Dec. 8, 2005 -- Almost immediately after Microsoft's Xbox 360 video game console hit stores late last month, gaming Web sites were inundated with reports the machines were crashing, freezing up and simply not working.
Microsoft responded by saying only a small percentage of 360s had problems and that the company was more than happy to quickly replace or repair any defective units. But in the weeks since the Xbox 360 was launched, the buzz surrounding the units' problems hasn't subsided and a new, possibly bigger problem has arisen -- a lack of inventory.
With time ticking away before the holidays, many would-be givers and receivers of one of the hottest high-tech gifts of the season may be left with wrapping paper and nothing to wrap.
Where's My 360?
"They [Microsoft] keep saying, 'We're sending them as soon as we get them -- we've got planes loaded,'" said Brian Crecente, editor in chief of the video and computer gaming Web site www.kotaku.com and video game editor for the Rocky Mountain News in Colorado. "Yet I am getting e-mails everyday from people saying, 'Where's the 360 that I pre-ordered?'"
Crecente says that the issue of defects is still a potentially big one, but that the shortage of Xbox 360s is much more serious.
Even more serious, Crecente says, are some of the rumors floating around the Internet that -- if true -- could explain the delay in filling some pre-orders.
"The … rumor is that some of the stores … that their employees are actually personally buying up 360s -- buying up a lot of the pre-orders and then selling them on eBay."
Representatives from two large chains, Gamestop and EB Games, refused to comment on the rumor, saying that such claims were unsubstantiated.
When pressed on whether Gamestop is receiving the anticipated shipments from Microsoft, spokesman Chris Olivera gave this cryptic answer: "The communication has been two-way regarding our allocation, they are in contact with us and we are in contact with them."
He went on to say that Gamestop has communicated with all of the customers who placed pre-orders to alert them as to when their 360s would arrive -- whether it would be on time or not.
But customers must be proactive if they want to keep track of their orders as the holidays approach.
A Squandered Opportunity?
Analysts say Microsoft, which announced a goal of selling up to 3 million Xbox 360s by year's end, may have missed a big marketing opportunity.
"On one hand, this was Microsoft's opportunity to really take advantage of having the next-generation market all to themselves and not having enough product is a squandered opportunity," said Ross Rubin, director of industry analysis for the NPD Group, which tracks the gaming industry. Rubin says that with Sony's new Playstation 3 not scheduled to come out until spring, the extremely competitive console market was primed for the Xbox 360 to make a big splash.
But not having enough units to fill pre-orders, and lacking the consoles to stock stores in time for the holidays, may mean that when the PS3 is released, the 360's head start is rendered moot.
"Most estimates are under 400,000 units sold … and also consider that they'll sell some units in the first quarter of 2006," he said, "so let's say they get up to 500,000 by the time the Playstation 3 launches. I don't think that's going to be an insurmountable lead in a battle where the winner is going to be selling 20 million or 40 million units worldwide."
Retailers Decide Who Gets Them
Speaking through the public relations firm Edelman, Microsoft says retailers are given a certain number of units and it's up to them to decide how they want to allocate them to their stores.
"We've seen unofficial comment from Microsoft that they continue to replenish retailers with units trickling in on a weekly basis," said Rubin. "But depending on how the retailer allocated their expected stock it's conceivable that people might not get them until after Christmas."
An employee who answered the phone at one Gamestop in New York City said the store hadn't received a second shipment since launch day, and that he was told the shipment would consist of just two more 360s. He also said they don't expect to fill pre-orders made as early as September, before the holiday.
Debbie Mola, a spokeswoman for EB Games -- a video game retailer recently purchased by Gamestop -- says that they resisted making any promises to customers about when their Xbox 360s would arrive. But with that said, Mola says she wishes they had more to sell.
Expert Suspicious About Low Numbers
For gamers lucky enough to get their hands on an Xbox 360 but unlucky enough to get a malfunctioning one, Rubin says there is hope.
"They've responded and responded aggressively and they've been able to get replacement products to people in a timely fashion and that's commendable considering the shortages they've had," he said. "So the good news is, if you were lucky enough to get one, Microsoft is going to make sure you have a functioning one."
Crecente agrees, but after running an unscientific poll on his site that showed 20 percent of readers who own 360s experiencing problems, and others showing upward of 10 percent, questions just how widespread the problem is.
"The thing that makes me a little suspicious about the numbers, is that the only way you could tell if this was just the typical problem that consumer products have at launch, or something that's above and beyond is the numbers," he said. "If 20 percent of them or even 10 percent are faulty, then it's not typical."
Microsoft refused to disclose numbers or percentages when it comes to complaints or units sold, but maintains that it is well below the industry standard of 3 percent to 5 percent.