Wii R price discriminators

In my thus far futile search for my niece & nephew’s Wii console to deliver by December 24, I found the Wii Tracker website. It’s a website that offers links to places that sell Wii consoles.

They link to a Mercury News interview (excerpted on a blog) in which Reggie Fils-Aime, the president of Nintendo of America, explains the sales frenzy:

Q: The Wii console has been a big hit to date, with you guys having a difficult time meeting demand. This is going to be a bad Christmas for folks still wanting to buy one, isn't it?

A: We have been sold out worldwide since we launched. . . . Every time we put more into the marketplace, we sell more, which says that we are not even close to understanding where the threshold is between supply and demand.

Q: What is it about your manufacturing system that doesn't allow you to catch up with demand?

A: The issue is not a lack of production. The issue is we went in with a curve that was aggressive, but the demand has been substantially more than that. And the ability to ramp up production and to sustain it is not a switch that you flick on. We're working very hard to make sure that consumers are satisfied this holiday, but I can't guarantee that we're going to meet demand. As a matter of fact, I can tell you on the record we won't.

Given this supply constraint, Wii Tracker makes Nintendo’s strategy quite clear: it’s quite easy to buy a Wii today, as long as you’re willing to pay $500-$600 for a “bundle” rather than $250 for just the base console. Increasingly, parents are paying twice what they were willing to pay in order to have the “must have” game in time for Christmas.

If course, this is exactly the sort of price discrimination (versioning) that Hal Varian advocates in Information Rules: charge more money to those who are willing to pay more, less to those who are not, and keep the two groups separate. So those who want to buy a Whttp://www.blogger.com/img/gl.link.gifii for junior's birthday in February will do fine, but those who want to be a hero on Christmas morning are hosed. That's me: in fact, my niece and nephew have birthdays in December, so I can't even try the wait-until-February ploy.

Update 12:45 p.m.: This morning’s WSJ says the Wii shortage is caused by 2007 sales exceeding Nintendo’s forecasts by 25%, by extremely conservative supply chain management, and by huge lags in ramping up production because it is 100% outsourced. Upon further investigation, I also found that the profiteering is not (directly) due to Nintendo, but its dealers.

Wireless rich get richer

The WSJ this morning had an article summarizing the announced bidders in the forthcoming FCC 700 MHz auctions next month.

• Bidding: ATT, Cox Communications, Echostar, Frontline Wireless, Google, Leap Wireless, Verizon
• Not bidding: Comcast, DirecTV, Sprint Nextel, Time Warner Cable [also T-Mobile]

The two largest US carriers are bidding, and the next two are not. The 2004 AT&T-Cingular merger has gone well, while Sprint Nextel has yet to recover from its 2005 merger. (The 2000 joint venture to create Verizon Wireless is long since settled).

Of the remainder:

• Google is trying to reshape the wireless industry by its bidding, even though the WSJ thinks it has no intention of winning.
• The relatively small Leap Wireless is seeking to grow its spectrum footprint after fending off the hostile takeover by Metro PCS.
• My former business associate Tom Evslin has criticized the plans of the highly political Frontline Wireless team, for trying to get its spectrum under the guise of "public safety."
• Only one of the three major cable TV companies is bidding, which means they’re not worried about the telco quadruple play competing with their triple play offerings.

Even with the potential new entrants and the wide variety of spectrum alternatives, their impact is likely to be at the margins. Instead, it seems likely that the new spectrum will be paid for by the most successful companies, to cement their existing market dominance.

Even less Motorola leadership

After a big announcement like that of Ed Zander’s resignation, there are always other shoes that drop. Monday morning’s paper had a tiny blurb that Motorola CTO Padmasree Warrior had resigned, with the speculation that she’d left because she was tied to Zander’s failed strategy of seamless mobility. Sure enough, her Motorola biography (now gone but cached by Google) listed her efforts there:

An engineer at heart with a true knack for business, Padmasree’s charter is to drive innovation, prioritize technology programs and accelerate creative research to commercialization. Padmasree's operational responsibility is to lead Motorola’s global team of 26,000 engineers and direct Motorola Labs, Motorola’s software, emerging early-stage businesses and the corporation’s intellectual property portfolio.

