Xbox 360 Marketing: Best or Worst?

I saw that Scoble linked to my blog, hoping to help a customer leaving comments who had questions about our “Xbox 360 Marketing Campaign.” I noticed a linked blog entry from “Shaded” called “Xbox 360 marketing smokescreen,” where he asks why we didn’t reduce the marketing so the passionate ones could get a console. He calls our sympathy a “canned response; either ignorant or insincere.”

“My request is simple:  Take off the front page advertisements, turn off the mass marketing emails and the TV advertisements until demand is more in line with supply.  It is a matter of humility for Microsoft and respect for their customers.”

First off, let me say that this is my own feeble attempt at resurrecting stuff from business school, and it’s my own opinion.  I don’t speak for the company, I don’t have all the background info to represent how and why we’re doing all we’re doing.  And I bet if you ask Robbie or Peter, they’ll say something different. But here’s my take, in case you want it.  I hope I don’t seem condescending in any way.  You guys can probably teach me a thing or two. Over the next few days/weeks, I’ll share everything I can so you’ll have as much info as possible. But this is more theory and conjecture on my part than fact.

This is the stuff Harvard Case Studies will analyze in years to come.  Some have called this launch the worst marketing campaign ever, and others use it as an example of how to run a great campaign. Truth is (like everything in life), it’s probably somewhere in the middle.

First off, let me tell you Shaded, my empathy isn’t totally ignorant, and I hope you get that it’s sincere. Lots of folks in marketing, and sales, and finance, and operations, and design, and executive management, have looked at this launch in a hundred different ways. We know how frustrating it is for our most passionate customers. Most of us are gamers too.  Believe it or not, our leadership, and even our shareholders, want this product to succeed. To do that, YOU need to love this system when you get your hands on it. Last thing we want is for our core customer to be frustrated, angry, disappointed, apathetic, or indifferent.

Here’s the challenge: Design a Go-To-Market campaign where:

1)       The product has a multi-year sales cycle with forecasts into the tens (hopefully hundreds) of millions of units.

2)       The product is a follow-on to a product that’s been successful, and requires ongoing sales of consoles and games for the first generation

3)       The product doesn’t hold market majority, and competes against a product with significant market share advantage

4)       The product relies on follow-on sales (games) and licensing fees to be profitable

5)       Your product is roughly equivalent in technical terms

6)       Your company’s main competitive advantage is significantly better software (especially Xbox Live)

7)       Coming out too early allows competitors to build their plans/product reacting to ours

8)       Coming out too late means our competitors have first-mover advantage, and can build games portfolio and customer base

9)       Focusing on one region means leaving the others out, creating product and customer vacuum

10)   Focusing on all three regions means sharing already constrained resources

11)   Launching with too few units, you’ll create too much demand.

12)   Launch with enough supply, and create significant inventory costs and high opportunity costs

13)   The customer who made your system successful (hard core gamers) is passionate, enthusiastic, and vocal

14)   Hard core gamers are “early adopters” in the “Crossing the Chasm” terminology: There’s already high demand from this group

15)   The customer you need to reach in the future has almost no awareness of your brand

16)   To significantly grow the market, the product needs to appeal to a new customer base

We love the millions who bought Xbox.  We built the existing system with you in mind. We stretched the limit of the box to make it an awesome game console. In fact, we put so much into the box, some have said that we lost money on every unit.

But strategically, we need to appeal to even more customers if we can. So we built the Xbox 360 to be a part of “the Digital Entertainment Lifestyle.” It takes time to build up something like that.  You might be sick of hearing about it.  You might not care that it plays music from your iPod, or that it streams TV from your Media Center Edition. You might not like the concept of “Jump In,” or the TV commercials with water balloons or jump ropes. You might think an ad campaign with a simplistic message that “anyone can play and have fun, and the more people playing, the more fun the game” isn’t as important as pixel cell shading and multi-threaded processing.  You might not like (rather you might HATE) that we partner with MTV, or we give consoles away to celebrities (by the way, I’m not planning on finding Paris Hilton on Xbox Live anytime soon…). But we need them to really make this thing be as successful as it can be.

Listen, more market share means more (and better) games. It means more of your friends on Xbox Live. It means more money to pour into R&D for the future. Expanding outward from the core (when you’re the core) might seem like a bad idea, but it’s the best way to provide real gamers with the best game experience possible. You guys will always be at the heart of the system.

When designing a product with a multi-year cycle, with hopes to expand market share against a strong competitor, you need to do things that may seem crazy to existing customers.  You already know that a lot of our marketing isn’t for YOU. And honestly, it isn’t necessarily for NOW. To make something a “cultural icon” can take years.  That’s what we’re hoping to do.

That kind of marketing can’t be done in days. Building a worldwide manufacturing pipeline and distribution channel can’t be done in weeks. And turning on or off both is like starting or stopping a locomotive. It takes time to do effectively.  Could we shut off all our marketing?  Ya, I suppose.  Would it have the result you wanted (slowing demand to the point where it reaches equilibrium with supply)? Likely not.  We probably could have sold our 90-day forecast (2.75-3.0 million units) when we announced the Xbox 360 at E3. Demand has far outweighed supply for the Xbox 360 for some time. It did before we started our TV ads, and before we started our contests online or with adidas or Mountain Dew. All those things are more about positioning, and less about creating immediate demand.

One more thing to keep in mind, when you’re thinking of a 4-5 year product cycle: the first 90 days are just that: the first 90 days. The days between now and Christmas may seem like an eternity, but in the long-run, they’re a blip in time. A few months from now, it’s not going to be so hard to find units. 

I really wish I had better news for you, Shaded. I wish I could speed up manufacturing somehow to allow everyone who wants an Xbox 360 today to be able to buy one (or two!). I hope you’ll continue to be a bit patient.  And I hope you’ll continue to check back between now and Christmas—more are on their way. Not enough for everyone, but maybe enough for those who are either persistent or lucky. And though my naïve attempt at explaining why still won’t make sense, I hope you realize that we haven’t abandoned those that made the Xbox what it is.  Without you, we wouldn’t be where we are today. And I hope you know that even though you might not agree with our strategy, it’s what we believe will make the Xbox 360 the gaming platform you really want it to be, now and in the future.