17-Aug-01
Microsoft Leverages XBox

An experienced monopolist knows just how to turn down the screws. High cost and restricted choices for both consumers and retailers.

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The XBox game console sports a list price of $299, but consumers will be shelling out between $499 and $1200 to get one for Christmas. Few will be available except in a "package deal" including peripherals and software. That will be Microsoft software and Microsoft peripherals, by the way. If you want any non-Microsoft stuff, you'll have to pay even more.

Retailers are being given the "choice" of going with the bundles or giving up marketing money, not an acceptable alternative in low margin retail. Microsoft is also dictating how much shelf space retailers must devote to XBox to get them at all.

Microsoft's official statement? "This is based on what retailers told us they wanted".

Analysis

Riiiight, it's what retailers wanted. Like the reason they always give when a new Windows "feature" pushes other publishers out of the market, "Our customers asked us for this". No, it's what Microsoft wants.

Every game publisher will pay a hefty fee to Microsoft for every XBox game they sell, but for a Microsoft game, Microsoft gets it all. Production cost is about zero, and retailer margins are tight, so Microsoft makes out like a bandit.

Of course, this amounts to stabbing their "partners" in the back. Sales of third party games will be severely depressed, because just about every XBox sold will have a bunch of Microsoft games with it. The kids will have to get tired of those, and convince their parents to shell out yet more money, before anyone else sells any.

How can Microsoft do all this when they don't actually have a monopoly in game consoles? They intend to "emulate" a monopoly (until they can get a real one) by generating massive demand through a truly gigantic marketing and advertising campaign - paid for by those game sales.

Will they succeed? Maybe, but to quote Gartner Group senior analyst P.J.McNealy, "They're overestimating demand. That could result in a near fatal first step". They also seem to be pissing off the hard core gamers they depend on to generate word-of-mouth momentum. If XBox becomes "uncool", Christmas may be hard on unaware parents. "Awwww, Mom, Dad, how could you do this to me. You're so lame!"

As for Microsoft's "partners" getting screwed, I haven't a drop of sympathy. Anyone who can't see what happens to Microsoft partners by this late date should simply be removed from the gene pool for the betterment of the species.

- Andrew Grygus

©:Andrew Grygus - Automation Access - www.aaxnet.com - aax@aaxnet.com
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