XBOX 360 LAUNCH PRODUCTION PLANS

There was some data which could shed light on the early potential for Xbox sales. Sony had launched the PS2 in March 2000, and sold about 2.8 million consoles in the December quarter. (The transition from PS1 to PS2 in consoles and game sales is shown in Exhibit 3.)The following year, Microsoft shipped 1.5 million Xbox consoles between the time of its mid- November launch and the end of the year. 37

An analyst report by Bernstein Research studied the lifecycles of the first two generations of videogame consoles. For both the first generation (32/64-bit machines such as the PS1, first launched in 1994), the peak in annual shipments occurred in the fourth year, when the second generation systems were first introduced. The total lifecycle was about 11 years. They found a very similar pattern in the second generation (128-bit machines, first introduced in 1998). Peak shipments occurred in the fourth year (2002). The peak annual shipments for the second generation consoles was just slightly higher than for the first generation. The estimate of total second generation units sold through the end of the expected lifetime was about 22 percent higher than the total first generation units sold.38

A survey of U.S. consumers conducted in June 2005 by SG Cowen & Company (and repeated in November), concluded that there was a potential demand of 14 million Xbox 360s in the U.S. alone by the end of 2006, but that supply constraints would make that unattainable.39

Microsoft indicated that it planned to sell 2.75-3.0 million Xbox 360 consoles within 90 days of launch. Most analysts believed that Microsoft would be supply constrained for the first few quarters after launch, as demand would be high and continued delays in Sony ís launch of the PS3 would increase Xbox 360 demand.

Five years earlier, Microsoft had entered the market with a technically superior product, but a year later than Sony. Sony had continued to be the dominant player in the videogame market, but Microsoft had established a position. Now the tables were turned. Microsoft was launching a next generation product well in advance of Sonyо beating Sony to market by as much as a year, but Sony ís product promised to be more technically advanced than Microsoft ís. Microsoft was betting that its ambitious global launch would help it beat Sony in the marketplace.