Dispatches From the Console Wars

[London Geezer]

Other way around actually. Sony forced MS's hand by dropping early. Every single year.
http://en.wikipedia.org/wiki/Xbox
http://en.wikipedia.org/wiki/PlayStation_2

In the UK they dropped $100 after only 10 months, when the XBOX wasn't even on the market.

That's a completely different situation. PS2 was already out and doing VERY well when Xbox launched. This time it's the other way round.

If anything, i seriously expect Sony to do what MS did with the Xbox, lowering the price very soon. But MS won't, unless they see that PS3 is really slowing them down, which it won't for a long time due to shortages. And to be honest i don't think Sony will either, unless they really feel threatened. Heck they had already lowered the 20GB PS3 price from what it was supposed to be, even before it launched!

 

[mrcorbo]

Since 65nm production of 360 components is due to start at Chartered by 1Q 2007, this should enable MS to not only produce cheaper 360's but more of them (assuming Xenos and the 360's CPU are what is limiting production). To me this points to a fall price drop, because MS will still want to sell all their 90nm inventory off at the original price.

A price drop added to Halo3's release would be a strong opening salvo in the war for holiday season '07.

 

[Dave Baumann]

To me this points to a fall price drop, because MS will still want to sell all their 90nm inventory off at the original price.

Not at all necessarily the case. They can price to a transitonary price that is amortised over both the 90 and 65nm products (and, as I said in another thread, console losses can also be somewhat offset by software license fees anyway and if the attach rate is higher than the business model initially planned for this can also accelerate price drops independant, or at least earlier, than pure hardware costs reductions may have modelled).

To me, the question is whether they go for a redesign of the console by virtue of the different properties the new CPU brings (lower power draw, smaller sink, ergo do they shrink the unit or bring the PSU internal). It wouldn't surpise me if you initially see a price drop between spring and fall 06, with the units current stylings, with a possible redesign some time after that.

 

[mrcorbo]

Not at all necessarily the case. They can price to a transitonary price that is amortised over both the 90 and 65nm products (and, as I said in another thread, console losses can also be somewhat offset by software license fees anyway and if the attach rate is higher than the business model initially planned for this can also accelerate price drops independant, or at least earlier, than pure hardware costs reductions may have modelled).

To me, the question is whether they go for a redesign of the console by virtue of the different properties the new CPU brings (lower power draw, smaller sink, ergo do they shrink the unit or bring the PSU internal). It wouldn't surpise me if you initially see a price drop between spring and fall 06, with the units current stylings, with a possible redesign some time after that.

Well, my thinking was along the lines that there will be a transition period where they will stop 90nm production (first components, then the consoles that are made with those components) and ramp up 65nm production. A price cut would stimulate demand by an unknown amount. I just think it's a safer bet for them to do a price cut when they have 65nm production in full swing.

And if they sell a few 65nm 360's at the original price point, I think they would be able to live with that

Your point about a potential redesign are interesting. Integrated PS and quiet cooling would be the first 2 things I would address. I think these would take priority over changing the form factor of the base unit.

 

[Dave Baumann]

I would think it entirely likely that there will be some reasonable period of overlap between 90nm and 65nm CPU variants and they will probably be packaged the same - for a while its quite possible that both variants will go into the channel at the same time and end users will have little knowledge of what version of the CPU they are getting as they'll be identical.

 

[Geo]

I would think it entirely likely that there will be some reasonable period of overlap between 90nm and 65nm CPU variants and they will probably be packaged the same - for a while its quite possible that both variants will go into the channel at the same time and end users will have little knowledge of what version of the CPU they are getting as they'll be identical.

There could be external indications. . . like the size of the power brick? I would think that would be an area of cost savings that they'd not want to pass up (not to mention aesthetics). I see some company named Nyko is doing business selling an "Intercooler" for XB360. . .presumably that would be less attractive for 65nm models.

 

[scooby_dooby]

That's a completely different situation. PS2 was already out and doing VERY well when Xbox launched. This time it's the other way round.

Run that by my again? They are not completely different at all, Sony had price drops without anyone forcing them to do so, they dropped the price as a direct result of lowered demand obviously.

