Microsoft drops price of Xbox 360 Elite, kills Pro

On the heels of Sony reducing the price of its PlayStation 3 and announcing the PlayStation 3 Slim, Microsoft announced Thursday that it too will be dropping the price of its console.

Starting Friday, the Xbox 360 Elite will be priced at $299, $100 cheaper than its current price. The Xbox 360 Pro, which currently retails for $299 will be priced at $249 starting Friday. Once retailers sell through their entire stock of Xbox 360 Pro units, that SKU will no longer be offered by the hardware maker.

Going forward, Microsoft will offer only the $299 Xbox 360 Elite with its 120GB hard drive, and the $199 Xbox 360 Arcade which comes bundled with five games and a 256MB memory unit.

Microsoft's decision to reduce the price of the Xbox 360 isn't a surprise. Numerous rumors have been swirling around the Web for weeks. But perhaps the reason for the price drop, at least according to Microsoft, might surprise you.

When I pushed Microsoft's director of product management for Xbox 360 and Xbox Live, Aaron Greenberg, on why the company had decided to reduce the Xbox 360's price now, he said that it had been planned for months.

"I'm sure some will think this is a response to competitor pricing," Greenberg said. "But we had planned this reduction months in advance. Retail circular ads and store merchandising were all lined up. We wanted to be ready for the holiday season."

Microsoft wouldn't say whether it is generating a profit off the sale of each Xbox 360 unit it sells. Greenberg would only say that, overall, Microsoft's Xbox division is profitable. That stands in stark contrast to Sony's PlayStation 3, which is currently being sold at a loss.

Other changes?
Microsoft was quick to say that no other changes will be made to its offering. The Xbox 360's design will remain unchanged. Accessory pricing on products, such as Wi-Fi adapters and hard drive add-ons, will also stay constant.

Say good-bye to free cables
Perhaps the most glaring omission gamers will find when they pick up the now cheaper Xbox 360 Elite is that it will not be bundled with an HDMI cable. Current units on-sale for $399 include one.

When I asked Microsoft why it decided to ditch the it, the company had a rather interesting take.

"When we first launched the Xbox 360 Elite, HDMI cables had high perceived values," Greenberg said. "Now, they're commoditized." Greenberg went on to say that research Microsoft performed found that the majority of its customers weren't using the cable. Realizing that, it decided to remove it from the Elite packaging and "pass the savings on to customers."

That logic flies in the face of Microsoft's contention that HDMI cables are being commoditized. Commoditization suggests production costs are low and including them with the Xbox 360 Elite wouldn't be as costly as they once were. It's debatable that Microsoft is actually helping consumers by taking the HDMI cable out of the Xbox 360 Elite box.

Browsers and Blu-ray
Windows features a browser. Windows Mobile has a browser. And the upcoming Zune HD sports one too. But so far, there isn't a browser in the Xbox 360. I asked Greenberg if Microsoft plans to offer an Xbox 360 browser in the near future and he didn't hesitate: no chance.

"It's a pretty bad experience," Greenberg said when asked why Microsoft won't offer a browser in the Xbox 360. Microsoft has decided that it wants its console's software to focus on home entertainment. A browser doesn't quite fit into that strategy, although it's worth noting a software update that's slated to be released later this year will add native applications for Twitter and Facebook.

Microsoft also has no plans to bring Blu-ray disc playback to the Xbox 360. The hardware maker doesn't see a reason to add Blu-ray to its console when users can already get HD content through Xbox Live.

Looking ahead
So, a new pricing battle has been started. Starting Friday, you'll be able to choose between an Xbox 360 Elite for $299 or a PlayStation 3 for the same price.

Which will you choose?