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Roughly Drafted Examines Xbox and iPod Business Strategies

There is a stark contrast between Microsoft’s sales and business strategy for the Xbox 360 and Apple’s sales and business strategy for the iPod and Apple TV, according to Daniel Dilger at Roughly Drafted on Thursday. Channel stuffing makes sense for Microsoft, not for Apple. In addition, Sony is doing better than NPD sales numbers would suggest in their data.

A not so considered look at NPD’s sales numbers would suggest that the Microsoft Xbox is doing well against the competition. However, Mr. Dilger took a much more careful look at both sales and strategies and surmised that the prospects for Xbox are not good.

"Microsoft, Sony, and Nintendo are all manufacturers that rely almost exclusively on independent retailers to sell their products,: Mr Dilger wrote. "That means all three will willingly push as many units into channel inventory as possible, because once sold to stores the consoles are no longer their problem. In contrast, Apple sells a significant number of its Macs and iPods and the majority of its iPhones in its own retail stores or through its direct online store, making it pointless for the company to perform channel stuffing."

Mr. Dilger compared the so-called shrinking iPod market and missing iPhones against a comparison of Xboxes reported sold to retailers and units actually sold. "Throughout all of 2007, Microsoft could only push out 7.3 million [Xbox] units, a huge drop of 33.6% in unit shipments year over year from 2006s 11 million units. The Xbox 360 peaked in 2006 and is now in decline, and the channel is still stuffed. This untold story is particularly interesting when compared to the sturm und drang sung about the supposedly ’shrinking iPod market’ that Apple faces."

By contrast, Apple’s iPods show no such trend, yet Microsoft is off the hook while investors hear nervous, shallow analysis of the iPod.

"Pundits ripped their garments apart and scraped themselves with pottery shards in lamentation over the fact that Apple increased iPod shipments by a mere 5% year over year in the winter quarter. Not only did they ignore the fact that Apple boosted iPod revenues by 17% that quarter, but they also failed to look at sales over the entire year in perspective," Mr. Dilger observed. "Despite the bewailing of the iPod as a product that has plateaued and cant find new buyers, Apple actually increased iPod sales year over year by 13.5%, from 46.4 million in calendar year 2006 to 51.6 million in calendar year 2007."

The answer is that few people have time to sit down and look at the data from a technical standpoint.

A similar analysis can be done for Apple’s share of the video download market, both compared to the Xbox, and other services, like Movielink. Mr. Dilger’s analysis showed that Apple is very quietly doing rather well while movie downloads on the Xbox don’t even register as a full percentage point in the downloads market.

In summary, Mr. Dilger wrote, iPods sales are up year-over-year to 51.6 million units in 2007 while Xbox 360 sales are down 33.6 percent year-over-year to 7.3 million units. Apple has built a thriving business with the iPod with the right kind of momentum. However, "Anyone fawning about the Xbox 360, Microsofts overall strategy, and the platforms future prospects can simply have no credibility whatsoever," Mr. Dilger concluded.

iPO recommends readers print this article, make a cup of hot cocoa, study the charts, put their feet up and read it twice.

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