As we make the transition from 2014 to 2015, there’s a big question that one console manufacturer faces that will heavily influence the future of this console generation. That question is whether or not Microsoft will raise the price of the Xbox One back up to $399 after two months of selling the Assassin’s Creed Unity Xbox One bundle at $349.
What Microsoft does come January 3rd is important for several parties. For Xbox One owners it impacts their ability to influence friends and family to invest in the device. For developers it’s influential to the install base, which in-turn determines how valuable it is to bring their game to the Xbox One. For Microsoft it could mean the difference between an adequate console generation or a successful one.
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The Xbox One has been an item of controversy since its announcement for a number of reasons, one of which was its introductory price point. Although the mandatory Kinect would be removed post-launch in order to bring the price down to a more reasonable $399, it would compete with the PS4, a more powerful and well-received console, at the same price. This would translate into Sony increasing its sales lead not only worldwide, but in North America where last generation it sat unhappily in third place behind the Xbox 360 and Wii.
Microsoft says that the $349 Xbox One price point ends on January 3rd, going as far as to use that in marketing material (seen above) to persuade consumers to invest in the console before year’s end. But if you read the wording, it’s vague and appears to only point toward the Assassin’s Creed Unity Xbox One bundle. This has led many to speculate that the standard Xbox One SKU will remain at $349 come January 3rd.
Looking at the Facts
I’m inclined to believe that the Xbox One will not jump back up to $399 in a few days for a few reasons, the most important of which is how much the $349 price point has driven sales. Last month the Xbox One sold a staggering 1.2 million units in United States alone, a figure that has previously never been achieved by a console more expensive than $249. Judging by Amazon’s best seller chart and anecdotes from retailer sales associates, it is likely to break over one million in December as well. These two months have been successful enough that the Xbox One will be on the verge of earning majority market share in North America following an over one million deficit. Many previously thought that would be outright impossible.
Last month the Xbox One sold a staggering 1.2 million units in United States alone, a figure that has previously never been achieved by a console more expensive than $249.
There’s no doubt that Microsoft has taken a loss this holiday season in order to compete with Sony. The question many gamers are wondering is: how much? Well, we know that in 2013 the cost to manufacture and assemble the Xbox One console without the Kinect was around $396. As with virtually all electronics, the costs are sure to have reduced by then. While it’s unlikely that it costs $350 per console at this point, there is a very high probability that it costs anywhere between $15 to $20 less than the PS4, which is equipped with some of the most expensive memory in the world, GDDR5.
As costs have come down, digital sales have risen.The Xbox Store was a success story in 2014, with an increasing percentage of game sales coming from digital where there is no middle man for Microsoft to pay. Put simply, Microsoft is making up for any losses it’s taken quite easily as long as its consumers are buying a game or two with each console, preferably through the Xbox Store.
As with any corporation, Microsoft thirsts for success, and there’s no doubt in my mind that it’s addicted to the rush of seeing its gaming console thrive after having so much doubt cast upon it. But if it raises the price back up to $399 it’s going to be challenged with selling its product to consumers who have seen the console at a much lower price point—some retailers sold it for $329 during Black Friday and December—and with games included. With no major releases coming within the first two quarters of the year, which also means a blockbuster bundle like last year’s Titanfall is unlikely, it’ll be more reliant than ever on price point.
The Forecast
So, in my mind there’s no way that Microsoft won’t keep the Xbox One at $349 no matter the consequences. It’s performing way too well to stop the train now. Microsoft is a company that, unlike Sony, has billions of dollars in the bank. It can afford to make big moves such as the one it’s made these past two months, and then make up for it with income from software and Xbox Live subscriptions.
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I’d even go as far as to say that you should expect to see a $299 Halo 5: Guardians bundle in late 2015. There’s way too much at stake, and Microsoft is working diligently to reduce the cost to manufacture with a new processor on the horizon.
It can afford to make big moves such as the one it’s made these past two months, and then make up for it with income from software and Xbox Live subscriptions.
But ultimately it all comes down to numbers, and if Microsoft at large isn’t willing to take a loss for each console sold the next few months, it may just let its competitor take over its home territory. After all, the original vision of the Xbox One has been eradicated and the device couldn’t possibly be more incongruent with Microsoft’s long-term strategy.
