.1 million Xbox consoles in United States; and, according to the NPD-like companies Chart Track (United Kingdom) and GfK (France and Germany) another 1.5 million in Europe. The Japanese market continues to vex Microsoft. It's been a year since the Japanese launch, and the official numbers still have Xbox in the 300,000-range.

"They finished 2002 in a pretty clear number two position in the U.S. Were it not for the market imbalance in Japan, I think Microsoft would probably be in a pretty clear second place globally," says John Taylor of Oregon-based Arcadia Investment Corp. "At least in the western markets, Microsoft has done an awful lot better than most people would have thought."

"I don't think that Microsoft spends a ton of time worrying about the financial model for Xbox. I think Xbox is viewed as a strategic effort, an effort that will take some time before it starts to pay off. The value of this effort will not be seen for several years."

Many industry insiders, from top game designers to retail executives, express surprise that Xbox has outperformed GameCube. According to year-end data, Microsoft ended 2002 with a 900,000 console lead over Nintendo in North America. The battle over Europe is a bit closer with Microsoft having sold 1.5 million consoles through the end of 2002 verses Nintendo's 1.2 million GameCubes.

Of course, having ended the year with nearly 16 million PlayStation 2 consoles sold in North America along with 11 million more in both Europe and Japan, Sony has an unbreakable lock on first place.

"For us, Xbox has been a strong number two all along," says Electronics Boutique Vice President, Pete Roithmayr. "We featured Microsoft as 'vendor of the month' in April, and they ended the month as our number one vendor."

(Electronic Boutique's "vendor of the month" promotions spotlight particular products or product lines. These products are placed in storefront displays and EB salespeople mention the products when answering store telephones.)

"We featured a bundle with Xbox hardware," says Roithmayr. "If you bought the hardware, a controller, and a game, you got a $50 mail-in rebate."

Microsoft has sold 2 million copies of Halo in the United States. While no one should be surprised that Xbox sold well during an Xbox sales promotion, many outside sources do agree that Xbox is performing at least as well as expected.

"I think Xbox is right in the place where Microsoft wants it to be," says Taylor, one of the top analysts watching the video game market.

"It has sold consistently. It has a coolness factor that would be the envy of an awful lot of new brands, and it has done all of this without the benefit having a particularly strong portfolio of games. That is the thing that is most surprising about what they have been able to achieve."