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Report: Microsoft to undercut competition with surprise $99 Xbox 360 bundle
Report: Microsoft to undercut competition with surprise $99 Xbox 360 bundle
May 2, 2012 | By Frank Cifaldi, Eric Caoili

May 2, 2012 | By Frank Cifaldi, Eric Caoili
Comments
    59 comments
More: Console/PC, Business/Marketing



Microsoft will reportedly debut a new Xbox 360 and Kinect bundle with an initial cost of $99 -- and a subsequent $15 monthly fee for a two-year subscription -- next week.

Such a price point would put the Xbox 360 well below those of contemporary game consoles. At $99, the Xbox 360 would be priced the same as media-centric devices such as Apple TV and Roku. In terms of traditional game consoles, it would cost the same as the twelve-year-old PlayStation 2.

This sales model is unconventional for a video game console, and borrows heavily from standards set by mobile devices, which are sold below manufacturing cost and offset by mandatory contract subscriptions.

Microsoft's new bundle is said to include a 4GB Xbox 360 system along with the motion-sensing Kinect peripheral. The subsidized $15 a month subscription service would include the traditional Xbox Live Gold membership perks, and could possibly also include access to streaming content from cable or sports package providers, according to a report from The Verge.

Microsoft has not as of yet officially confirmed the existence of this bundle, though the above falls in line with information that Gamasutra has learned from its own sources.

As with mobile phone and carrier contracts, it's said that consumers will be charged an early termination fee if they decide to break the contract before their two-year subscription ends.

A backseat approach to games?

With this move, Microsoft appears to be positioning the Xbox 360 as an entertainment-focused media box along the lines of Apple TV and Roku.

This should come as no surprise: Gamasutra recently reported that Xbox 360 consumers are now spending the majority of their online time watching video and listening to streaming music, as opposed to playing online games.

At this year's Consumer Electronics Show in Las Vegas, Microsoft CEO Steve Ballmer acknowledged that while the Xbox 360 is "still [about] games" currently, it is morphing into more of an entertainment hub, due in large part to the accessibility of its Kinect accessory.

Microsoft's lineup of streaming video partners has been growing rapidly, and it has been working with these partners to address technological concerns such as bandwidth caps. In fact, cable provider Comcast recently acknowledged that content streamed through its upcoming on-demand video app for the console would not be counted toward its customers' 250GB a month bandwidth cap.


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Comments


Robert Boyd
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This could be mega-huge. Imagine if Microsoft sold the Xbox 720 for $50 with a $30/month for 2 year subscription fee. Sales would explode despite the fact that Microsoft would essentially be selling a $600+ console. And not only that - they'd be getting customers into the online ecosystem from day one which means the possibility of even more revenue from them.

k s
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You have a point Robert.

Alan Rimkeit
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It is a great point, one Sony or Nintendo could do as well. It could essentially change the console market forever as I don't think this has been done before that I can recall.

Luke Quinn
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Bring it on - More base users = cheaper games = more users = more games =D

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Patrick Davis
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Phone contracts are already bad enough. I would never buy into this.

Alex Leighton
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So it's $459, whether you use your Gold or not. I guess you'll never go broke if you prey on the stupid.

Eric McQuiggan
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This is how phones are sold. Why can't video-game systems be sold similarly?

William Johnson
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@Eric McQuiggan
To be fair, people do hate cell phone companies.

Bob Allen
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And Apple, AT&T, Verizon made billions selling iPhones + two year contracts whether people used all of their data plan or not. You can buy your phones unlocked and go month-to-month or prepaid if you're smart. The same with the Xbox.

Joe Wreschnig
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@William,

People hate cellphone carriers. A lot of people will religiously defend their cellphone manufacturer.

Patrick Davis
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@Bob

Hardly anyone uses month-to-month or prepaid data plans like that since they screw you over even more than the contracts do. Unless you are hardcore about watching exactly how much data you use, you won't fit into a plan like that. Which is exactly what cellphone companies want.

Joe Zachery
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Still if you want to totally take over the North American market from Sony. This is a way to do it, and it just might work.

