In this video hosted by IGN.com the hosts discuss Microsoft’s inability to sell its consoles in Japan with both the original Xbox and Xbox 360 gaining only a niche level market share in Japan and one host goes onto say that Microsoft has failed to reach a tipping point in the Japanese market. Microsoft has launched two consoles globally and each console has been met with success with high adoption rates, but in Japan the first console, the Xbox, could not even reach the 1 million mark for consoles sold; when the second console was going to be released globally, Microsoft made sure to support the Japanese market in a more focused manner. The company asked Japanese game developers to produce more games for the new console for launch and Microsoft advertised these games, and yet, sales numbers, while better than the original Xbox, are only a little above 1.5 million units sold in Japan; compared to the 43 million sold in North America.
The discussions eventually ended with the hosts discussing Microsoft’s probability of selling in Japan when it releases the third Xbox videogame console, concluding that the company will still sell in Japan because that is what Microsoft will do. It is clear Microsoft is suffering from bad network effects as few people adopt its console. They are stuck at a niche level equilibrium in Japan because people bought the original Xbox and with Microsoft putting more of a marketing effort behind the Xbox 360 even more people in Japan bought the console and yet it still trails behind in sale numbers. Videogame consoles have network effects much like social networks on the internet because these consoles are always connected to the internet promoting online play with other people and building friend lists. In addition, the videogame culture revolves around people always getting the newest game that is out and discussing his or her likes and dislikes about a game. For a console to be attractive towards a consumer it needs to have a strong videogame social aspect and games on it that people want to play, and if a consumer sees his or her friends buying one console over the other, this consumer will be more inclined to purchase the console everyone else is buying to better share in the experience of playing videogame and being able to talk about the same games. Microsoft, if it wants to succeed in the Japanese market, has to market its console with more of what the Japanese consumer wants, and the company was on the right track by offering more Japanese developed games. Microsoft needs to better localize its product and make it seem less like an American company selling an American product in Japan but an American company selling a Japanese focused product in Japan, but this can be an expensive game for Microsoft. It is not a guarantee that another Japanese game push will help bring Microsoft to a higher stable equilibrium if the company does not continue supporting the console for the Japanese market. The console could be better supported at launch but then eventually drop back down to niche equilibrium because people will no longer see new games they or their friends want to play.
It is interesting to see networks effects in something other than telephones and internet social networks and see it applied to finding profitable market equilibrium in the goods market.