This is directly comparable to the current X360 situation where they won't have any direct competition for the next 4-6months, but may experience lowered demand at the $400 pricepoint, and may drop prices.

Anyways, I think a pricedrop by E3 is virtually gauranteed, regardless fo what Sony does. MS is going to push their cost advantage, they'll just wait until after holidays so they can reap all the profit they're currently making.

If anything, i seriously expect Sony to do what MS did with the Xbox, lowering the price very soon.

MS didn't lower their price until Sony did, they had to, otherwise it meant competing with PS2 and a $100 price differential, aka DOA. They had no choice. If Sony does 'what MS did' then they will drop price directly after their competitor forced them too. I don't know if that will happen though, Sony might hold out longer, till next fall.

 

[mrcorbo]

I would think it entirely likely that there will be some reasonable period of overlap between 90nm and 65nm CPU variants and they will probably be packaged the same - for a while its quite possible that both variants will go into the channel at the same time and end users will have little knowledge of what version of the CPU they are getting as they'll be identical.

Yeah, there might be the usual subtle indicators, though (different SKU). I do take your point about other factors than cost figuring into when the price drop happens. I could even see reason to do one around the European launch of PS3. If Sony's supply issues are still not totally cleared up by then they may be able persuade the people who waited for PS3 only to *still* not be able to purchase one that they have waited long enough.

I did expect the transition to see both 90nm sourced and 65nm sourced consoles in the channel at the same time. I would also expect to see both 90nm and 65nm component production overlap. What wouldn't make sense to me, though, would be for production of consoles using both types of components to overlap. I would think MS would want to use up all 90nm components before beginning production using 65nm components. Is that about right, or am I missing something?

 

[Brad Grenz]

Other way around actually. Sony forced MS's hand by dropping early. Every single year.
http://en.wikipedia.org/wiki/Xbox
http://en.wikipedia.org/wiki/PlayStation_2

In the UK they dropped $100 after only 10 months, when the XBOX wasn't even on the market.

The way I remember it MS had a well planned price drop that everyone knew was coming the Spring of 2002, complete with advertising in Best Buy and Circuit City fliers. Sony stole their thunder by dropping their price with no forewarning to retailers. The advertising was weeks behind because the decision was a reaction to Microsoft's price drop and not the other way around. The dates on Wikipedia don't tell the whole story.

 

[scooby_dooby]

The way I remember it MS had a well planned price drop that everyone knew was coming the Spring of 2002, complete with advertising in Best Buy and Circuit City fliers. Sony stole their thunder by dropping their price with no forewarning to retailers. The advertising was weeks behind because the decision was a reaction to Microsoft's price drop and not the other way around. The dates on Wikipedia don't tell the whole story.

I find this hard to believe as companies generally don't advertise pricedrops, it cannabalizes their currrent sales. Though I wasn't paying attention at the time...

Regardless, PS2's pricedrops preceded XBOX then, and for the remainder of the generation, year after year, it's obvious they were dictating the pace.

 

[Brad Grenz]

I find this hard to believe as companies generally don't advertise pricedrops, it cannabalizes their currrent sales. Though I wasn't paying attention at the time...

Whether you believe it or not, that's what happened.

 

[Sis]

The way I remember it MS had a well planned price drop that everyone knew was coming the Spring of 2002, complete with advertising in Best Buy and Circuit City fliers.

Whether you believe it or not, that's what happened.

I don't remember it this way. I remember the rumors of a price drop for the Xbox. Both companies dropped prices naturally, in an attempt to spur sales. Microsoft needed it more, if I recall, than the PS2, but neither did so while at the height of sales. Both enjoyed sales spikes due to the drop, though obviously the PS2 saw a bigger and longer sustained jump. Not surprisingly, Sony was a in a better position to drop the price, and rumors were always that they were making money off the hardware, even after the price drops, while Microsoft never saw any true improved effeciencies in design to get a profit.

 

[Brad Grenz]

I find this hard to believe as companies generally don't advertise pricedrops, it cannabalizes their currrent sales. Though I wasn't paying attention at the time...

