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What are the key elements of Microsoft's marketing strategy for the Xbox 360 (including similarities and differences compared to past products)?

Marketing Spotlight - Microsoft

Microsoft was founded in 1975, when Bill Gates left Harvard at age 19 to work with high school friend Paul Allen on a version of the BASIC programming language. After moving the company from Albuquerque, New Mexico, to Seattle in 1979, Gates and Allen began writing operating system software. What happened to the company since its founding is a well-known and often-told story. Key strategies that enabled Microsoft to achieve such remarkable growth in the competition-laden computer industry include product innovation, brand extension, heavy advertising, competitive toughness, and product expansion.

In 2005, Microsoft shook up the marketplace - and the marketing industry - again with its non-traditional launch for the Xbox 360 - read the below article and address the following questions (can also be found at:

1. What are the key elements of Microsoft's marketing strategy for the Xbox 360?

2. What are the similarities and differences compared to past product rollouts within Microsoft and compare to the rest of the industry?

3. Could Microsoft be considered one of the best and worst examples of marketing success in America during the 1980s and 1990s? DISCUSS

4. Do any of the Microsoft strategies contradict future issues that Microsoft and other technology-oriented firms should prepare to deal with in coming years?


Commentary: Microsoft's Xbox 360 spin

By Forrester Research
Special to CNET
May 13, 2005, 8:49AM PDT

by Fiona McDonnell and Paul Jackson, analysts

The heavy hitters of the video game industry will gather next week in Los Angeles for the E3 conference--and should get a first glance at next-generation consoles from Sony and Nintendo.

Related story
Xbox 360 launch
gets jump on rivals
Microsoft beats rivals
in unveiling new generation
of console first.

But Microsoft has taken a radically different approach to showcasing its wares: A prime-time MTV special Thursday unveiled the Xbox 360 to consumers four days before E3, aka the Electronic Entertainment Expo, starts. This direct-to-consumer strategy will give the new Xbox an advantage and transform the game industry's marketing and product development practices.

E3 is the de facto conference for new game platform announcements. It is where the Sony PlayStation Portable and Nintendo DS were unveiled in 2004, and where American game professionals got their hands on the Sony PlayStation 2 for the first time in 2000. This year Sony will unveil the PlayStation 3 and Nintendo, in classic fashion, may or may not show its "Revolution" console.

Microsoft's MTV maneuver, meanwhile, allows Redmond to do the following:

? Sidestep the industry shindig and talk directly to potential consumers. New hardware is usually unveiled first to partners and developers behind closed doors, then to industry players and analysts at events like E3, and finally to consumers a couple of months before release. Microsoft is breaking this golden rule and taking its offering directly to consumers--despite a wait of at least six months until the console ships. The company risks killing its existing hardware-line sales and stunting software sales, but puts even more pressure on Sony and Nintendo to get their offerings to market.

? Reduce the classic five-year game console cycle. Video game consoles typically have a five-year life cycle--taking a new platform from early adopters through the mass market and into obsolescence. However, by the time the Xbox 360 hits U.S. shores, the original machine will have been out for only four years. Rather than wait a year--and give Sony the market to itself, as it did with its PlayStation 2 in 2000--Microsoft is seeking to reverse the situation.

? Build a frenzy of community speculation and support. Sony is widely credited with bringing the image of game consoles up-to-date with the marketing, product placement and design work it did around PlayStation and PlayStation 2. But this was in the days before blogging and Emotive Networks. Speculation around the next Xbox among gamers has built to a frenzy over the past six months--carefully fed by occasional press quotes from Bill Gates, leaked images and viral messaging spread via Microsoft's site.

For Microsoft, little to lose
The video game industry is about to enter another period of extended growth, and it's widely acknowledged that, Asia-Pacific aside, Microsoft has been more successful with its Xbox market entry than many people expected. But that isn't enough for Microsoft: It wants to be the No. 1 player. As a recent entrant to the game console market, it needs impact and is not afraid to overturn old conventions and try something new. Microsoft's Xbox marketing strategy is:

? A key building block in the overall Microsoft brand strategy. In revealing and promoting its new console through nontraditional means with multiple partners and six months before shipment, Microsoft stands to create goodwill with demanding gaming consumers and beyond. With a gamers-first approach that will create positive associations with its brand, the company aims to offset some of its negative branding in the PC market, where it frequently comes under fire for being the dominant, less innovative player. Additionally, aside from an XP branding campaign, Microsoft has few new products to promote until Longhorn in late 2006.

? A spoiler strategy to appeal to switchers. Talking to consumers now and bringing the Xbox 360 to stores before the end of 2005, probably long before Sony's or Nintendo's new devices, will give Microsoft a big perceived lead in the market. Microsoft is well placed to gain significant market share in a market whose product cycle has a front-loaded revenue stream. How? By stockpiling consumer sales from potential switchers in the months prior to launch and by maintaining sales of current-generation Xbox games if it ensures their compatibility with the Xbox 360.

