Will the Xbox 360 Gamble Pay Off?

The post Thanksgiving shopping rush has begun to die down. Soon however, it will be December and as Christmas fast approaches consumers will go crazy trying to find the perfect gift for everyone on their list. Invariably, every year in America there is the “Must Have” present. The one toy that every child must have to complete their life and truly make the Yuletide gay (you parents in the crowd know what I mean). The one gift that will let parents prove that they really do love their children. It is also the one gift that causes the most stress for your average mall going mom. They must stand in long lines, scowering the country side in hopes of finding this magical present that will make Christmas morning special for their darling little child.

And while this year won’t feature the “Tickle-Me-Elmo” doll as the top toy there are a few other contenders for the crown of Most Coveted Toy. My personal pick is the Xbox 360. It has quite a bit going for it, and yet, there are some problems. But the real question that I want to ask is will the decision to release the new Xbox still look good next Christmas? Once the PS3 and Revolution have come out will, in hindsight, Microsoft have made the right move in releasing their console first? Here is my take on things so far.

The upside of releasing early
Congratulations Microsoft, you have beaten arch rival Sony to the punch and shipped your machine long before they have. As a result you are poised to eat up market share this Christmas. Assuming, that is, that you aren’t plagued by supply issues. So, if enough Xbox 360s get into the hands of avid gamers then Microsoft has the chance of making permanent converts of some customers. Ideally for Microsoft everyone who buys a Xbox won’t buy a Playstation, this is unrealistic I know, but with the prices of the machines getting higher and higher it is now, more than ever, a possible scenario. Overall though it looks like pushing ahead might pay off in the long run for Microsoft because gaining market share at Sony’s expense will ultimately lead to higher profits, though it might take a year or so to fully realize them. Remember, Xbox live is only going to become more popular and thus that is a conduit that MS can use to increase sales.

The downside of releasing early
By far the biggest problem has been the system crashes that have been reported. And since these reports surfaced on the same day that the Xbox 360 was released, it leads me to believe it is a bigger problem than Microsoft wants to admit. One of two things is happening here, either there are a bad batch of Xboxs and some faulty part is causing the problem or the system software itself is fundamentally flawed in every Xbox. If it is the first case then the solution is a product recall. That can be a nightmare on a good day but during the Christmas season when your supplies are already limited, this could prove to be truly disastrous. Not as worse, though more embarrassing, than that would be if the problem turns out to be the software. This means that Microsoft will have to update the software somehow. Via Xbox live would seem to be the best approach but including update CDs with every Xbox would also work.
After that the next biggest problem is the selection of games. No Halo 3 has to be the most important game that is lacking in the initial line up. But there are also several other popular titles that haven’t yet made it to the shelves of BestBuy yet. This means that consumers will be without their favorite games for quite a while. And if the PS3 comes out before the bulk of the Xbox library then that will give consumers another reason to choose Sony of Microsoft.

Overall though I think Microsoft will be able to weather the storm and resolve the initial problems the Xbox 360 seems to be having. And even though the library of games is rather sparse I think it will suffice for now. However, if no major games have come out by the time the Playstation 3 comes out then there may be trouble. Yet I think in the end Microsoft’s strategy will prove to be the correct one. I think they will gain market share at Sony’s expense, initially at least. However, in the end, I feel that the Playstation 3 will just be too hard to beat, even with Halo 3 leading the way.