It’s been nearly a year now since the release of Microsoft and Sony’s next-generation consoles. The Xbox Series X and PlayStation 5 both hit shelves in November 2020, alongside Microsoft’s smaller, all-digital Series S. They were met with major demand straight off the bat; pre-orders rapidly sold out and most customers were left to wait until the consoles’ respective release days for their chance to get their hands on them.
Nearly 11 months later, many of those same customers are still waiting. While there have been periodic restocks of both consoles, they’ve consistently sold out almost immediately. Unless a buyer happens to be in the right place at the right time, they’re going to be disappointed. So why is stock still so much of a problem? The initial, inevitable rush should have long since passed and yet demand continues to vastly dominate supply. Let’s examine the factors involved.
By far the biggest issue at play here is a shortage of semiconductor, or microprocessor, chips. In short, these are the part of computational devices that does the ‘thinking’, i.e. the processing. They are an essential component of any computer and play a major role in the inner workings of gaming consoles.
Having access to such chips is therefore vital to 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 shortage in semiconductor chips kicked in around the beginning of last year and continues to this day. The problem is so severe in fact that Samsung, the second-largest producer of such chips in the world, has had to push back the release of their next smartphone because they’re concerned they won’t be able to meet demand.
The market is not a small one either. Samsung themselves consume around $36 billion worth of the chips each year and sell a further $56 billion to external buyers. The scale of the shortage is vast and affects a great many different industries, with gaming consoles only playing one part in the broader market.
What caused the shortage?
While it’s reasonable to assume that the shortage arose because of the Covid-19 pandemic, that’s not the whole story. There were indeed numerous factory shutdowns that led to a major drop in chip production, but in the time since then, lifting lockdowns have brought manufacturing back up to around pre-pandemic levels. Instead, the problem persists because of the unprecedented levels of demand currently being experienced.
As stated earlier, semiconductor chips are a necessary component of any computer system. While there’s always been reasonably high demand for them, the last few years have seen that demand skyrocket. There’s a lot of reasons behind this: The pandemic led to a massive boom in TV and computer sales; the development of 5G-enabled mobile phones saw a surge of new production; cars with onboard computers are becoming a lot more common; and ‘Smart’ devices such as internet-enabled doorbells and watches double up as fitness trackers have seen chips installed in a host of devices that never previously required them. Even the rush of cryptocurrency mining has had a hefty impact on the demand for microchips.
Although some of these demands have been growing steadily, the last two years have seen a very sudden jump. Companies are working hard to accommodate the change, but it’s slow work. Getting a semiconductor chip production facility up and running takes roughly two years due to the complexity of the product. The result is that some experts are predicting it could take until 2023 for the supply chain to meet demand.
The Human Factor
Semiconductor chip shortage or not, there is still the matter of console restocks selling out in minutes. Given that nearly a year has passed since their initial release, it stands to reason that demand should be declining. This is where the second major problem comes in: scalping. For those who don’t know, scalping in this context refers to someone buying up a lot of in-demand product and then selling it on for vastly inflated prices.
All major game console releases have seen this in one form or another. It’s a well-established trend for any high-cost, high-demand product. The Series X and PS5 were no exception; all the way back in November last year there was outrage at someone trying to sell a new Xbox for £5000, more than ten times the retail price of £449.
Normally, these activities would drop off over time as the market stabilised and demand dropped off. This time, however, because stock has continued to be so strained, scalping has stuck around for far longer. Even today, sites like eBay are filled with Series X consoles selling for up to £700 and PS5s for up to £600. The high prices aren’t deterring customers either, with a number of the auction lots seeing bidding wars from customers desperate to get a console.
Most retailers are actively trying to deter scalpers, typically by implementing ‘one console per buyer’ systems. Unfortunately, these precautions aren’t impassable. The most common bypass used by scalpers is to get bots to do the buying for them. This has the double effect of cutting out legitimate buyers as bots are typically capable of completing a transaction in a matter of seconds, far quicker than a human could. That speed is then combined with automated systems that activate the bots whenever new stock is released, regardless of the time of day. As a result, bots can have an entire restock sold out before most people have even heard it’s available.
Alone, these scalpers would be unlikely to move enough product to make the system worthwhile; if consoles were more broadly available, customers wouldn’t be willing to meet the inflated prices. As it stands, however, the unwaveringly high demand has led to a vicious cycle that supports the practice and, ultimately, makes it that much harder to legitimately buy a new console.
The Console Hunters
The huge demand for next-generation consoles has also opened up another, less predatory stream of income for a handful of quick-off-the-draw entrepreneurs. Twitter accounts have popped up to help point customers desperately seeking a new console in the direction of new restocks. These console hunters keep a running newsfeed of where stock is available, giving their followers the slightest edge in getting to the front of the queue. As payment, the hunters distribute the news via affiliate links that grant them a small commission on each sale. Some of them also ask for users to donate money directly where possible.
The result is, largely, a happy one: followers have a greater chance of getting the console they’ve been waiting for, and the hunters get paid for their time. While it could be argued that the hunters are skimming money from console retailers, the sellers are still earning money from the sale and in comparison to scalpers, console hunting is tremendously benign.
Have Brexit and the US-China Trade War Had an Impact?
Outside of the gaming industry, the UK is currently experiencing a lot of problems with shipping. The reasons behind this are complex, but they have arisen, largely, as a result of the changes brought about by the country’s departure from the European Union. Similarly, the last few years have seen increased tensions on trade between the United States and China. The introduction of tariffs and restrictions on both sides have influenced a great many industries, including semiconductors. Understandably, some have wondered if these events have played a part in the console shortage.
It’s a reasonable question; both Microsoft and Sony have historically had their consoles assembled in China. If something negatively impacts shipping from said factories, it has a knock-on effect for sales in the West.
In truth, in light of all the other factors at play, it’s almost impossible to judge the extent to which these events have influenced console shipping. It has been noted that lingering effects of the US-China trade war did have an impact on the distribution of semiconductor chips when lockdowns were first easing. However, that doesn’t necessarily translate into the shortages we’re still seeing to this day. Likewise, while UK haulage has come under a lot of scrutiny recently, it can’t be clearly linked to the console shortage; after all, other countries in Europe are experiencing very similar shortages without any changes to their import regulations.
So What Now?
It’s difficult to say when we might see an end to the semiconductor chip shortage. Microsoft previously stated that they hoped stock would become more available in the latter half of 2021, but we’re still waiting for that future. Some industry experts are hoping for a rapid recovery, while others are suggesting we brace for another few years of delays.
For the moment, it looks like anyone wanting a new console is either going to have to put up with the inflated second-hand prices, or hope they get lucky in an internet queue. The pandemic might have been an unexpected curveball, but the increased demand for computational devices only seems to be growing. Until the chip production market gets back on top of things, it looks likely we’re going to be seeing technology shortages across the board for a while to come.