Sales of Sony's PlayStation 3 in January and February 2008, around 69,000 systems per week, are nothing short of a complete turnaround for the system. When compared to PS3 sales in July 2007, the month of a price drop and the best non-Holiday month of the past year, Sony's sales are up 77%. Looked at another way, Sony's sales in the first two months of 2008 are equivalent to the combined sales of the five months from March to July of 2007. That Sony has improved so much yet still lags the Wii by nearly 40,000 systems per week is a true measure of just how weak the PlayStation 3 was last year and how strong the Wii still is today.

Before looking at Microsoft's Xbox 360, there are two lessons for Sony in the February figures: consumers respond to price drops, and this is even true for older systems like the PlayStation 2. Here's the evidence:
 

• We estimate that the average sale price (ASP) for the PlayStation 3 was $415 - $420 in February 2008. By a better than 5-to-1 ratio, consumers are buying the $400 model over the $500 model. While the more expensive model is discontinued, Sony needs to maintain its focus on reducing costs and therefore system price.
• For a limited time during February 2008, the big box retailer Target sold the PlayStation 2 for $99. In her remarks to the media, NPD Analyst Anita Frazier said that strong PlayStation 2 sales in February were “a testament to its broad adoption and the response of consumers to promotional activity at retail." That is: even in its eighth year, PlayStation 2 demand can be significantly increased by the right kind of price drop.

As for the Xbox 360, Microsoft has made it clear that it is still working around supply constraints, and sales of around 64,000 systems per week will keep Microsoft in the game. However, a third-year system with a stable of exclusive software should see stronger, not weaker, sales. Depending on the day of the week, media reports predict that Microsoft will announce a price drop or announce new hardware models. We expect both will come to pass, and soon. The most reasonable explanation for Microsoft's current situation is that they are clearing the channel of old stock and preparing for a huge push in April, to coincide with the launch of Grand Theft Auto IV. In addition to heavy marketing, we expect Microsoft to introduce new hardware configurations and a new price structure. When Grand Theft Auto IV hits the market in just about six weeks, the new Xbox 360 lineup will be positioned to sell very strongly through the middle of 2008, catching another wave of sales along with Madden NFL 09 in August and Gears of War 2 at the end of the year.