Why Microsoft needs Xbox 360 price cuts across the board

Microsoft announced yesterday that it has dropped the price of its Xbox 360 considerably in Japan to help fend off Nintendo and Sony and try to cement itself in the single country that has practically forgotten about Microsoft all these years.

According to the company, the Xbox 360 Arcade will cost just $183--less than the Wii and Playstation 3--and 120GB model will come down to $368 from $442.

Bringing the Xbox 360 down to $183 is an important move for Microsoft. It not only brings it down to that magic price point where the mainstream would finally take notice, but it gives Microsoft a much-needed competitive advantage over Sony and Nintendo--pricing.

And while that sort of move was needed in Japan because Microsoft is so far behind, I think it needs to do that worldwide. As it stands, Nintendo still reigns supreme in the video game market and Sony is gaining ground much faster than Microsoft is willing to admit.

With that in mind, I simply don't see how Microsoft can gain ground in the U.S. and Europe without dropping the price of its Xbox 360 to a more suitable level that would appeal to the mainstream. At this point, pricing is the only way to differentiate the Xbox 360.

In today's video game industry where derivative gameplay is the norm and development costs are high, first-party titles are the only way for a hardware vendor to differentiate consoles if no other competitive advantage is available.

Nintendo has unique gameplay and the ability to use your hands to control on-screen action. Sony has Blu-ray. What does Microsoft really have? Undoubtedly, the company will say that I'm wrong because it has "fantastic" third-party support, but that argument is suspect, at best.

At this point, both Sony and Microsoft have the same basic library of games and developers are loath to release exclusives. And although it still happens sometimes, the frequency is not nearly what it used to be.

Worse, first-party Microsoft titles are headlined by a few major franchises like Halo and Gears of War, but by and large, the Xbox 360 is a haven for third-party games. And considering most third-party games can be found on every other platform, the only thing going for Microsoft is Xbox Live.

And therein lies the rub. If online gameplay, which, let's be honest, is still in its infancy, is Microsoft's major advantage, the company needs to find a different way to attract mainstream gamers who may not care about online play, but want to play a bunch of games.

The way I see it, that can only be achieved by dropping the price of the Xbox 360 in the U.S. and abroad to the sub-$200 level Microsoft announced in Japan. Granted, more capable versions of the console will be more expensive, but by undercutting the Wii's price, Microsoft can finally differentiate itself on a key factor that consumers consider when they head to the store.

The Wii is successful because it has unprecedented hype, can do things no other console can, and has a price tag that would make people want to own it. But when it comes to the Xbox 360 right now, the console is nothing more than a device that can play games online and set people back too much money.

At this point, if Microsoft wants to cement itself in the industry, it needs to make simple moves. It's not really in a bad position--it's still growing, after all--but it needs to drop prices to more adequately compete with its competitors.

All is not lost at Microsoft and I still believe it can take the lead this generation. But before it does that, it needs to do everything it can to drop the price of its console to a level that's much cheaper than its competitors' devices.

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