Is Microsoft Making a $499 Mistake?

We now have a price and a release month for Microsoft's (NASDAQ: MSFT  ) Xbox One.

On the eve of E3, the software giant let gamers know that the next-generation console will be available come November at a $499 price point.

We knew that it wasn't going to be cheap given the impressive specs that Microsoft unveiled last month, but since Sony (NYSE: SNE  ) followed up last night by pricing its upcoming PS4 at just $399 it's going to create some unwelcome comparisons.

Sure, there's more to a console than pricing.

Nintendo (NASDAQOTH: NTDOY  ) thought it would get a jump on the competition by rolling out the Wii U starting at just $299 this past holiday season.

It flopped. Nintendo had to scale back its initial unit sales projections, and the future for Nintendo's ambitious dual-screen system doesn't seem so bright as E3 aims to get die-hard gamers excited about upcoming games and gear.

There's nothing worse than a slow start when years separate console generations, and now Nintendo's paying the price. Electronic Arts (NASDAQ: EA  ) wowed the gaming community by announcing 11 upcoming games last night. They'll be made for the Xbox One. They'll be made for the PS4. There were no announced titles for the Wii U.

The flop this past November has left Nintendo at the mercy of its in-house games, which thankfully is the Japanese gaming pioneer's strong suit. What happens if the Xbox One is a flop this November? How long will EA keep putting out Xbox One games if no one buys into the system?

Failure doesn't seem feasible, especially since the Xbox 360 has been this country's best selling system. However, the PS2 was the hot console until Sony's PS3 hit the market for $100 more than the Xbox 360 and a lot more than the original Wii. Could Microsoft price itself out of market leadership?

There is already some degree of backlash for Microsoft's connectivity requirement to register new games. Gamers who like to trade in their old games for credit on new purchases also aren't happy that Microsoft will leave it up to individual publishers if they want to block the resale of their titles.

The Xbox One also won't organically play Xbox 360 discs, but the same backward compatibility issue is hitting Sony.

Despite all of the Xbox One buzz, sticker shock at the iPad-like price and the platform's restrictive ways may hold it back. It isn't easy for young gamers to save up $500 for a system, especially at a time when the country's youth is opting for smartphone wireless plans in lieu of car payments and other big- ticket items.

After more than three years of declining sales, the video game industry can't afford to miss this holiday shopping season. Microsoft is taking a gutsy move in hitting the market as the most expensive console -- and perhaps substantially more expensive if Nintendo desperately moves to slash prices later this year -- and it may not have enough time to get it right if it fails to catch on this year.

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Read/Post Comments (13) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On June 11, 2013, at 8:49 PM, normgarry wrote:

    $499???

    I haven't seen a pricetag that high since NEO GEO.

    Show me the games first.

  • Report this Comment On June 11, 2013, at 8:56 PM, Deeskool wrote:

    I wouldn't mind paying the $500.00 but not for a system I can't play used games without paying a fee!! Ps4 here I come!!

  • Report this Comment On June 11, 2013, at 9:05 PM, thedefect wrote:

    I'm no expert, but I don't remember the last time a console priced that high didn't do poorly. Sega Saturn, PS3 (before price drop), 3DO, etc. Microsoft is making too many missteps here, and it's just opening the door for Sony to step back into the lead. It's a shame, I love the 360, but at present I can't justify the Xbox One purchase at the price and with the used games restrictions.

  • Report this Comment On June 11, 2013, at 9:06 PM, MWoT wrote:

    BAD GRAMMAR

    whoever is the author of this article should go back to school and study English.

  • Report this Comment On June 11, 2013, at 9:07 PM, dssdbs wrote:

    The XBox One comes with Kinect. PS4 does not come with their equivalent device. Add the cost of that device to the PS4 price and you get really close to the same price point. So, there really isn't that much difference in price.

  • Report this Comment On June 11, 2013, at 9:19 PM, Long1952 wrote:

    There's NO a surprise with MS misstep's.

    Ole big M sacrificed it's PC Desktop users for Teen Social media touch tablet GUI (METRO.)

