The Cellar - View Single Post

vsp · 05-26-2002, 06:27 PM

Okay, here's the deal on Xboxes and selling at a loss:

All consoles sell at a reduced profit margin than games do, and generally at a loss until well into a console's lifespan (i.e. unless it's a breakout hit like the NES/PSX/PS2).

Some reasons:

To a company that produces consoles, the single most important factor is WHETHER THE CONSUMER BUYS THE CONSOLE. If a customer owns Console X, it doesn't matter that much which game the customer buys for it; the company will make some money. (Third-party games bring licensing and console-rights fees. First-party games have higher profit margins, obviously, but the company must also pay for game development, R&D, marketing, etc. for homegrown titles.) If a customer doesn't own Console X, he won't buy ANY games for it, obviously, so getting the customer to buy Console X is the first big hurdle.

The console company is thus not in a position where it can sell these at a high profit margin; it needs to sell them as cheaply as they can to get the maximum number of consoles into homes. More consoles in homes == more incentive for third-party developers to develop for that console == more choices for the customer == more game sales == more sales of overpriced peripherals (memory cards, controllers, etc.) == more money.

The next hurdle to consider is that consoles are generally big-bucks items in their youth, and if a console doesn't succeed then, it probably never will. An Xbox at $299, a PS2 at $299, etc. is not an impulse buy for the typical family; it's a luxury. The lower that initial price is set, the more people will buy it early, instead of waiting for a price drop (during which time other systems and games will be released and compete with it). Nothing new about those prices, btw: the original Intellivision, for instance, cost $249.99. in ~1980 dollars.

The console does not exist in a vacuum. Other consoles will be following the same laws of supply and demand, and pricing their systems accordingly. A console price drop has certain implications. For a market leader, it could mean that the R&D has been paid off by profits, and that the console is becoming cheaper to manufacture due to hardware redesigns, decreased part costs as technology advances, or both. (Hence the revamped, compact versions of many consoles -- Intellivision II, Genesis 2/3, small NES, GameBoy Pocket, PSOne.) It could mean that they're lowering prices to force the hand of other companies to lower theirs, who may not be as capable of absorbing the economic hit. It could mean that they're aggressively trying to add to that customer base, to remain number one even as new systems compete with the existing standard. Or, often, it's a combination of these.

When a non-leading console drops prices, it's generally the third reason above -- trying desperately to get the console into homes, by any means necessary, and taking an up-front cash hit to gain an opportunity to make it up in software sales.

What happened recently went something like this: The Xbox needed a price drop to try to make a dent -- ANY dent -- in the PS2 sales machine. It has been doing so-so in the States, and miserably elsewhere in the world. Word of the imminent price drop leaked, and Sony decided to be aggressive and act (cutting theirs immediately) instead of react (cutting theirs in response). By doing so, they probably gained some sales from people who jumped at PS2-at-$199 without knowing of the imminent Xbox drop.

Microsoft then pulled the trigger on their drop, knowing that their thunder had been stolen somewhat but needing to at least keep pace with their major competitor.

Nintendo then dropped THEIR console by $50, because (for now) their cheaper price is their sole major marketing advantage over Sony and Microsoft. The flagship titles that early adopters want (Mario, Zelda, Pokemon, Metroid, Starfox) still aren't here, so they had little choice. This is far too early in the Xbox/Cube's lifespans for drops of that magnitude, IMHO, and it'll be interesting to see which of them (or either, or both) gets flushed out in the process.

As for FuncoGameStopLand, it's never really impressed me all that much. If you need something that's moderately old and moderately common, you can probably get it at a reasonable price; right now, that's the likes of a used NES or Genesis. Older systems tend to be dropped like a rock, however, often without warning. (The NES, for example, is rapidly vanishing from those stores.) They keep price listings for just about every game for each system, but they rarely have anything in stock that's the least bit rare or unusual. Likewise, recent releases aren't likely to be discounted significantly (sometimes at all) compared to pricing in the major outlets.

So, if you're looking for a game there, you have a certain window of time and popularity if you want a reasonable shot of finding it in stock. Before that point, you can probably find it cheaper elsewhere; after that point, they probably won't have it at all. Unless the game is very popular, the window isn't generally that long, and finding games past a certain age there is extremely hit-or-miss.

The things I do go there occasionally looking for are peripherals; memory cards, controllers, etc. Once in a while, someone'll trade in a system with some funky controllers, and they'll label them as "Misc Joypad" or "Misc Controller" and sell them pretty cheaply.

(I'm spoiled. We have several Stop 'n' Save Software outlets around here, recently renamed as EB Gameworld to more accurately represent that they've been Electronics Boutique's clearance outlet all along. I live near the very first one they opened in Edgmont, PA, which had some VERY funky stuff for quite some time after it opened. Duo Taps for $.10, TurboDuo games for $5, NeoGeo memory cards, NeoGeo Pocket Colors for $20, a TurboExpress for $50 new-in-the-box, all sorts of clearance-priced systems and merchandise... they're still my best source for used games for all systems.)

