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Microsoft Xbox 360 Sales Plunge 60% As Problems Mount

Forums - Sales Discussion - Microsoft Xbox 360 Sales Plunge 60% As Problems Mount

albionus said:
Delta said:

I believe a better interpretation of occam's razor is "The best theory is the one that makes the fewest assumptions." The key difference in this case is that we know MS is redesigning the X360 to be 65nm and we know that they stuffed retailers at the end of last year, thus the only assumption in either theory mentioned here is the intent, which can't be known without an email from MS.

 

Just my two cents.


I prefer "the best explanation is the simplest explanation" for Occam's Razor, which is close enough to what you said (the fewest assumptions = the simplest most of the time). So then which explanation requires the fewest assumptions, ie which is the simplest?

Explanation 1) (mrstickball's) MS planned to overstuff the retail channel as part to of a scheme to clear out inventory prior to retooling for 65nm and an upcoming $1billion waranty extension. That assumes at least 3 things and doesn't answer one question by my quick count, 1) that suppliers are ready for 65 nm, 2) that MS knew when it would move to 65nm 7-10 months at least before it has, and 3) that MS knew 7-10 months ago about the warranty extension and it doesn't why that particular quarter was overstuffed instead of a more controlled draw down of inventories since apparently they knew all this some time ago. Perhaps 65nm didn't come as quickly as expected, but then that would be another assumption.

Explanation 2) (mine) Human nature compelled MS managers to overstuff retail channels to meet their own boasts about breaking 10 million "sold" before the end of 2006. That assumes one thing, that human nature intervened as it has so often to cause humans to make incredibly stupid long term moves for short term gains. It also answers the big question of why the front loaded channel stuffing, they had to get 10 million out prior to Jan 1, 2007 to meet their boast thereby earning their bonuses.

The major difference between the two theories, besides number of assumptions/complexity, is that mrstickball's is a rational explanation for why MS would have done this. My explanation is simply taking the easiest route (hence Occam's Razor) to explain why MS would have done what it did. As such it reduces to one assumption about how humans actually behave, which is often irrationally. You're right that we don't know what the intentions of the managers were but neither do we know whether MS is ready for 65nm or when they decided on the $1billion warranty extension. That's why they are all assumptions.


The reason I can't agree with your explanation is because by the time they overstuffed the channels they already missed their 10million projection. They thought they could catch the folks that were too late to get a Wii or PS3. I'm sure it worked for a few people but not as much as they hoped for.



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Microsoft hasn't been rewarded by putting the 360 out early......in the least.

They are about to be going on their 2nd year of negative profits in their gaming division, actually, more than that if you count the negative quarters before the 360's release, but i'm being charitable here. Two years of negative profits is pretty bad....and the 360 will probably last only 5 or 6 years anyway as a competitive product. The first 2 years of negative profits can't even come close to justifying three good years after that.



dallas said:
Microsoft hasn't been rewarded by putting the 360 out early......in the least.

They are about to be going on their 2nd year of negative profits in their gaming division, actually, more than that if you count the negative quarters before the 360's release, but i'm being charitable here. Two years of negative profits is pretty bad....and the 360 will probably last only 5 or 6 years anyway as a competitive product. The first 2 years of negative profits can't even come close to justifying three good years after that.


 I have to agree with this.  If you look at it from MS standpoint they have to be wondering if they could of spent their money better elsewhere right now.  Basically they invested billions and are going to be seeing a (relatively) small gain on the money over a 5 year period.  And thats assuming they can profit the next 2 years at a rate equal or higher than the rate they have lossed.  

 

But if anything MS has proven they have the fortitude to press on, I doubt we will see a market pull out unless the 360 continues to incur a loss over the next 2 years which is pretty unlikely given the normal console trends. 



To Each Man, Responsibility

Sales were doing phenomenally when MS stuffed the channel and MS has a way of spinning reality, even internally, to be more agreeable to themselves. They continue to claim things are great for the 360.

It is possible that they stuffed the channel to avoid the embarrassment of missing their (revised) 10 million sales projection. They could have believed sales were on the upswing and would continue as such, and the positive press of having 10 million units on the market would encourage more game devs to hit them as well as more people to buy them.

Decisions like that can often come to a single person, or a small group of like-minded people. It may have been a single person saying, "try to reach the 10 million goal by any means possible." MS has a culture of hiding its mistakes as long as possible and telling management that goals are in sight and will be reached. I think it was a short-sighted mistake.

If MS anticipated the Falcon and wanted time to retool plants, they could've just overproduced and put them in warehouses. They didn't need to stuff the retail channel for that.



Not rewarded? People are writing off the PS3 because it's so far behind in sales and has a smaller game library, without taking into account the year that Microsoft was selling consoles with no competition and building up a library of games.

It can become a self-fulfilling prophecy if people decide to buy a 360 because they see the PS3 as failing.

Another point about the failing consoles: If you've bought a few games for a 360, it's not as simple as just selling your console and moving on. You still have all those games, which probably don't have much resale value. As long as the repairs are free, people will go along with it just because they have so much invested in the games (not to mention time, if they haven't finished the games yet!) If I had to choose between sending in my broken console 10 times or having to start over in Oblivion, it would be a hard choice. :)