Rodolfo Rosini
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"Microsoft to undercut competition with surprise $459 Xbox 360 bundle"

Frank Cifaldi
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This exact bundle right now plus two years of a Gold subscription would be $420, which is not far from that. Plus this new subscription model would likely include more services than Gold currently offers.

Kyle Redd
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@Frank

Which sounds great, until you consider the fact that the entire "Gold" subscription plan is a giant ripoff in the first place, offering a whole bunch of paid content that is completely free everywhere else.

Michael DeFazio
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@Kyle, speak for yourself, my XBL gold membership is a fantastic deal (And I own a PS3 in case you are wondering). Yeah you can get "some" of those services elsewhere for cheap, but I one one device that does it all in an intuitive bundle, for pennies a day. (And I don't even play games online)

William Johnson
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Hm...current Xbox Live is $5 a month if you buy at $60 a year. So that's $120 for 2 years. Plus the current Kinect bundle or $300, that's $420 altogether.

At $15 a month for 2 years, that's $360. Plus $100 for this new bundle, that's $460.

That's messed up. You have to pay $40 more for this bundle. That is not a good deal for consumers. So I can easily believe this, because Microsoft would abuse their consumers like that. I hope this fails spectacularly.

Rick Kolesar
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Yeah, I don't get the $15 a month part... unless Microsoft is going to launch something else with this. Maybe the rumored update Zune music service or maybe include Netflix/Hulu/HBO Go free? Maybe the $15 is something above Gold membership?

William Johnson
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Hm...well, if they do pack in more stuff. I could see it being an advantage then. But from what information we know now, it just sounds like a raw deal to me.

Frank Cifaldi
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Rick, what's not to get? Companies have been charging more long-term money in exchange for cheaper immediate satisfaction since before any of us were born. Ever heard of layaway? Rent-to-own? Cell phones?

Rick Kolesar
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Sorry, didn't mean "I don't get" but "I hope". I understand what they are doing and it makes a lot of sense. I remember the Sony doing this with the PS2 and signing up for 2 years of internet service back in the day (that's how my younger brother-in-law could afford a PS2).

Eric Ruck
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That's a great deal, at least for consumers who would use credit anyway. $40 to finance $320 for two years is a bargain, in credit card terms.

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Michael Rooney
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I'm also surprised that it's only $40 more expensive despite the cost being spread out. Most financing plans ream you hard. Interesting play. I'd heard they were going to target the cable cutting hardware market more aggressively. It'll definitely shake things up if it comes to pass.

Jeffrey Crenshaw
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This is what companies do; rely on consumers to be too lazy or bad at math to know they are getting ripped off. Like how the "free" market price of so many consumer goods just happen to fall at something like $99 (or $299 or $4.99) instead of a more even random distribution of final digits.

Luke Quinn
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What is wrong with people? Getting ripped off? What?
I'm not rich, so the ability to pay $100 for a machine as long as I spend $3.75 a week for the next 2 years is a great option for me; If I can afford to buy it outright, I save $40, but if I can't I am still able to very easily afford this plan.
I paid for my modem the exact same way, which meant that I was able to connect to the internet the week that I moved house instead of having to save to be able to afford the modem's retail price + the installion fees.
If you don't like it, then buy it outright, but this is a brilliant move by Microsoft that will make a whole bunch of poorer children's Xmas slightly less shit this year.

Daniel Gooding
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This is taking a cue from phones and praying on impulse buyers who don't save up for things, but instead live paycheck to paycheck never saving their money.

I have a friend who lives like that. He'll take care of his monthly payments for whatever he owes, then he'll go blast whatever money he has till it's gone. thus he never saves up enough to really buy larger purchases.

Usually he ends up having no money for food 3-4 days before his next paycheck, and just lives off of white rice, and Steel reserves.

Joe McIntosh
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Seems more like a cue from a car sales than phones.
They're trying to sell you on low payments, not overall cost.

Evan Combs
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People wonder why our economy is struggling right now. A economy based on debt will never survive for very long, and often if not always leads to a depression.

