Microsoft to slash Xbox One by $50 until year's end
The company already cut the price tag of its not-yet-a-year-old game console by $100 when it removed the Kinect camera accessory. Now, it's nipping off another $50 as the holiday-shopping season kicks in.
Microsoft just unveiled its newest weapon to juice sales of its Xbox One game console: cold hard cash.
Starting November 2, Microsoft will offer a temporary $50 price cut across its Xbox One line in the US, until the end of the year. The company said in a statement the Xbox One model that comes with the Kinect motion camera accessory will retail for $449, down from $499. The standalone Xbox One without Kinect will sell for $349 from its earlier $399 price tag. Microsoft says other regions may have specific promotional offers, including possible price cuts; the company already implemented a similar strategy in the UK. The price drop will also affect the consoles Microsoft sells with games included in the box.
The changes mean the entry-level Xbox One will gain a new feature as well: A price nearly 13 percent lower than Sony's PlayStation 4. That video game console, which was released a week before the Xbox One last November, has outsold the Xbox One in the US for nine straight months this year, according to industry watcher NPD Group.
The price cut comes at a crucial time. Most of the video game industry's highest profile new games are released during this time, including installments from best selling franchises like the military-style shooting games Call of Duty and Battlefield, as well as action adventure titles like Assassin's Creed.
Microsoft's strategy is also different from Sony, its primary competitor. That company has hammered out deals to ensure PlayStation 4 owners can get specialized access to storylines and features for popular games, a strategy the company says makes its device more appealing.
Microsoft has focused more on appealing to consumers' wallets to gain ground. In March, the company gave away a popular new space-age shooting game called Titanfall for free when consumers bought a new Xbox One. In May, when Microsoft announced the Kinect-less Xbox One, it sweetened the deal for its Xbox Live Gold social network for gamers, giving gamers two free downloadable titles each month to those who ponied up $60. Sony's PlayStation Plus service gives its members a similar deal.
Xbox fans will likely celebrate the move, but investors may see it as a sign the Xbox is struggling. A price cut is a "last resort," according to Wedbush Securities analyst Michael Pachter.
Consider that Microsoft has obscured the health of Xbox sales by choosing not to release sales data since April, when it announced its 5 millionth unit shipped to retailers. Sony, meanwhile, has proudly broadcast its sales of the PS4 throughout the past year. In August, Sony's device notched its 10 millionth sale, and in September, NPD said it had been the best selling console in the US.
Game consoles have notoriously razor-thin margins. Microsoft was earning around $29 per console sold according to research firm IHS when it first went on sale last year for $500, and even less after sharing that remainder with retailers. A $50 price cut could force Microsoft to take a heavier loss on each Xbox unit sold.
"What matters to them [Microsoft] is winning the customer over, getting them to sign up for Xbox Live, buying the software, buying 20 pieces of downloadable content," Pachter added. "Xbox may lose $50 or a $100 a console, but when you add it all up, I think it's about winning the customer over."
Microsoft has spent the last year reversing unpopular policies and making up for mistakes made during the device's unveiling in May 2013. Initially, the Xbox was designed with controversial features, such as the requirement that users connect to the Internet once every 24 hours and keep the Kinect motion camera plugged in at all times. Potential customers were also upset Microsoft said it would introduce technology that could restrict sharing games with friends, or selling them back to retailers.
Within a month, Microsoft reversed its position. But even since then, Microsoft has been struggling against Sony. At $500, the Xbox One commanded a 20 percent premium over Sony's PS4 when it was released. Now, nearly a year later, it has lagged its competitor as well, according to NPD sales estimates.
Update at 12:15 p.m. PT: Added additional information about Xbox One bundle pricing.