Could Next-Gen Consoles Cost $99?

Is $99 a good deal
for an Xbox 360? Well, maybe. If you don't have a credit card and you
don't mind paying extra for the console over a contracted two-year
period.


The bigger question perhaps, is this - could the idea of selling
consoles cheap, then having consumers pay over fixed-contract periods be
a Trojan horse for a coming next-gen strategy?




It allows the hardware manufacturer to disguise the price of the hardware by bundling with an expensive service offering.Certainly,
pricing for new hardware is a major headache for console manufacturers.
If they are producing extremely expensive consumer products, but wish
to sell them at mass-market prices, the online-service subscription
model looks very attractive. How do we know this? Because so many of us
have already signed up to the same deal for our cell-phones.




Could a $99 Xbox 360 be a sign of things to come?


So even though Microsoft's alleged offering of a $99 Xbox 360, with a
two-year $15-a-month subscription to Xbox Live probably won't change the
world in the short-term, it makes for a wonderful consumer experiment
for the company, if it's considering something similar for Xbox 720.


IGN spoke to the analysts to see what they had to say. Michael Pachter
from Wedbush says, "The model for next gen is interesting. It allows the
hardware manufacturer to disguise the price of the hardware by bundling
with an expensive service offering, not unlike the iPhone that retails
for $499, but which costs only $199 with a two-year, expensive data
plan."


At Piper Jaffray, Mike Olsen says, "I think this could be a long-term
strategy. It works with phones and tablets so why not game consoles? I
definitely wouldn't be surprised to see Microsoft offering an Xbox Live
partially subsidized Xbox 720 when it comes out and this could have
significant interest from hardcore gamers that are upgrading to the next
console and would have likely subscribed to Xbox Live anyway. Consumers
like it because they save money on the hardware and Microsoft likes it
because it gets people locked in for two years."


Jesse Divnich at EEDAR says, "It is an interesting business model and
despite all the risks, I would argue that it would likely accelerate
console adoptions, especially during the early phases of a hardware
life-cycle when costs are well above $400."





Subsidized hardware is the norm for expensive and desirable cell-phones
where high-cost subscriptions are necessary. Online game subscriptions
may not be as essential to modern living as a cell-phone account, but
it's clear that the hardware companies will place online play at the
center of their next-gen experiences, and will likely charge for as much
of the offering as they can. For many gamers, the idea of playing
consoles without a full online subscription is pretty much unthinkable.


As for the Xbox 360 offering, we are still waiting for any kind of comment from Microsoft, following the original story breaking yesterday.


It's possible that the company is merely seeking to boost sales of its
console over the slow summer period, or looking to tie –in customers
lower down on the economic graph. DFC Intelligence's David Cole says, "I
don't think it's that great a deal for consumers. You would be smarter
to put the machine on your credit card. But if you don't have a credit
card, it might make sense."



If this is supported by every major retailer, I would anticipate a rather large uplift in Xbox 360 sales.Michael
Pachter says, "My read is that this offering is aimed at the
lower-income, late adopter, casual consumer, and I think it will
convince many of them to buy a 360 instead of one of the other two
consoles." Jesse Divnich adds, "It is an interesting proposition, one
that the cellular markets depend upon in its entirety. If this is
supported by every major retailer, I would anticipate a rather large
uplift in Xbox 360 sales."


Colin Sebastian at RW Baird says, "Any perceived price reduction should
lift hardware sales, I think even with a subscription pricing scheme.
Depending on the subscription price and term, this doesn't necessarily
imply a price cut, but could broaden the potential Xbox consumer
audience to the value end of the market. Given weak console sales, I
think price experimentation is warranted. If this untaps a meaningful
new consumer demographic then we could see Sony following suit."


Of course, this is not the first time a console publisher has offered a
heavily subsidized machine. Back in 2000, SEGA gave Dreamcast owners a refund on any hardware purchase in
return for a two-year subscription to its fledgling online service
SegaNet. Unfortunately, as with most things Dreamcast-related, it was
ahead of its time. There wasn't enough interest in online gaming and
Dreamcast was being slain by PlayStation 2. The offer was killed as SEGA
bunkered down and waited for Dreamcast's destruction.





We'll wait to hear Microsoft's official announcement. But if this is a
system that works for expensive connected cell-phones, it could also be a
model for expensive, connected games consoles. For console
manufacturers, it could offer the only way out of paying millions of
dollars to subsidize hardware sales in order to establish large user
bases.


In any case, with new consoles from Microsoft and Sony unlikely to
arrive for at least another 18 months, there's plenty of time for both
companies to play around with pricing and marketing strategies. As David
Cole says, "The Xbox 360 offer is just a rumor at this point. Console
companies are always throwing ideas around to see how the market
reacts."