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Pulling Rabbits from Hats

Well it would appear that CES once again, has become the dumping ground for the major game console makers to announce the previous year/quarter’s hardware sells numbers to the public. These are worldwide numbers for units sold during Q4 2011, and a huge shocker came out of this weeks announcements. Heavy competitors Sony and Microsoft were the first to announce their numbers. Microsoft last night at the CES 2012 keynote event, and Sony today in a press release from the show floor. Starting with the PlayStation 3, which has been slowly gaining on the Xbox 360 for the past five years and was poised to catch up the the market leader last year, Sony announced an Earth shattering 3.9 million units sold globally for the crucial quarter ending the calender year, 2011. However, the news of Sony’s sales numbers were already overshadowed by the previous night’s announcement from Microsoft, who managed to pull out a soul crushing (if you are a Sony fan, soul uplifting, if you reside in the Microsoft court) 10 million units globally, in the final three months of 2011. That is a face slapping 2.6 to 1 sales ratio against the Sony branded game console, which put Microsoft firmly back in the lead, no longer a neck and neck race, between the two consoles.

The question on everyone’s mind today has probably got to be, “how did they pull it off?” And sure enough as I read over the story at Joystiq, that seemed to be the question on everyone’s minds. And surprisingly, considering that it is a multi-console discussion on the very sensative topic of hardware sells numbers, it has got to be one of the most civilized (ie flamebait-free, troll-free, cynicism-free) discussions I have seen online on the subject matter, in almost a decade. There is some really well thought out insight into how Microsoft managed to pull this particular rabbit out of their hat. Anyway, I thought I’d add my $0.02 to the discussion. So here goes . . .

I watched Steve Ballmer himself make the announcement last night at the Microsoft CES 2012 keynote. More than 10 million units in Q4 alone, makes Xbox 360 not only the hottest selling game console in the US for all of 2011, but also worldwide. And that was the point Ballmer was making most during the keynote – Xbox 360 outsold everyone globally by a good margin for the whole of 2011.

I think the most interesting thing about that, is the fact that Japan, even after six years of Xbox 360, and a decade of Xbox in general, still refuses to purchase the console in any great number – hell, even PS2 probably outsold Xbox 360 in Japan this year. The Japanese numbers traditionally have buoyed up Nintendo and Sony sells numbers, and have played a pivotal role in padding the global numbers of both Japanese console makers. But for some reason, Microsoft has managed to put together the “perfect storm” of console offering, and in doing so, pulled way ahead of their competitors’ annual sells numbers for 2011, despite the advantage both Sony and Nintendo have in Japan.

I suspect this “perfect storm” (a term I use for lack of any other way to logically explain the increasing gap) has to do with several aspects coming into play: features including Kinect, being the lowest priced HD console, being an HD console in the first place (as opposed to Wii’s SD affliction, in a world increasingly HDTV adoption), size of game library, backlong of cheap games, Xbox LIVE, the wealth of inexpensive mainstream games on Xbox LIVE Arcade, and not to be overlooked or underestimated at this point in the preceedings, as most core gamers are likely to do, but the recent update which brought “the future of entertainment” in the form of tens of millions of items of on-demand content, along with live television, to the console. When you look at the mainstream gaming demographic (not to be confused with casual gamers) that for the past two generations were dominated by the previous two PlayStation consoles, they tend to adopt hardware late in the life cycle. From their perspective this time around, Microsoft has far more “features” in their corner than either of their competitors. One could even argue, that from the perspective of the mainstream gamer, Microsoft has more going for it, than both of their competitors combined – again, this is from the POV of the mainstream gamer, not casual gamers, or core gamers. And I suspect, that mainstream gamers is where the bulk of the hardware sells went last fall – the mainstream, late adopter. The fact that the Xbox 360 is the only console truly poised to attract a wealth of gamers from three of the four major gaming demographics: core gamer, mainstream gamer, and casual gamer (the fourth being mobile gamers), puts them in a truly unique position.

As was pointed out earlier in the discussion at Joystiq, any core gamer who wanted a Xbox 360, probably has one already at this point – barring financial issues, or something. But with both casual gamers, and mainstream gamers beginning to take notice of the Xbox 360, that is two entirely new demographics who have ignored the platform until now, finally deciding to make the shift to Xbox. The only core gamers making the shift this late in the cycle, are probably Wii owners who purchased the system early in the life cycle thinking it was going to get core gaming support for the entire generation like Wii’s four predecessors, who have finally come to terms that core game support on Wii, is never going to equal core game support on either of the HD consoles. And that concepts adds up, Nintendo was proud to announce at their E3 press events in the early going (first couple of years), that as many as 90% of Wii adopters at that point, were core gamers looking for a new way to play, and sharing Wii with the entire family of then, non-gamers. The casual gamers, or former non-gamers, came later, which means that as many as 15 million Wiis were sold to core gamers in the early going, before the system became the poster child for casual gaming. Mentioning casual gamers, here is a demographic which is likely upgrading their Wiis for Kinects, and the high definition casual gaming experience this provides. And the mainstream gamers, who as I pointed out always seem to adopt late in the life cycle, are finally ready to make that transition. And considering how long the PlayStation 2’s life cycle lasted, even after the launch of the PS3, I highly suspect that many of the mainstream gamers adopting Xbox 360 this late in the life cycle, are most likely coming over from being late adopters to the PlayStation 2. If true, that means that even two years before releasing the Xbox 3, Microsoft has already tapped into the second wind for their system, while it is very much still alive and kicking – not after they have moved on, as is the case with every previous console generation. And that alone is an extremely impressive feat, that I do not believe has ever been accomplished before in the 30 year history of the games industry.

We’ll have to keep a close eye on Xbox 360 sells numbers throughout 2012 to see if this is an actual trend, and not an aberration. But one thing at the very least is clear already. Expect the company to shift no less than an additional 10 million units throughout the course of 2012. And with deeper integration into the upcoming Windows 8 and Windows Phone 8 expected for 2012, plus the very real potential of a price drop late in the year (something Microsoft did not extend this calender year), plus the unveiling of interactive scripted television (not video games, not television, but something Microsoft unveiled at their keynote last night, that is a blending of the two, using the Kinect to directly interact with, and change the behavior of the actual actors on TV) the potential is there to do a repeat of 2011, come the fall of this year.


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