Microsoft officially announced a bundle to get their Xbox 360 console to the sweet spot of $99 while pushing their Kinect sensor at the same time. Before you run out to the store to add a second or third console to your house though, you know there has to be a catch.
The catch mimics the cell phone market where carriers subsidize the cost of your cellphone in exchange for you agreeing to pay them a monthly fee for two years. This is exactly the same type of contract you'll need to sign to pickup this new Xbox 360 w Kinect bundle, you'll have to pay Microsoft $14.99 a month for two years.
The sweet spot
According to a Microsoft CES 2012 press release, Xbox 360's install base is at 66 million, 18 million Kinects and 40 million Xbox Live subscribers. At this point Microsoft must be asking themselves how they get their system into the hands of the hold outs. Also with a new console on the horizon, Microsoft might be trying to increase their market share as much as possible in hopes of retaining those customers when the new system launches. The secret to expanding their user base may lie in that magical sub $100 price point that traditionally is the sweet spot for consumer electronics sales.
Usually around the five year mark of a consoles history you expect to see price drops, but identifying true price drops this generation has been a bit of a challenge. The console launched at $399 and $299 and since then they've added a $199 price point and the bundles just move around within those price ranges. The $99 price point matters a lot for moving units in bulk, no matter what the consumer electronic item is. As we saw over the holidays, many retailers discounted the Xbox 360 and Kinect, Target had just the console for $140, Walmart had the console with Kinect for $199, many places had the Kinect alone for $99. As a result, Microsoft moved more consoles and Kinects over Black Friday weekend than they have ever sold in that short amount of time.
Faux or fo' real?
Is the $99 price point really a price drop though or is it another faux price drop like the other ones we've seen over the course of the Xbox 360's live cycle? Here's a simple analysis of the total cost over two years between buying it outright and doing buying this bundle with a service contract:
-Xbox 360 4Gb bundle with Kinect : $299 / $99
-2 years of Xbox Live Gold : $120 / $359.76
-2 year warranty : $50 / included
-Total $469 to buy it outright vs $459 to do the bundle with the service contract.
Ignoring the fact that around the holidays you can buy Xbox Live Gold 12 month subscription cards for between $35-$40, the prices work out to be pretty close over a two year period. Your entry cost is significantly lower though, $99 vs $469. This may make it a very attractive offer to the hold outs and lower income house holds.
Looking over the service agreement there's something else that cellphone subscribers will be very familiar with, early termination fees. Microsoft will let you return the entire bundle within 30 days for a full refund and contract termination. However once you're pass the 30 day mark there is a prorated early termination fee that ranges from $250 all the way down to $12 over the two year contract term. I wonder what happens though if someone is on this two year contract and get their account banned from Xbox Live, would that be considered an early termination?
Parting thoughts
For me, I think I'd rather have a bundle that included streaming service subscriptions rather than Kinect. Since Microsoft is making a big push into streaming this year, I think it would have made more sense to offer the 4GB Xbox 360 with Xbox Live, Netflix, Hulu+, maybe EPIX or subscriptions to some of their other streaming partners. It would be more convenient for the consumer to be able to subscribe to some of these streaming providers thru Live and just pay Microsoft and let Microsoft divvy up the payments to their partners. Paying a monthly fee for video content is also something consumers are very familiar with and it's easy for them to understand. Telling a consumer for $15 a month you get to play games online with friends and strangers and pay more subscription fees to streaming content providers doesn't sound quite as appealing.
This is an interesting new way to sell a console. I'm looking forward to seeing the sales numbers over the next few months to see if consumers are taking advantage of the lower entry price. Another thought is perhaps this is a trial for next-gen console pricing, maybe we'll be able to pickup the Xbox 720 for $199 with a 2 year service agreement if this works out.
For those interested in reading the service contract, here is the link to Xbox support:
http://www.xbox.com/en-US/Legal/xbox-live-contract-terms
Where to buy: http://content.microsoftstore.com/store/xblive2yr-offer/
About the Author
TANK aka TANK 2old2play on Live hails from the west coast, splitting his time between the mountains of Eastern Washington and Northern California. He has been a staple here on 2old2play since July 2005 and over those years has contributed heavily in the forums with 20,000+ posts, maintained a top 10 blog, written for the former 2old2play eMagazine and has contributed news articles for the front page. He is a dedicated Xbox 360 gamer, Achievement Whore and an all around technophile.