Rick Kolesar
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This is also a big push to get people's credit card's set to auto-renew on Gold membership so when the next system comes out, they have more of a reason to stay w/ Microsoft.

Ryan Marshall
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If there's one thing I can't stand, it's selling something at a different price based on what else you buy with it. (Yes, I am staunchly opposed to pretty much any example you can name, and do my best to avoid such so-called "deals".)

I may have once considered purchasing one of these X-Box thingies, but this sort of deception has killed any goodwill I had toward Microsoft's console division.

Joe Morton
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How is it 'deception' when the terms and costs are all clearly spelled out for the user?

Danny Laudick
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They're not necessarily taking advantage of consumers like you might think. The offer that they're giving is the benefit of being able to buy-in to console entertainment at a lower cost than you could before. There are a lot of people who would likely love to have an entertainment console, but the upfront costs of $300 or more for the hardware is hard for many people to pay for at one time. Microsoft is basically allowing people to buy the console and kinect at a cheaper price as long as they agree to stay with the service over the longer period of time.

It's pretty much as if Microsoft is giving a loan to the people who can't afford the upfront hardware costs and letting them pay it off over time. Now, the question of whether people should be buying things they can't afford upfront and thus living paycheck to paycheck is another issue, lol, but that's an individual's responsibility. If you factor inflation into the price over the two year contract period (which right now is about 3% annually), Microsoft isn't charging consumers much more than what you would pay up front for everything. It is still a little bit more expensive, but considerably less than what most banks would charge you for a loan!

In short, it's a pretty good deal for most people, especially if the new membership throws in even more than what xbox gold offers right now. Microsoft did a good job in finding a way to make consoles more accessible to more people, which can also help to widen the customer base in the long run for the console overall (which should mean more goodies for everyone in the long run!)

Benjamin Quintero
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They were listening to me! (I'll take the credit though the connection is highly unlikely)

http://www.gamasutra.com/blogs/BenjaminQuintero/20110829/90103/Wh
at_Can_Microsoft_Learn_from_the_Mobile_Market.php

Paul Perry
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In the end, for game developers, specifically XBOX 360 developers, this seems like genius. If more people own the console, there is at least the possibility that there will be many more people who will be able to buy games!

What's next? Buying AAA games over three month time-frame? Instead of a one time $60 payment, it will be three $25 dollar payments?

Robert Boyd
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In an extreme case, I could even see Microsoft selling consoles through an installment plan at a loss. It's often worth the immediate sacrifice if it means you can quickly build up an install base of customers who own your system and will then proceed to buy games, accessories, and online content. Plus, the faster you build up an install base, the easier it is to convince developers and publishers that they should make games for your system.

William Collins
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Robert, you are a voice of reason in a tide of impulse skepticism. In my opinion, this is likely a test run or "beta" for the 720/Durango business model. People already pay monthly fees for Live access so MS has the base. Pursuing this business model may allow MS (and Sony) to release an incredibly powerful and/or innovative console that will hopefully take a leap far out enough to keep the ever more powerful tablets/phones in the dust for awhile. :::sigh::: I proposed this business model a few times over the past 9 months (approximately), but not on Gama :::there there, ego. there there lol:::

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JP Clifton
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I doubt they would do this with their next xbox. How could they handle selling a system at such a huge loss for 2+ years, no investor would be happy about that.

Nicholas Muise
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There are retail implications for this are there not? How is the initial sale conducted and the contract processed? What sort of a cut will retail have, or are they expected to absorb the cost of selling contracts in store?

Benjamin Quintero
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Nicholas, it would likely be a new SKU where the firmware on that Xbox is designed to take you through the steps to signing up an Xbox LIVE account and activating your Xbox much like you would activate your phone in the store. Typically all of these steps that phone stores do for you can be done online and by calling automated phone services. They just do it as a free service to you when you purchase the phone.

Likely retail will get their standard 30-40% from the $100 sale and that's it. The subscription plan is all profit for M$.

Nicholas Muise
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Ahh interesting. I was wondering if it would be an "on-board" type activation. Thanks Benjamin!

