Gamers have said it. Sales have proven it. Heck, Compete even showed it pre-launch: $600 is too much for a video game console. In July, Sony (NYSE:SNE) finally recognized this widespread belief and dropped the price of its 60gig PS3 to $500 last month.
This certainly hasn’t caused stock boys across the world to dust off the PS3 surplus with any sense of urgency (and probably won’t), but could $499 be the magical price point where a PS3 purchase becomes feasible?
Looking at online demand for the three next-gen consoles, that answer could be, “Yes…but only because I still can’t find a Wii” (Nintendo (OTCPK:NTDOY).
The chart below shows Compete’s estimate of weekly in-market video console demand based on the number of U.S. consumers observed shopping online for each console. July represented a month of positive growth in demand for all 3 consoles, but neither the Wii nor 360 experienced even half of the PS3’s (much needed) lift in shoppers.
Since December, the Wii has outpaced its next-gen competition in both demand and sales, with July being no exception. In the most recent month, the Wii’s demand remained stable, attracting nearly 700,000 total shoppers, its highest count since January. With rumors of price cuts, improved customer service and hardware enhancements circulating the web, demand for the Xbox 360 grew 20% in July, good for 570,000 shoppers and a demand level not seen since December ‘06. Interestingly, the 360’s demand level was up 32% from July of ‘06. Apparently a 16% price cut was good for 50% growth in demand for Sony. While it still lags behind the other 2 consoles (Wii demand is nearly double that of the PS3, even in Sony’s “big” July), the PS3’s price cut spurred its first substantial demand increase since November.
How related are the PS3’s price cut and online demand? The chart below shows weekly demand surrounding the PS3’s price cut for each console. In the week immediately following the announcement, PS3 demand spiked 144% after an 8 week period of relatively little change in demand. While PS3 demand fell in the week ending July 21st, it appears to be improving again.
Even more interesting is the effect that the PS3’s price cut has had on the competitive landscape. The chart below shows the share of total PS3 and Xbox 360 shoppers also considering the competitive console. If you’re Microsoft (NASDAQ:MSFT) or Sony, you want this percentage to be 0, so the first half of 2007 would be a time to celebrate for the Xbox team. The impact of the PS3 drop in price had a huge impact on comparative shopping.
The price drop caused the share of PS3 shoppers considering Xbox 360 to fall from 28% to 23%. This is probably still uncomfortably high for Sony, but it’s a big improvement over June. On the other hand, 360 shoppers were 26% more likely to consider a PS3 in July, meaning that PS3 is back in the running for more consumers when they evaluate gaming console options.
With Microsoft just announcing a drop in the 360’s price across all models, the battle rages on. If $500 is the threshold for considering a PS3 over a 360, is $280 a similar tipping point for considering a 360 core model over the Wii? August will certainly be the hottest month of summer in the gaming industry.