Xbox Supply Chain

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CASE: GS-49

DATE 04/14/06

EVOLUTION OF THE XBOX SUPPLY CHAIN

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With the first generation of Xbox, our ambition was to change the way people think about video

games. Starting today with Xbox 360, our ambition is to transform the way people play games

and have fun.

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—Robbie Bach, President of the Microsoft Entertainment and Devices Division

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In November 2005, Microsoft prepared to launch its next-generation video game console, the

Xbox 360. A global release was scheduled, beginning on November 22 in North America,

followed shortly by Europe (December 2), and Japan (December 10). It had been four years

since Microsoft had introduced the original Xbox. The first Xbox had hit the U.S. market a year

behind Sony’s PlayStation2, but this time Microsoft expected to beat Sony’s next-generation

system to market by many months.

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The Xbox 360 would provide a substantial increase in performance for gamers. Its processors

were so powerful that graphics would appear virtually lifelike, and would run on high definition

televisions. When used with Microsoft’s Xbox Live Web service, the Xbox 360 would enable

gamers to play multi-player games online. The system could also be used as the base of a

family’s home entertainment system, taking advantage of its high definition DVD player.

Demand for the new system was expected to be heavy. The challenge would be for production

to meet the demand.

THE VIDEOGAME MARKET

In 2005, the global market for video games was approximately $27 billion, consisting of $6.7

billion in console sales, and $20 billion of software (games) (Exhibit 1). Sony dominated the

market, with cumulative sales through December 2004 of 102.5 million PlayStation 1 (PS1)

consoles and 87.5 million PlayStation 2 (PS2) consoles. Microsoft had sold 19.9 million Xbox

consoles, slightly more than Nintendo had sold of its GameCube (Exhibit 2). Of the current

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Jay Greene, “Robbie Bach is Ready to...