Microsoft: Xbox 360 facing pricing squeeze?

Posted Aug 28th 2006 9:35AM by Vince Chan
Filed under: Rumors, Industry, Microsoft (MSFT)

After relentlessly suffering losses in order to capture market share, the Xbox 360 is now undoubtebly a major player in the gaming console industry. Xbox 360 took the lead in the next-gen console wars by being first to market, but this December's holiday season will be an interesting checkpoint for the Xbox. That's right, only 118 shopping days left till Christmas!

Our sister blog, Engadget reported on speculations of a supply shortage for the Playstation 3 launch. I sure feel bad for Sony for having to battle bad news coming one after another since its laptop batteries recall. Microsoft has taken advantage by steadily pushing out more Xbox 360 accessories to solidify interest in their gaming console.

Nintendo's WII launch will be the far more interesting story as it has already confirmed its strategy to under-cut both competitors with a retail price tag under $250. The industry is also buzzing with the possibility of a $170 price tag.

Evidence of the pricing squeeze has already surfaced. Microsoft has not admitted any influence over the recent decision for U.K. retailers to drop the console price from £209 to £199. But rumors of an autumn price cut from $399 USD to $299 USD are already highly anticipated by U.S. consumers. It is believed that Microsoft had been successful negotiating large cost reductions with its suppliers.

Historically, the console wars have been won by the presence and popularity of exclusive headlining games. Halo and Halo 2 made the original XBox the hit that it is today. Thus far, consumers have yet had a compelling reason to buy the XBox 360. This holiday season, those consumers will speak volumes with their wallets and spending. The plot thickens when you factor in that many economists believe we are going through an economic slow-down. You can be sure that investors will be taking notice of whether the XBox 360 can thrive while being stuck in the middle of a three-legged race.

[Disclosure: I own MSFT shares as of 8-26-06]

Tags: Sony, Xbox

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Reader Comments (Page 1 of 1)

8-28-2006 @ 9:37PM

Jason Coleman said...

I'm excited about the Wii. I really think it has the potential to become a ubiquitous part of the entertainment center. With a low price point and games focused on the non-hardcore audience (while still having enough power to run popular hard core games), there are many reasons for just about everyone to pick one of these up when it is released.

I'm still clueless about whether Sony is going to surprise us all and blow us away with the PS3 or if it will fail to deliver. I don't have much to say on Sony's offering.

I think Microsoft does have a chance to keep its edge in this generation though. I'm guessing a lot of games are going to be released for the 360 this holiday season. Microsoft has downloadable games through Xbox live; there is talk of the system moving into the hardcore table top gaming game arena; new software development kits have been released for independent developers to make games on the system. All of these efforts combined could help Microsoft build the kind of game library that will keep the system appealing.

Another wildcard for Microsoft is if 360-Vista interoperability will be marketed better than the existing Windows media edition interoperability with the new Xbox. Some recent comments from Ray Ozzie (of the effect of "The computer is not part of the living room.") may indicate Vista won't play a role in Xbox sales.

The low price point of the Nintendo Gamecube got people scared when it was released. But what ended up happening was that a large majority of Gamecube owners also owned another gaming system. This may happen this time around also... especially with proprietary games on each system.

The real winners in the video game industry are the software makers (EA, Taketwo) and retail outlets (Best Buy, GameStop). They provide products for all 3 systems and are kind of hedged against one system becoming too popular. I'm definitely looking for good entry points on all of these stocks.

8-29-2006 @ 12:18PM

Joe said...

Is Microsoft slowly and pragmaically becoming a potential major conglomerate company? Yes, they made there name on software, after all they are a software company. As GE was an electric light bulb company in there first twenty years. In addition to Widows, Vista and all of the other software products including MSN,Microsoft now has taken a big part of Sony's business (X Box) and is developing a more sophisticated piece of Apples business (A more sophisticted IPOD)this seems to be a familiar path MSFT and other major corporations have taken in the past with much success. I don't believe MSFT gets the credit it deserves from all the so called experts,as a company that is reinventing itself by building potential mult-billion dollar divisions, or maybe they due?witness the recent tender offer,which indicated share holders see the long term value in this company. I believe MSFT's best days are ahead of it as a Large CAP revenue generating, Dividend paying Conglomerate.