? A foray into viral marketing. After the success of the "I love bees" viral campaign used to promote "Halo 2," Microsoft created to build buzz and officially release teaser images. One key element of this site is its exclusivity: Microsoft hasn't promoted it overtly, but simply waited for keen-eyed consumers to make the connection. Even then, the site is difficult to access unless you are a keen gamer.

? A way to break the new console out of the gaming ghetto. Another interesting move has been Microsoft's recent agreement with Samsung to collocate next-generation Xboxes with its high-definition TVs in retail stores. This allows the console to escape the intimidating--and often poorly laid-out--gaming aisles and attach itself to the cool new world of HDTV.

Changing the rules of the game
To win as the last entrant into a developed, albeit dynamic, market requires disruption in some way. Microsoft's strategy has a number of impacts on the game industry and the wider world of marketing.

? Consumer involvement in marketing inspires game design. To date, Microsoft has mainly used "I love bees" and as promotional tools--but given the level of consumer interest and the connectivity potential of the new consoles, it can only be a matter of time before that company and others start using these mechanisms to test out game ideas and distribute freebies like demos and coupons. Building on the interactive campaigns, Microsoft takes the gaming experience out of the living room, blurring the line between product and marketing to become synonymous with "gaming."

? Sony and Nintendo need to respond fast. With Xbox messages hitting consumers today, Sony and Nintendo can't wait a year to fight back. Nintendo will continue to focus on game-play innovation and "pure" gaming. Some of its regional PR and marketing partners have implemented imaginative TV, print and outdoor campaigns, but don't expect to see Nintendo radically changing its marketing strategy any time soon. Do expect a more aggressive response from Sony--which isn't about to give up the console crown to the Redmond pretender: As recent content partnerships for the PSP have shown, Sony can still drive innovation and excite consumers. What both companies will have to accept is that Microsoft's strategy has cut short the life of the current generation of hardware.

Solution Preview

1. "Side step the industry shindig and talk directly to potential consumers": Given what we know about the expected timing of the Xbox 360 release (November), it's early to be putting this product directly in front of consumers. The direct-to-consumer marketing hype generally occurs a few months prior to console launch. Microsoft's early launch risks "killing its existing hardware line sales and stunting software sales" as consumers begin to delay purchases in anticipation of the $300 to $400 they'll have to shell out later this year. In other words, Microsoft appears willing to jeopardize first-generation Xbox sales in order to ensure the success of the Xbox 360. They're hurting themselves, but they hope to hurt Sony and Nintendo even more by locking consumers into an affinity for the Xbox 360 earlier than either of these competitors.
2. "Reduce the classic five-year game console cycle": We have to disagree with Forrester on this one. Microsoft doesn't want to shorten console lifecycles. That would be suicidal, as manufacturers tend to lose money on hardware in order to reap big rewards on software sales. A 5-year console lifecycle allows Microsoft, Sony and Nintendo to milk those software revenues before they have to shell out again on costly console development and production. What Forrester really meant to say is that Microsoft doesn't want to be the last one out of the gate this time around. They made that mistake by releasing the Xbox in 2001 giving Sony a huge lead in living room penetration.
3. "Build a frenzy of community speculation and support": Well, duh. Which console manufacturer doesn't want this? Still, Forrester gives Microsoft's marketing machine deserves props for building "a frenzy" over the past six months "carefully fed by occasional press quotes from Bill Gates, leaked images, and viral messaging spread via Microsoft's "" site."
4. "Offset some of its negative branding in the PC market": According to Forrester, Microsoft's approach with this gamers-first approach should win them the goodwill of the consumer market which tends to view Microsoft as the intractable monopolist.
5. "Break the new console out of the gaming ghetto": Microsoft has signed an agreement with Samsung to "co-locate next-generation Xboxes with [Samsung's] high-definition TVs in retail stores" which helps the company's product escape the crowded gaming aisles and sit on shelves free of Sony and Nintendo consoles. The MTV launch is also an attempt to broaden the gamer market by changing the "games are for geeks" stereotype that still tends to plague the industry and depress sales. Microsoft's taking the Xbox 360 to MTV is like that seminal moment in Bill Clinton's 1992 campaign in which he played the Sax on MTV and answered questions about his underwear. He became hip and made politics an acceptable activity for the cool kids. Clinton's campaign credited that appearance with giving the campaign a boost, and you can bet that the MS marketing gurus were thinking the same thing when they put this event together.
The power of complements is best described by the Microsoft example: At the time of the U.S. Justice Department's landmark antitrust case against Microsoft, the software firm was selling its Windows operating system to computer manufacturers for an extremely low price given the company's dominance in the market. At the same time, it was charging significantly more for its Microsoft Office application suite. Given that both products had comparable market shares, why did Microsoft charge only about $60 for Windows - its "base" product - instead of the $1,800 that many estimate it could have demanded, and why did it choose to price Office - the "complementary" good - at nearly four times as much? Firms such as Microsoft that enjoy a monopoly on ...

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""Break the new console out of the gaming ghetto": Microsoft has signed an agreement with Samsung to "co-locate next-generation Xboxes with [Samsung's] high-definition TVs in retail stores" which helps the company's product escape the crowded gaming aisles and sit on shelves free of Sony and Nintendo consoles."