The Wii and the Kindle: Holiday Shortages By Design?

For the last year, the Kindle has been quickly selling out of its limited production runs, thanks in no small part to endorsements from Oprah (NYTimes: "Will Kindle get an Oprah Bump?") and countless excellent reviews in magazines and online. The Kindle is as much a status gift to adults this year as the iPod was 6 years ago to teenagers.

Jeff Bezos and Amazon's Heather Huntoon have claimed that the Kindle manufacturing end is doing their best to keep up with demand, while at the same time no firm numbers are being released to the media for us to see just how many units comprise a production run or how many Kindles there are in the wild (NYPost: "Amazon Hope to Re-Kindle Sales After Supplies Run Out"). We have to believe their nebulous shortages are the result of a happy accident: they underestimated the popularity of a hit product. And right now, 3 weeks before Christmas, the Kindle is back-ordered at Amazon until February (E-Reads: "Panic in Kindle Park"). In a season where most companies want to stock as many of their popular units as possible into their retail channels, Amazon is proudly claiming to have completely sold out of their season's stock a whole month early. We read this and believe it must be a hot item, right? And so the status buzz gets perpetuated even more. However, I have my suspicions that this is orchestrated for a crescendo sales effect, similar to the old Broadway adage "keep 'em wanting more." Aka. Supply and Demand. Not that I blame Amazon for manipulative tactics, because these moves just happen to be part of a de rigueur consumer technology marketing technique perfected by successful companies like Nintendo and Apple. I call it "the shortage."

For example, in 2006 Nintendo released their Wii gaming system in the U.S. in such short supply it sold out instantly at retailers lucky enough to get any units around Christmas time. The very same thing happened to the Wii a year later for Christmas 2007, even though by then, after 12 months of sales, Nintendo was surely aware from its metrics that the limited availability had actually increased consumer awareness and fueled the desire for plenty of consumers who wanted to get their hands on a hit product. Nintendo CEO Reggie Fils-Aime even held a press conference (Gamespot: "Nintendo, GameStop address Wii shortage") to let the media know that they were doing everything they could to produce enough Wii units to meet demand, but that it was not going to be enough: "There was no ability for us to stockpile systems in the summer for the holiday rush." Nintendo has always been adamant they've always manufactured the Wii at peak possible volumes, and that they'd never strategically limit supply to increase demand. The best they can do is make 1.8 million units a month, with a 5 month lead up time (Brandcurve: "Wii Shortage: Manufactured or Real?"), which are the kind of numbers that CEO's don't usually get embarrassed about. Christmas 2008 promises to be the same story (Forevergeek: "Wii shortage this holiday season faced by US shoppers").

The Wii stands out as an underdog gaming console in a very competitive arena. In 2006, the Xbox 360 and Playstation 3 were new systems with more features than the Wii, but the Wii's advantage was that it had a lower price and an innovative, wireless motion sensitive joystick (the Wiimote, pictured above) which attracted families and gamers looking for new experiences. It was never expected to be a sales leader, but Nintendo played their cards conservatively and the Wii became the little console that could, because word of mouth created consumer demand that couldn't be satiated quickly. By the summer of 2007, Apple was ready to try a similar conservative move with the release of the iPhone, and they hoped word of mouth about shortages would create magic, too.

Apple announced the iPhone in January of 2007, six months before it would be available in the sales channel. The pre-sale buzz on blogs created a nickname for the iPhone: the Jesus phone (CNet "Can the iPhone live up to the hype?"). When the iPhone finally hit AT&T and Apple stores in late June '07, there were line ups like no one had ever seen before for a handheld gadget. It was a blockbuster event. People camped out a whole week in advance at some Apple stores to secure a place in line to be among the first with an iPhone. As fast as Apple could manufacture and ship them to the U.S., the iPhone's demand outpaced the delivery and all throughout the summer and into the fall, the status of the iPhone was secured for those lucky few who managed to find one. Again, like Nintendo, Apple quickly waved its hands to get attention and tell everyone that the limited availability was the byproduct of a slow manufacturing process that takes months and months to ramp up. With the iPhone 3G, a year later, Apple experienced the same availability problems (Techcrunch: "Foxconn Building 800,000 iPhones A Week"), which in turn spiked demand again (Engadget: "iPhone Lines Form at Apple Flagships" - pictured above).

How can we not be skeptical about a company's claim that they are making as many units as possible when manufacturing is still lagging behind long after a product demonstrates its demand in the marketplace, sometimes for well over a year or two? Why does it continue to take so long? Clearly, someone is making the choice to conservatively manufacture units so that the life-cycle of the product can be maintained over a longer period, which means more sales overall.

The shortage gambit is that you don't flood the market too soon and that the sales you lose due to lack of availability get picked up down the road because the product maintains its caché longer in the marketplace. A product can have two years or more of great sales (like the Wii) instead of just one hot season followed by backlash. The shortage requires a delicate balance of just enough available units so that once demand rises, sales don't drop precipitously once units are easier to come by. Every parent shopping for the Christmas toy of the year knows that by March stores are practically giving them away. Sellers of limited editions also know this to be true: the value drops when it's too easy to come by.

So, is the Kindle just a lucky tech product that won the sales jackpot because of word of mouth/buzz and its limited availability cult status? That definitely has something to do with it. But I'll bet the Kindle is a long term product that Amazon doesn't want to jump the shark too early and they're plotting this very carefully. The whole publishing world benefits from Amazon taking this long-term status object approach, because e-book sales are the growth area of the book industry, and we should all support any marketing that whets readers' appetites for digital content, even if it's an artificial shortage. The long haul is what counts.

- Michael Gaudet