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Microsoft Shouldn't Cut Xbox One Price Now

Feb 25 2014, 11:11am CST | by

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Microsoft Shouldn't Cut Xbox One Price

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Microsoft Shouldn't Cut Xbox One Price Now

Cutting the price of the Xbox One this early into the console’s life-cycle would be a mistake.

If Microsoft slashes the price of its system from $499 to match Sony’s $399 PS4, the tech giant would lose money—quite a bit of money—on each unit sold.

This would give critics of the Xbox brand more reasons to urge Microsoft to dump it altogether and focus on more profitable divisions.

While potentially a smart short-term move for Microsoft, dumping Xbox could have negative long-term implications more difficult to quantify.

The Xbox gives Microsoft a direct line into the living room, and has the potential to be an integral part of Microsoft’s broader mobile/PC/entertainment ecosystem.

Microsoft also risks alienating early adopters by slashing prices, a nerve they may have touched when they chopped some off the top of the UK’s Xbox One price.

Instead, Microsoft should continue to sell the console at its current price, even if that means a continued #2 place in the console race with Sony’s PS4. Being profitable in second place is a better position to be in than losing money on a blue ribbon.

Instead of a price-cut, Microsoft should continue to release value-added bundles like the upcoming  Titanfall bundle releasing this March.

While consumers will still pay $499, they come away with a full retail game essentially free-of-charge.

And since Microsoft is including the game as a digital download rather than a retail disc, the cost of the bundle to Microsoft is essentially negligible.

This is how Microsoft should continue promoting the Xbox One—by adding value to the system through bundles that, at the same time, help promote Xbox exclusives like Titanfall.

Other games, such as Project SparkQuantum Break, and Sunset Overdrive should also release alongside system bundles. (Not to mention future releases such as the new Halo and Gears of War.)

Microsoft is already doing a better job this generation of focusing on exclusive content than in the past, with a number of interesting looking exclusives in the pipeline.

Doubling down on this strategy is the only way the Xbox One can catch up with its PS4 rival.

Bundling is a business model both Sony and Nintendo have pushed much more aggressively than Microsoft in the past.

2013 saw a handful of different PS3 bundles, including a special God of War bundle from Sony. Nintendo has released some Wii U bundles recently as well, including the Legend of Zelda: Wind Waker HD bundle. These are savvy ways to promote both hardware and software and add value for customers.

Microsoft may be able to sell at a loss and survive, but the Xbox brand itself would look increasingly dubious to investors and analysts alike. I don’t think that’s a risk Microsoft should take, at least not anytime soon.

Follow me on Twitter or Facebook. Read my Forbes blog here.

Source: Forbes


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