Padmasree is recognized internationally as the thought leader who shaped the industry vision of “seamless mobility” for next generation communications. She is credited with crafting much of Motorola’s strategy around seamless mobility; to deliver easy uninterrupted access to everything people want in a flat and mobile world.

This morning’s paper brought news that she’d become CTO at Cisco, presumably part of its effort to expand its influence in mobile communications. There was universal admiration at how she’d traded up after only one day of unemployment. Warrior herself blogged at Cisco about how she welcomes the opportunities of driving its platform strategies. (Certainly it’s been a long time since Motorola drove any industry platforms).

However, Brad Reese, a Cisco-focused blogger, pilloried the decision to hire Warrior, blaming her for commoditizing Motorola’s RAZR and failing to respond to the challenge of the iPhone.

I know far less about Cisco that Mr. Reese, but as someone who follows the mobile phone industry, I’m not sure how much credit (or blame) the CTO gets for Motorola’s recent innovation results. Did the CTO have line-of-business control? How much did the CEO control the allocation of resources. And as for getting beaten by the iPhone, I think a lot of very well run mobile phone companies were left scrambling when the iPhone came out.

In my opinion, the success or failure of a CTO depends not only on his/her vision, but also on the charter bestowed by the CEO. And I’d bet a week’s pay that John Chambers is not going to let anyone commoditize his main Cisco brand (even though the Linksys brand is all about competing in commodity markets).

Silicon Valley — America’s greediest place

Forbes has done some simple calculations of billionaires-per-capita and, not suprisingly, Silicon Valley ranks #1 and San Francisco is second in the US. Seattle (with the Microsoft billions) came in third.

They took the ratio of Forbes 400 members per 100,000 residents, and the San Jose-Sunnyvale-Santa Clara came in first. As with the nearby SF-Oakland metropolitan area, most of that money came from tech startups. California was also represented by Los Angeles (#8) due to entertainment moguls, while my hometown of San Diego didn’t make the cut.

A local union organizer once described tech stock wealth as

a bunch of young white guys being in the right place and winning the lottery.

This is an odd thing to say around here, since even our local (PC and PC-centric) newspaper is about economic efficiency and wealth creation, even if it is socially liberal enough to match any Eastern big city newspaper.

It’s almost enough to make one think that the cult of George Gilder never hit the dot-bomb crash. Of course, back then we didn’t have tech zillionaires hoping to make money selling environmentally friendly toys.

Note to readers: with OS X 10.5, I’ve finally re-installed and updated my blogging software and now have improved productivity (and spell checking) in updating my blog.

Wii R Number One!

Today I spent an hour shuttling between two Best Buy stores in hopes of scoring a $250 Wii console for my niece and nephew. Not having bought a videogame console before, it didn’t occur to me to show up at 8 a.m. for a store that opened at 10 a.m. At both stores we were too far back in line to get one of the allocated units (125 and 80, respectively).

My 9-year-old wanted to know why a year-old console was in short supply, and I couldn’t answer — other than the Wii is obviously this year’s hottest Christmas gift. Reporters are writing stories about the shortage while consoles are going for twice the asking price online. Unlike in college football, it’s very clear who’s number one in the latest round of the videogame platform wars. (Even if Sony beat Nintendo for one month in one country).

The customary lesson from the VCR wars and various generations of videogame platform battles is that time to market and software are everything. The conventional wisdom is: line up content, and the customers will follow. But wandering through Best Buy (while my wife waited in line), it was obvious that there was more than enough content for Xbox 360 and a fair amount for PS3; in contrast, the Wii content was selling out. And some of the most important content is available for all platforms, like the Guitar Hero that my young relatives don’t know they’re getting to go with the Wii they don’t know they’re getting.

Instead, the Wii was the surprise winner against two behemoths fighting each other over gigahertz and polygon rendering frame rates. The Xbox was even first to market this time. Maybe price was part of Wii’s success, but my sense is that the motion-sensitive controller and fun games — i.e. innovation — were what made the difference.

So the next time someone assumes that network effects are the be-all and end-all, they should remember the Wii and the idea that (as Liebowitz and Margolis reminded us) sometimes the better mousetrap actually does win.