Frank Cifaldi
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Benjamin, I'm pretty sure 30-40% retail cut on hardware sales is WAY higher than reality. I want to say it's less than 10%.

William Collins
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While that does sound high, Frank, the percentage would definitely have to substantial so as to provide a nice incentive for retailers to promote/push the hardware.

Eric Geer
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I may have taken up this offer if it wasn't the shitty 4GB model...

Bob Johnson
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It's a deal for the stupid. Maybe it will be successful.

William Johnson
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If its successful prepare for the next Xbox to use this pricing structure by default.

E McNeill
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"The subsidized $15 a month subscription service... could possibly also include access to streaming content from cable or sports package providers"

That's the important part, I think. Xbox Live Gold isn't going to be a big seller to the crowd that's focused on games, but I could imagine this being huge if they can include other popular services.

Jacob Pederson
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Gold is barely worth $5 a month . . . at 15$ its a cell-phone style gouge. Don't own a cell-phone, and wouldn't own this :)

Johnathon Swift
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Subscription to what?

Not that I don't think the whole monthly payment system isn't genius. People are proven time and again idiotic enough to overpay massively when such schemes are present. But you still need a subscription "to something" to get them to do it.

Actually, I see a possibility in the 720. Say it has an LTE modem. Say then it's "subsidized" for $100-200 on a two year contract for Verizon LTE. Say then Microsoft and Verizon high five each other all the way to their own Caribbean island chains for company vacations.

Craig Page
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If they could also offer HBO, they would conquer the world with their bundle.

DanielThomas MacInnes
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What is going on here? Am I the only person who thinks this is a damned ripoff? A $99 videogames console that is really over $400, even though the system will be retired next year for the Xbox III?

Just wait until next year, when your Xbox3/PS4 will be tied to an online account (and multi-year contracts), and used/borrowed games won't run, and downloads can be altered or taken away from you without notice (thank you, EA). Let's also toss in third-party online services that are required before you can play your $60+ game, which will lock away more and more content behind DLC gates. Oy vey, this is going to be fun.

Michael Rooney
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How is it a ripoff? If you buy it outright you only save $40. Over 2 years, you'd probably save money over taking out a $400 loan and paying off the interest over the same period.

The only way I could conceive of it being a rip off is if you've never used a credit card/loan/layaway/payment plan.

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Geoff Yates
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For people who want the simplicity of a 2 year plan I'm expecting its a great idea. People do it all the time with celluar companies. So to do anything actually decent you going to need the hard drive. To add the hard drive still costs a bomb which is "gouging".Increasingly though we see more and more folks becoming burdened with dozens of monthly payments which become overwhelming. Unfortunately there is still not enough education and corporate responsibility to stop it.

Stuart Brown
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2 years is a long time to be tied to a videogame system about to be replaced. When the next X Box comes out, they will have to offer something extra to encourage current owners to upgrade - will this be available to people on this contract?

Though it is not in this article, the offer is available through Microsoft stores, not general retailers. That, more than anything else, will blunt the success of this.

Harlan Sumgui
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meh. poor people will get this. poor people don't buy a lot of new games.

Patrick Davis
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This is another one of those things that is great for casual gamers and definitely good for business. But, what about people who just want to game? We are clearly starting to be forgotten. Live already charges you more because of the extra crap they have for the people not gaming. But, I don't have a choice to not pay for it if I want to play online.

This is starting to look like cable television. The one channel you really want to watch is embedded in a bundle of crap channels you don't care about. But, if you want it, you have to buy the bundle of crap.

I have never bought any of my game consoles based on the extra "stuff" it can do. I buy them because they are required to play the games I want to play, and this is still what I use them for 95% of the time. I love playing online games, but that is all I do with it. I shouldn't have to pay a premium price because some guy wants to watch ESPN on his game console.

If this is the way the next wave of consoles is going to be, I can only hope the Wii U delivers since Nintendo seems to be against charging for online services. You can guarantee the PS4 will be similar to live and also not have free online, and I'm not going to get sucked into Microsofts crap.


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