Microsoft Xbox 360
Latest trends in the gaming consoles industry have revealed that Microsoft’s Xbox 360 may finally be winning its long standing war against rivals Nintendo Wii and Sony Playstation 3, especially in the North American market, and may even emerge a clear winner in the near future. The Xbox, Microsoft’s gaming console, was created in an effort to exploit the multi-billion dollar global gaming market. Introduced in 2005, the Xbox 360 is an upgraded edition of the first Xbox, and falls in the seventh generation category of gaming units. The Xbox 360 was launched in 2010.Thinner and with added elements such as online link option that enables players to contend with gamers worldwide in real time, the console was expected to draw the level of sales that its predecessor had not. Xbox 360 game titles can be purchased and downloaded directly from the internet to the unit. Further, consumers can view television programs and music videos through the novel multimedia options of the console . Yet, despite several technological developments and the release of Kinect, its motion based control, the Xbox 360 has not been able to match the popularity of its largest rival, Nintendo’s Wii. While the unit has increased the earnings of Microsoft, its position in the multi-billion dollar gaming market stays uncertain .
Market Structure
Xbox operates in an Oligopoly market, where lowering costs of products does not necessarily give a company an edge over competition. This was evidenced in 2007 when Microsoft, Nintendo and Sony were locked in a cost battle that did not lead to any change in market share. According to the BBC (BBC, 2007): a) Microsoft lowered the prices of its gaming titles in Japan by 13% in an effort to compete with the sales of Nintendo and Sony, b) In response, Sony reduced the prices of the PlayStation in the US, and c) Despite these efforts, the sales and overall revenue from these markets remained the same, with Microsoft selling 122.565 units in Japan, while PS3 sold 503, 554 units, both still far behind the 1.78 million sales of the Wii.
If we compare this information with the details given in Figure 4, it is evident that although it reduced the cost per unit of the consoles, Xbox360 was unable to reach the chunk of the market that it had acquired in 2006. The following features of an oligopoly can also be seen in the gaming console industry: a) the market is generally dominated less than 5 large firms, b) a company operating in an oligopoly market relies on the strategies and behaviour of competitors in order to set its own, c) the large companies create barriers of entry, denying any further competition in the market, and d) products being offered have to be unique from each other in order to gain an upper hand.
Microsoft competes mainly with Nintendo and Sony while Sega also has a marked presence, albeit not as large a market share as the three larger organizations. Before taking any strategic decisions pertaining to the features, cost, accessories or marketing of its console, Microsoft needs to take into consideration the strategies of its rivals. In an oligopoly, it is most likely that the key competitors will make changes at one which more or less makes these efforts null and void .
Demand and Supply Analysis
At the time when Microsoft’s Xbox 360 was first launched in the gaming industry, the consumer demand was quite less as users were unwilling to invest the kind of money that gaming consoles warranted at the time. Not only were units expensive, but so were the game titles and accessories. Further, Nintendo’s Wii and Sony’s PS3 already had a great market presence, having been a part of the industry longer that Xbox and their products were available at comparatively lower costs . Figure 3 illustrates the demand curve of Microsoft’s Xbox 360.
The X- axis illustrates the number of Xbox 360s demanded in billions in one year. The Y axis illustrates the cost per unit of the Xbox 360 in dollars. The graph reveals that as soon as the Xbox 360 was launched in the market, it was being sold at a high cost and the number of units purchased was less. The demand of the Xbox was at its lowest at about this time. Considering that the launch of a new product to the industry warrants much funds for marketing, and given the low popularity of the product in the market, fewer than expected consumers purchased the products, which in turn made the prices rise in order to cover for the cost of products already produced.
Further, Microsoft had launched the console at a higher cost than its rivals so as to swiftly recover the funds invested in research and development as well as the marketing of the product (Bishop 2006). However, the high cost in comparison with competing consoles led to lowered demand and sales.
Current Competition Issues
The global sales figures for Wii, Xbox 360 and Playstation 3 in 2011 stood at:
Wii: 87.57 million as on 30th June
Xbox 360: 55 million as on 4th June
PS3: 50 million as on 31st March
These statistics reveal that although the Xbox 360 has surpassed PS3 in sales by a fraction, it still greatly lags behind Nintendo’s Wii. If this trend holds, Nintendo is forecast to control over 60 percent of the market share. The company has a history of introducing state of the art, one of a kind products that generate tremendous consumer response, making it the most preferred gaming console when compared Playstation and Xbox 360. Further, they are considered to be pioneers in the industry and have been providing the highest levels of customer service for decades now, which has earned them a great deal of goodwill among users, making it a more trusted brand than its rivals. Hence, consumers now perceive Nintendo to be better than its competitors, a trend that will be hard to break by the Xbox.
Future Prospects
The Xbox 360 has been part of the gaming industry for nearly a decade now and this shows in their growing consumer base and the fact that is currently place second in terms of sales, above Sony’s Playstation. Despite the impacts that the global economic recession of 2009 had on markets, the demand for the Xbox remained steady and hence it can be expected that this rise will continue if the company maintains its focus on product uniqueness, technological advancement and customer service. Further, after several IT companies downsized during the recession, top talent from the industry made its way towards Microsoft as the company held its own. This will further boost the confidence among consumers that it will continue to deliver quality products no matter what the economic scenario may be.
References
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Ewalt, D. M., 2012. Microsoft Xbox Is Winning The Living Room War. Here's Why.. Forbes, 6 April.
Moffat, M., 2011. A Beginner's Guide to Economic Indicators. [Online]
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New York Times, 2011. Xbox, Kinect sales power Microsoft earnings. [Online]
Available at: http://www.startribune.com/business/120928484.html
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Nintendo, 2011. Consolidated Sales Transition by Region. [Online]
Available at: http://en.wikipedia.org/wiki/Console_wars#Worldwide_sales_figures_6
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Sony, 2011. Playstation 3 Sales Reach 50 million units worldwide. [Online]
Available at: http://www.scei.co.jp/corporate/release/110415_e.html
[Accessed 9 October 2012].
Voets, A., 2010. How to Reduce Costs and Increase Market Share through Rationalization of the Design Process of Products: Rationalization, Design Process. Norderstedt: GRIN Verlag.
