The Microsoft has been cramping the PS3’s style from the get-go. If it wasn’t advertising Gears of War on PS3 preorder pages, illustrating the 360’s cost advantage with beer, or crashing the PS3’s European launch, the company was spending beaucoup bucks on exclusive content for multi-platform games. But when Microsoft answered Sony’s $100 PS3 price reduction with one of their own in August, they not only put the Xbox 360 Premium substantially below the PS3’s price point, but the Core System within striking distance of the $250 Wii. Should Sony and Nintendo be shaking in their boot cycles?

Microsoft’s strategy of cutting prices across the board appears to have been effective. The chart below shows online retail demand for the US market, based on people shopping consoles at SKU level pages. What’s interesting is how the directional changes between the Wii and 360 diverge in August; excluding the most recent month, these two consoles follow very similar trends. In terms of hardware, the Xbox 360 is the only console that didn’t experience a substantial decline in august shoppers.

• Demand for the Wii and PS3 is nearly tied, with both consoles receiving just under 600,000 online shoppers in August.
• From July to August, demand for the Xbox 360 climbed about 2%. At the same time, Wii demand fell by 15%, the largest drop since January, when the console was recovering from the holiday rush.
• Despite Sony’s $100 price cut in July, PS3 demand declined by over 16% in August. It should be noted that demand for the PS3 is nearly 35% higher than it was in the 3 months leading up to the price reduction.
• In August 2007, 360 Demand is more than 40% higher than it was in August of 2006.

How has this – and the PS3’s - price reduction impacted the market? Looking at June (the month prior to the PS3’s announcement) and August (after both price cuts were announced) illustrates a dramatically different console market. The following graphic demonstrates this change, showing the total number of shoppers for each console, as well as the overlap between each console.

• Demand for both the 360 and PS3 have grown dramatically in terms of demand, while the Wii shopper count has declined.
• Overlap between the Wii and the 360 grew by nearly 6000 people. Since the Wii’s demand also fell, a much higher percentage of Wii shoppers are now considering a 360. This is also true of Wii shoppers considering a PS3.
• Given the growth in both PS3 and Wii demand, over the time period, overlap has actually fallen on a percentage of total shoppers for both consoles, potentially indicating that consumers have made up their mind about with platform to pursue.
• Nearly 1.4 % of console shoppers considered all 3 consoles in August, up from 1.1% in June.

With Halo 3 coming out next week, Microsoft has another monster card up its sleeve. Come back next week to see how it all ties together.

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