Several months after its successful North American launch, Microsoft released its Xbox gaming console in Japan, Europe, and Australia. Initial Japanese sales were affected by reports of a flaw in the units, but that market is less important to Microsoft than Europe, which is expected to account for about one-third of overall Xbox unit sales.

Japan: More Difficult Market

The Xbox went on sale in Japan on Feb. 22 at a retail price of ¥34,800 (US$260), which is less than the North American price of US$300. Microsoft will have to sell more games per unit to make up for the loss on each unit sold in Japan (the units are estimated to cost between US$320 and US$380 to manufacture). In spite of this lower price, the Japanese Xbox is expensive when compared with the local competition: it is approximately US$37 more than the Sony PlayStation 2, and US$73 more than the Nintendo GameCube.

Microsoft has not released sales expectations for Japan, which is likely to be the Xbox's most difficult market. Japanese companies Sony and Nintendo have more experience catering to Japanese consumers, who favor different types of games than American and European gamers (for example, shooting games are not as popular in Japan). The poor state of the Japanese economy, which has been in recession for much of the last decade, could also limit sales.

Initial sales have been dampened by consumer complaints that the boxes were leaving tiny scratches on game DVDs. (The flaw does not affect game play.) Microsoft reported that 590 complaints had been registered about the problem by Mar. 7, about two weeks after the units went on sale—a miniscule percentage of the 125,000 units that some sources say Microsoft sold in the first three days. But media reports about the flaw were widespread, and several retail outlets suspended sales of the Xbox for several days because they were concerned about a possible recall. (No recall happened, and all outlets have resumed sales.)

The Japanese Xbox is slightly different from the North American or European units, with a smaller handheld controller. Microsoft also released 50,000 promotional units in translucent green casings. The consoles were made in Flextronics' Guadalajara, Mexico, plant—the same plant that created the North American units—but Microsoft is looking for a manufacturing facility in Asia in case Japanese demand takes off.

Twelve games were available in Japan on the launch date, including several titles that are not available in North America, and the company said 22 games would be available by the end of March and about 100 by the end of the year. Many of these games will come from Japanese manufacturers such as Capcom, Konami, Sega, and Tecmo.

European Sales Important

The Xbox went on sale in 16 European countries and Australia on Mar. 14 at considerably higher prices than the Japanese units. The European boxes will be manufactured at a Flextronics plant in Hungary and will retail for £299 (US$424) in the United Kingdom and about €479 (US$422) in the rest of Europe. The Australian boxes will be manufactured at the Mexican plant and will cost A$649 (US$339).

The higher prices will increase Microsoft’s margins on Xbox sales, although the company might have to drop prices in Europe—Sony tried a similar high-priced strategy when it launched the PlayStation 2 there in 2001 but was forced to drop prices after sales were lower than expected.

Microsoft did not say how many boxes it was initially shipping to these markets, but it hopes to sell 1.5 million Xboxes in Europe by the end of its fiscal year on June 30—a significant portion of its expected global sales of 4.5 to 6 million by that time.

Twenty games, including many popular North American titles, were available in Europe and Australia on the launch date, with 60 expected by the end of June.