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Analysts say Microsoft's low-priced subscription offer for Xbox 360 could be a Trojan Horse for its Xbox 720 strategy.
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?
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.
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."
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."
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?
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.
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."
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."
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