Just to clarify, MS didn't advertise that a price drop was coming, they had let retailers know about the price drop ahead of time so they could have it in their Sunday fliers the day it went into effect. Before that day, news of the Xbox price drop was leaked, including, if I recall, scans of the ads before they were meant for release. Not a surprising turn of events, given how many people were in the loop on the price change. Sony, at the last minute, issued a Press Release. Retailers all changed their prices and they beat MS to the punch. Of course, since the PS2 price change wasn't planned ahead of time all the fliers showing the new Xbox price were also advertising the PS2 at the old, higher price. It took a couple weeks for the advertising to catch up to the PS2 price change.

Anyway, my only point was that, even though they could afford to earlier, and would have reaped the benefit of a surge in installed base, Sony did not drop the PS2 price for 18 month in the US, and only did so in order to match a competitor. MS had to drop the Xbox price when they did because sales had lagged so badly in the spring. They would be smart to emulate Sony's strategy and not drive down prices prematurely.

 

[scooby_dooby]

Just to clarify, MS didn't advertise that a price drop was coming, they had let retailers know about the price drop ahead of time so they could have it in their Sunday fliers the day it went into effect. Before that day, news of the Xbox price drop was leaked, including, if I recall, scans of the ads before they were meant for release. Not a surprising turn of events, given how many people were in the loop on the price change. Sony, at the last minute, issued a Press Release. Retailers all changed their prices and they beat MS to the punch. Of course, since the PS2 price change wasn't planned ahead of time all the fliers showing the new Xbox price were also advertising the PS2 at the old, higher price. It took a couple weeks for the advertising to catch up to the PS2 price change.

Anyway, my only point was that, even though they could afford to earlier, and would have reaped the benefit of a surge in installed base, Sony did not drop the PS2 price for 18 month in the US, and only did so in order to match a competitor. MS had to drop the Xbox price when they did because sales had lagged so badly in the spring. They would be smart to emulate Sony's strategy and not drive down prices prematurely.

Even if the initial pricedrop was pushd by MS it was only because sales had dropped to like 70k and they were probably in desperation mode. Looking at the dates, the subsequent pricedrops were all pushed by Sony in the following years. MS execs have gone on record many times about how much they struggled with their expensive hardware, and how tough it was to be up against a competitor that had a much cheaper system.

The reason PS2 didn't not need to drop price is because it's sales were still going very strong in the US, and they had the luxury of waiting, not to mention a brand name that was about 100x's stronger than their competitor.

MS isn't in the same position, for one thing sales have never reached PS2 levels, and secondly, they still have the weaker brandname, and therefore don't have as much luxury when it comes to waiting when it comes to pricedrops. They have to aggressively push sales by dropping price when it's feasible.

The 2nd year should be one of the strongest for any console, which means MS should be looking at 300k+ / month this year, I highly doubt they'll be able to get anywhere near that at $399.

 

[dobwal]

Even if the initial pricedrop was pushd by MS it was only because sales had dropped to like 70k and they were probably in desperation mode. Looking at the dates, the subsequent pricedrops were all pushed by Sony in the following years. MS execs have gone on record many times about how much they struggled with their expensive hardware, and how tough it was to be up against a competitor that had a much cheaper system.

The reason PS2 didn't not need to drop price is because it's sales were still going very strong in the US, and they had the luxury of waiting, not to mention a brand name that was about 100x's stronger than their competitor.

I agree with your assessment. There isn't infinite demand at any price point other than maybe zero. So even in a vacuum where there is no competition there will be price drops. Competition is just a function of demand. Also, the primary profit generator is software not hardware so its conducive to move as much hardware as possible.

The 2nd year should be one of the strongest for any console, which means MS should be looking at 300k+ / month this year, I highly doubt they'll be able to get anywhere near that at $399.

I think 300K+ is pretty much feasible even at the 299/399 price point. Looking at the NPD numbers during 2002 (PS2 second year in the US), the PS2 was able to move ~8.5 million consoles in the US alone. 8.5 millions works out to around 700K per month at the $299.00 price point and the PS2 only had 3 months that sales fell below 400k during 2002.