05-26-2002, 06:27 PM	#152
vsp Syndrome of a Down Join Date: Jun 2001 Location: West Chester Posts: 1,367	Okay, here's the deal on Xboxes and selling at a loss: All consoles sell at a reduced profit margin than games do, and generally at a loss until well into a console's lifespan (i.e. unless it's a breakout hit like the NES/PSX/PS2). Some reasons: To a company that produces consoles, the single most important factor is WHETHER THE CONSUMER BUYS THE CONSOLE. If a customer owns Console X, it doesn't matter that much which game the customer buys for it; the company will make some money. (Third-party games bring licensing and console-rights fees. First-party games have higher profit margins, obviously, but the company must also pay for game development, R&D, marketing, etc. for homegrown titles.) If a customer doesn't own Console X, he won't buy ANY games for it, obviously, so getting the customer to buy Console X is the first big hurdle. The console company is thus not in a position where it can sell these at a high profit margin; it needs to sell them as cheaply as they can to get the maximum number of consoles into homes. More consoles in homes == more incentive for third-party developers to develop for that console == more choices for the customer == more game sales == more sales of overpriced peripherals (memory cards, controllers, etc.) == more money. The next hurdle to consider is that consoles are generally big-bucks items in their youth, and if a console doesn't succeed then, it probably never will. An Xbox at $299, a PS2 at $299, etc. is not an impulse buy for the typical family; it's a luxury. The lower that initial price is set, the more people will buy it early, instead of waiting for a price drop (during which time other systems and games will be released and compete with it). Nothing new about those prices, btw: the original Intellivision, for instance, cost $249.99. in ~1980 dollars. The console does not exist in a vacuum. Other consoles will be following the same laws of supply and demand, and pricing their systems accordingly. A console price drop has certain implications. For a market leader, it could mean that the R&D has been paid off by profits, and that the console is becoming cheaper to manufacture due to hardware redesigns, decreased part costs as technology advances, or both. (Hence the revamped, compact versions of many consoles -- Intellivision II, Genesis 2/3, small NES, GameBoy Pocket, PSOne.) It could mean that they're lowering prices to force the hand of other companies to lower theirs, who may not be as capable of absorbing the economic hit. It could mean that they're aggressively trying to add to that customer base, to remain number one even as new systems compete with the existing standard. Or, often, it's a combination of these. When a non-leading console drops prices, it's generally the third reason above -- trying desperately to get the console into homes, by any means necessary, and taking an up-front cash hit to gain an opportunity to make it up in software sales. What happened recently went something like this: The Xbox needed a price drop to try to make a dent -- ANY dent -- in the PS2 sales machine. It has been doing so-so in the States, and miserably elsewhere in the world. Word of the imminent price drop leaked, and Sony decided to be aggressive and act (cutting theirs immediately) instead of react (cutting theirs in response). By doing so, they probably gained some sales from people who jumped at PS2-at-$199 without knowing of the imminent Xbox drop. Microsoft then pulled the trigger on their drop, knowing that their thunder had been stolen somewhat but needing to at least keep pace with their major competitor. Nintendo then dropped THEIR console by $50, because (for now) their cheaper price is their sole major marketing advantage over Sony and Microsoft. The flagship titles that early adopters want (Mario, Zelda, Pokemon, Metroid, Starfox) still aren't here, so they had little choice. This is far too early in the Xbox/Cube's lifespans for drops of that magnitude, IMHO, and it'll be interesting to see which of them (or either, or both) gets flushed out in the process. As for FuncoGameStopLand, it's never really impressed me all that much. If you need something that's moderately old and moderately common, you can probably get it at a reasonable price; right now, that's the likes of a used NES or Genesis. Older systems tend to be dropped like a rock, however, often without warning. (The NES, for example, is rapidly vanishing from those stores.) They keep price listings for just about every game for each system, but they rarely have anything in stock that's the least bit rare or unusual. Likewise, recent releases aren't likely to be discounted significantly (sometimes at all) compared to pricing in the major outlets. So, if you're looking for a game there, you have a certain window of time and popularity if you want a reasonable shot of finding it in stock. Before that point, you can probably find it cheaper elsewhere; after that point, they probably won't have it at all. Unless the game is very popular, the window isn't generally that long, and finding games past a certain age there is extremely hit-or-miss. The things I do go there occasionally looking for are peripherals; memory cards, controllers, etc. Once in a while, someone'll trade in a system with some funky controllers, and they'll label them as "Misc Joypad" or "Misc Controller" and sell them pretty cheaply. (I'm spoiled. We have several Stop 'n' Save Software outlets around here, recently renamed as EB Gameworld to more accurately represent that they've been Electronics Boutique's clearance outlet all along. I live near the very first one they opened in Edgmont, PA, which had some VERY funky stuff for quite some time after it opened. Duo Taps for $.10, TurboDuo games for $5, NeoGeo memory cards, NeoGeo Pocket Colors for $20, a TurboExpress for $50 new-in-the-box, all sorts of clearance-priced systems and merchandise... they're still my best source for used games for all systems.)