Is Microsoft Applying Its Tough XBox 360 Marketing Lessons To Zune?

Microsoft (MSFT) reported earnings this past Thursday evening, and with it, they announced their actual results for XBox 360 sales over Christmas.

The good news: Microsoft shipped 4.4 million XBox 360 units in the fourth calendar quarter of 2006.

The bad news: the company only expect to sell another 1.6 million by July 1, lowering its projection of 13 to 15 million down to only about 12 million. These numbers nicely confirm Blackfriars' earlier prediction that Microsoft was shipping excess XBox 360 consoles to retailers to make its 10 million XBox's sold by the end of 2006.

The money quote on XBox 360 sales:

"We are just being cautious about the second half," said Liddell in an interview. "There is a reasonable amount of inventory in the channel."

Second-quarter sales at the entertainment and devices division rose 76 percent to $2.96 billion, but it lost nearly $300 million.

A quick marketing hint for Microsoft: advertising sales targets is just a bad idea. Yes, you get to set expectations so you can exceed them -- but that backfires on you when you don't. And worse, it makes you do things that from a business point of view make little sense, like stuffing the retail channel with products they don't want. Further, doing silly things to make artificial goals just tarnishes Microsoft's brand -- which probably wasn't the original goal.

But maybe Microsoft is learning that lesson. The entertainment and devices division also makes the Zune music player, which went unmentioned in Microsoft's public statements. No new projections were made for Zune sales, especially since Universal and Sony decided that sharing music via WiFi wasn't so welcome to the social after all and prohibited it. With Christmas over and the Zune WiFi feature losing its differentiation and mojo, that one million Zunes sold by June may turn out to be a tougher target to hit than the XBox 360 one was.

Comments

[Richard Alv...:]

Excess Xbox 360 is only half the reason why MS cut it's projection. Me thinks that MS will update the Xbox 360 sometime after June.

www.xbox360fanboy.com/...

2007 Jan 29 09:13 AM

[Tom B:]

MSFT is doing amazingly well on servers despite the awful quality of their OS. Read: IT drones are STILL addicted to Outlook.

Vista will sell big , but, clearly, not any faster than XP.

2007 Jan 29 10:37 AM

[carleast:]

Microsoft should just stick to their core competencies and not consumer products that people will clearly never want. The Xbox brand must surely be labelled a failure now? But the Zune is an even bigger flop. It's ridiculous that the top man at Microsoft ok'd this to go into production. You could say that they've lost touch with the consumer but in reality they've never really had much of a thing going with them anyway. Windows is successful for other reasons. But simply because they make so much profit from Windows I expect them to continue with the Zune way into the 2nd or 3rd generation before they realise that by that stage stand alone mp3 players are dead and mobile phones are used for music. This is obviously a couple of years away from mass acceptance but 2 years is just enough time for Microsoft to throw away more money.

And Richard...

Update the Xbox360 some time after June. With what? You can't make the processor or graphics card any better because then games developed against this new technical spec won't work on the 10 million Xbox360's that have already been sold. So I'm not sure what you're on about. Maybe integrate the HD-DVD player into the Xbox for free and give it a HDMI slot to make it true HD rather than it stupid stone age component cable.

Some of these companies get too big for their boots. Luckily most often get a reality check and come back down to earth. Microsoft has been in the clouds for quite a while though.

2007 Jan 30 03:43 AM