 

[scooby_dooby]

I think 300K+ is pretty much feasible even at the 299/399 price point. Looking at the NPD numbers during 2002 (PS2 second year in the US), the PS2 was able to move ~8.5 million consoles in the US alone. 8.5 millions works out to around 700K per month at the $299.00 price point and the PS2 only had 3 months that sales fell below 400k during 2002.

How do you see that? They've been selling 50k/week for around 6 months now...

 

[damisa]

I think 300K+ is pretty much feasible even at the 299/399 price point. Looking at the NPD numbers during 2002 (PS2 second year in the US), the PS2 was able to move ~8.5 million consoles in the US alone. 8.5 millions works out to around 700K per month at the $299.00 price point and the PS2 only had 3 months that sales fell below 400k during 2002.

The PS2 was $199 during most of 2002. Sales dropped to 202K in the month before the pricedrop in may 2002. In non-holiday months, the PS2 sold an average of 333K a month at $299. PS2 sold an average of 461K a month at $199.

 

[dobwal]

How do you see that? They've been selling 50k/week for around 6 months now...

Simple, you're just looking at the typical slow months for consoles. Im looking at a monthly average over the whole calender year. 300K a month equals 3.6 million over 12 months. Typically, ~40-45% of all the consoles sold in the US comes during the months of November and December. Once, final figures are out, the 360 average monthly sales for 2006 will likely be well over 200K.

To put it in perspective, in 2002 from May to October (price dropped to $199 in May) the PS2 averaged 500K a month. However, the PS2 sold a combine 4 million consoles during Nov and December 2002, so the average monthly sale between the May 2002 and Dec 2002 was ~875K.

http://forum.pcvsconsole.com/viewthread.php?tid=11067

Im just saying 3.6 million console in 2007 at 299/399 is feasible given that they are likely to move close to 5 million in 2006.

 

[scooby_dooby]

Simple, you're just looking at the typical slow months for consoles. Im looking at a monthly average over the whole calender year. 300K a month equals 3.6 million over 12 months. Typically, ~40-45% of all the consoles sold in the US comes during the months of November and December. Once, final figures are out, the 360 average monthly sales for 2006 will likely be well over 200K.

To put it in perspective, in 2002 from May to October (price dropped to $199 in May) the PS2 averaged 500K a month. However, the PS2 sold a combine 4 million consoles during Nov and December 2002, so the average monthly sale between the May 2002 and Dec 2002 was ~875K.

http://forum.pcvsconsole.com/viewthread.php?tid=11067

Im just saying 3.6 million console in 2007 at 299/399 is feasible given that they are likely to move close to 5 million in 2006.

I'm not talking about the holiday months, I'm saying they need to actually move 300k+ every month, not average. They moved aproxx. 200-250k/month this year (not average but actual sales), that number should increase this year as consoles generally sell signifigantly more in their second year.

So, if they were selling 200-250k, and they are looking to improve that in year two, then they should be targeting somewhere around 300-350k/month actual sales, that's not going to happen at $399.

 

[dobwal]

I'm not talking about the holiday months, I'm saying they need to actually move 300k+ every month, not average. They moved aproxx. 200-250k/month this year (not average but actual sales), that number should increase this year as consoles generally sell signifigantly more in their second year.

So, if they were selling 200-250k, and they are looking to improve that in year two, then they should be targeting somewhere around 300-350k/month actual sales, that's not going to happen at $399.

which means MS should be looking at 300k+ / month this year".

Typed by you.

There isn't any other wording here that makes one believe that you are talking a number that excludes holiday sales. An "at least 300k" would of sufficed, but I think when someone presents numbers in such a manner it is usually as a rate or an average.

They moved aproxx. 200-250k/month this year (not average but actual sales).

You can't label a range or estimate as "actual" sales.

Plus, There is nothing "actual" about the 300K/monthly for 2007.

http://www.google.com/search?hl=en&lr=&q=define:actual

"actual: presently existing in fact and not merely potential or possible; "the predicted temperature and the actual temperature were markedly different"; "actual and imagined conditions"

The word you are looking for is "typical".

Looking at the exact point you were trying to make, 300K is likely possible at 350/250 price point.