Trade Wars

Why is it always so difficult to buy a next-gen console?

It has now been almost a year since the release of the next generation consoles from Microsoft and Sony. The Xbox Series X and PlayStation 5 both hit shelves in November 2020, alongside Microsoft’s smaller, all-digital S-series. They immediately responded to an important request; pre-orders sold out quickly and most customers had to wait until the respective console release days for a chance to get their hands on them.

Almost 11 months later, many of those same customers are still waiting. While there have been periodic restockings of both consoles, they still sold out almost immediately. Unless a buyer is in the right place at the right time, they will be disappointed. So why is stock always a problem? The initial and inevitable rush is long overdue and yet demand continues to largely dominate supply. Let’s take a look at the factors involved.

Material deficiencies

By far the most important problem at play here is the shortage of semiconductor or microprocessor chips. In short, it is the part of computing devices that “thinks”, that is, the processing. They are an essential component of any computer and play a major role in the inner workings of game consoles.

Having access to such chips is therefore vital for the production of the Series X and PS5. Unfortunately, the release of the new consoles couldn’t have come at a worse time in this regard. A global semiconductor chip shortage started early last year and continues to this day. The problem is so serious in fact that Samsung, the world’s second largest producer of such chips, had to postpone the release of its next smartphone because it feared it could not meet demand.

Samsung revealed they won't release the next Galaxy Note in 2021

Samsung revealed they won’t release the next Galaxy Note in 2021

The market is not small either. Samsung itself consumes around $ 36 billion worth of chips each year and sells an additional $ 56 billion to outside buyers. The magnitude of the shortage is vast and affects a large number of different industries, with game consoles playing only one role in the larger market.

What caused the shortage?

While it’s reasonable to assume the shortage is due to the Covid-19 pandemic, that’s not all. There have indeed been numerous plant shutdowns that have resulted in a significant drop in chip production, but since then lifting the lockdowns has brought manufacturing down to around pre-pandemic levels. Instead, the problem persists due to the unprecedented levels of demand we are experiencing today.

As stated earlier, semiconductor chips are a necessary component of any computer system. Although there has always been a relatively high demand for them, in recent years this demand has skyrocketed. There are many reasons behind this: the pandemic has led to a massive boom in sales of televisions and computers; the development of 5G compatible mobile phones has seen an increase in new production; cars equipped with on-board computers are increasingly common; and “smart” devices such as doorbells and internet-enabled watches are on the rise, as fitness trackers have seen chips installed in a multitude of devices that never needed them before. Even the rush for cryptocurrency mining has had a huge impact on the demand for microchips.

While some of these demands have grown steadily, the past two years have seen a very sudden surge. Businesses are working hard to adapt to change, but it is slow work. It takes about two years to set up and operate a semiconductor chip production facility due to the complexity of the product. The result is that some experts predict that it could take until 2023 for the supply chain to meet demand.

The human factor

Shortage of semiconductor chips or not, there is always the question of restocking consoles that sell out in minutes. Considering that almost a year has passed since their initial release, it stands to reason that demand should be down. This is where the second major problem comes in: scalping. For those who don’t know, scalping in this context refers to someone buying a lot of in-demand products and then reselling them at significantly inflated prices.

All of the major game console versions have seen it in one form or another. This is a well established trend for any high cost, high demand product. The X series and the PS5 were no exception; all the way back in november last year someone was outraged by someone trying to sell a new xbox for £ 5,000, more than ten times the retail price of £ 449.

Normally, these activities would decline over time as the market stabilized and demand declined. This time, however, because the stocks continued to be so tight, the scalping stayed much longer. Even today, sites like eBay are full of X Series consoles selling for up to £ 700 and PS5s selling for up to £ 600. High prices don’t deter customers either, with a number of auction lots seeing bidding wars from customers desperate to get a console.

The Xbox Series S was released at the same time as the X Series but recently seems to have a lot less stock issues.

The Xbox Series S was released alongside the X Series but recently appears to have a lot less stock issues.

Most retailers actively try to deter scalpers, typically by implementing “one console per buyer” systems. Unfortunately, these precautions are not insurmountable. The most common workaround used by scalpers is to have bots do the shopping for them. This has the double effect of eliminating legitimate buyers, as bots are usually able to complete a transaction in seconds, much faster than a human. This speed is then combined with automated systems that activate the robots whenever new inventory is released, regardless of the time of day. As a result, bots can have a full replenishment run out before most people even hear it’s available.

On their own, these scalpers are unlikely to move enough product to make the system worth it; if consoles were more widely available, customers wouldn’t be willing to pay the inflated prices. As it stands, however, the unwavering demand has led to a vicious cycle that sustains the practice and ultimately makes it even more difficult to legitimately purchase a new console.

Console hunters

The huge demand for next-gen consoles has also opened up another, less predatory revenue stream for a handful of fast-paced entrepreneurs. Twitter accounts have popped up to help customers desperate for a new console to new restockings. These console hunters keep a news feed on available inventory, giving their subscribers even the slightest advantage to get to the front of the queue. In return for payment, hunters broadcast the news through affiliate links that give them a small commission on each sale. Some of them also ask users to donate money directly where possible.

Next-gen consoles were sold on the promise of their increased processing power

Next-gen consoles were sold on the promise of their increased processing power

The result is, in large part, happy: Followers are more likely to get the console they expected, and hunters are paid for their time. While it can be argued that hunters froth money from console retailers, sellers still make money from selling, and compared to scalpers, hunting for consoles is extremely benign.

Did Brexit and the US-China trade war have an impact?

Outside of the gaming industry, the UK is currently experiencing a lot of shipping issues. The reasons are complex, but they result in large part from the changes induced by the country’s exit from the European Union. Likewise, recent years have seen increased trade tensions between the United States and China. The introduction of tariffs and restrictions on both sides has influenced a large number of industries, including semiconductors. Understandably, some wondered if these events played a role in the console shortage.

It’s a reasonable question; Microsoft and Sony have historically had their consoles assembled in China. If anything has a negative impact on shipping from these factories, it has a knock-on effect on sales in the West.

In truth, in light of all the other factors at play, it is almost impossible to judge to what extent these events influenced the delivery of the console. It was noted that the lingering effects of the US-China trade war impacted the distribution of semiconductor chips when lockdowns first eased. However, this does not necessarily translate into the shortages we still see to this day. Likewise, while UK transport has been the subject of a lot of scrutiny recently, it cannot be clearly linked to the shortage of consoles; after all, other countries in Europe are experiencing very similar shortages without any changes to their import regulations.

And now ?

It’s hard to say when we might see the end of the semiconductor chip shortage. Microsoft previously said they hope the stock will become more available in the second half of 2021, but we’re still looking to that future. Some industry experts are hoping for a quick recovery, while others suggest we are bracing for a few years behind schedule.

For now, it looks like anyone who wants a new console will either have to put up with the inflated second-hand prices or hope to get lucky in a queue on the internet. The pandemic may have been an unexpected curve ball, but increased demand for computing devices only seems to be increasing. Until the market for chip production recovers, it seems likely that we will see technology shortages across the board for some time.