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Xbox 360 from all angles

Last Updated Nov. 25, 2005

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In Max Barry's 2003 novel Jennifer Government, a satire in which private corporations have taken control of most of the world, executives at Nike conspire to create a consumer frenzy over their new line of shoes by selling just 200 pairs in the six months following their launch.

A Nike exec in the story calls it "marketing by refusing to sell any products. It drives the market insane."

Some people, on blogs and forums on the internet, have accused Microsoft of doing something similar with its Xbox 360, launched on Nov. 22, 2005: engineering a scarcity to drive consumer demand.

Or perhaps Microsoft simply overestimated the number of units it could put on shelves on its release date, timed months ahead of its competition, Sony's PlayStation 3 and Nintendo's Revolution, both scheduled to be released in 2006.

Whether it was planned or the result of a manufacturing miscue, the result is the same: the Xbox is the must-have product for Christmas 2005.

The consoles retail for $400 for the core model and $500 for the hardware bundle that includes a wireless controller and a hard drive. (The $500 model is the more coveted one, of course.)

Retailers won't reveal how many of the game consoles they have received, but analysts for Wedbush Morgan told Reuters they estimate about 900,000 Xbox 360s were available on the launch date, but only half of those were in North America.

Many retailers sold out quickly. Even customers who had pre-ordered in the spring went away empty-handed.

A message on Best Buy's website said they would receive more consoles in the first week of December at the earliest. At an EB Games store in Toronto, a clerk told customers the store was sold out until January.

Microsoft issued a statement, saying it was "aware" of the shortage.

"We are well aware that many gamers are disappointed to have not gotten their Xbox 360 on day one. We are working around the clock to manufacture as many Xbox 360s as we can and are replenishing our retail channel week after week," said Microsoft's Robbie Bach, in a statement.

Bach said Microsoft is committed to supplying about three million of the consoles to retailers by the end of February.

Some of the lucky ones who were able to get an Xbox were quick to part with it. Thousands of the consoles ended up on eBay, sold to the highest bidder — at a considerable markup.

The auction site reported that Xbox 360s were being sold for an average of $922. However, some consoles sold for below their purchase price and some with a starting bid in excess of $1000 went unsold. Some auctions for the Xbox 360 ended with bids in the thousands of dollars, but those aren't likely to be serious offers.

In Jennifer Government, the new Nike Mercurys, the hottest sneaker in the world, retail for $2,500 and cost 85 cents to manufacture. Nike stands to make a $1-billion profit in a single day of sales.

For Microsoft and the Xbox 360, though, it's just the opposite. Business Week reports that Microsoft stands to lose up to $126 US on each Xbox 360 sold.

Market researcher iSuppli looked at the guts of the machine and calculated the cost to Microsoft of each component. Their conclusion is that the Xbox is a loss-leader, with Microsoft hoping to make a profit on the sale of games and subscriptions to its Xbox Live on-line gaming service.

However, a similar strategy with the first Xbox hasn't worked as planned. Microsoft's Xbox unit lost $391 million in the fiscal year that ended June 30, 2005. A Microsoft spokeswoman told Business Week the Xbox should show a profit by 2007.

Also in the novel, Nike executives take out a hit on ten of its own customers, in an attempt to generate "street cred" for its shoes.

There have been some reports of shoppers being robbed at gunpoint for their Xboxes, and in Maryland, some 300 shoppers were involved in a stampede after a store manager told the crowd that the consoles would be sold on a first-come first-served basis. The store cancelled its sale of Xbox 360s until the next day. No one was seriously hurt, police said.

And much of the buzz for the Xbox 360 on the internet has been negative. There have been some reports of the consoles crashing in the middle of games, and of the power supply overheating, forcing the Xbox to shut down.

Some websites have published tips on preventing the crashes, including suspending the power supply in mid-air.

Microsoft later acknowledged that some of their customers have been having problems.

"We have received a few isolated reports of consoles not working as expected," Microsoft spokeswoman Molly O'Donnell told Reuters.

"With any launch of this magnitude, you're bound to see something happening," she said.

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