    They rep out the Start menu, went back in time to 1990's "Win 3.11" using pale window colored borders scheme and its old "File manager."

    In the Process - deliberately holding off (or killing Windows 7 much needed SP2.

    Oh yeah, personal Customization? - YEAH RIGHT!!

  • Report this Comment On June 11, 2013, at 9:25 PM, ShooterMcGavin7 wrote:

    Consider that one will be able to buy a PS4 + either an Apple TV or a Roku box for the price of an Xbox.

    Oops.

  • Report this Comment On June 11, 2013, at 9:30 PM, Wingeddamnation wrote:

    $459 for the PS4 plus the Eye. $499 Xbox One. Kinect needs to be connected in order to play; Eye doesn't need to be. Winning.

  • Report this Comment On June 11, 2013, at 9:31 PM, Truth365 wrote:

    sorry but the xbox will be the biggest bust ever in the gameing world. Not many are going to pay a fee to play the games and have to have a full time internet connection and now a $499 price tag to boot.. I see the the PS4 flying out of stores while the xbox collects dust . they would have to almost cut the price in half to even get people to buy it .. Sorry i will follow many more if i buy a new system it will be a sony PS4. sony needs to send microsoft a thank you card for this one.

  • Report this Comment On June 11, 2013, at 9:40 PM, flimflam100 wrote:

    its hard to believe that a billion dollar company could make such a huge mistake. overpriced and internet necessary? Its just stupid. They are overpaying several ivy league educated executives.You have misread the landscape microsoft.

  • Report this Comment On June 11, 2013, at 9:53 PM, locsphere wrote:

    I would be willing to pay the 499 to be honest, however. I am switching to the PS4

    Microsoft just isn't listening and they really should be. Everytime we see a company that ignores the consumer and forces them to pay through the nose. The company loses big time.

    Look at EA, the most entitled game producing company out there. They complain about the ever increasing cost of making games, but then they cut corners for a game that could have been good to save money. Then the game SUCKS and the spend countless amounts more for marketing and PR.

    JUST DO WHAT THE CONSUMER IS ASKING OF YOU. Its so stupid, you're not at war with the consumer here. They are telling you what they are looking for in a product. When you don't deliver they are going to tell you. Why is giving the consumer what they want considered bad? Its the best thing you can do as a company. Seriously, don't do what you did with Windows 8. if you do you're going to fail and if I was Bill gates, I would come out of retirement to fire all of you.

    If anything Microsoft you should be listening to your harshest critics and changing the policies for the better.

    So DRM? That needs to go away, it will never work with the console and to impliment it will kill your console. If everyone does it, then they kill gaming. Literally that simple.

    Check in: This is really unnecessary.

    Kinect: The NSA thing has everyone on edge. Despite saying you don't spy. It doesn't explain the terms of service saying you can pretty much say what your not doing and thats look through my kinect. Into my home. Where you are not welcome. I want the kinect because it allows for hands free. Not to monitor me via video.

    I want the option to use this thing. If I want to plug it in and use the features. Then I will plug it in and use it. But I will not be forced to do it.

    Another thing, Data collection... I know that in todays tech world everything leaves a finger print. But it doesn't mean you have to constantly dust for them.

    My data goes through a wire. No one can see it, and you have simply tapped this wire and are looking at my usage. Its a violation of my privacy. And this data collection thing was cute for the marketing purposes. But its clearly gone too far and is being abused. My data? You have it? Guarantee its destroyed. I want the option to have you destroy it. Its none of your dam business.

  • Report this Comment On June 12, 2013, at 9:15 AM, onebluephish wrote:

    MS is going to lose big time unless they back pedal on several issues: DRM, used games, Kinect and pricing.

    1) People vote with their dollars-and most people will not shell out $500 for a gaming console during the holiday season. The most companies can get away with on the market in general is the $250-350 range. Sony learned the hard way 7~ years ago with the PS3.

    2) DRM: with requiring people have an internet connection is ludicrous and unrealistic. That means potentially shunning customers in foreign markets that do not have access or afford it let alone people here in the US. What about people in the military or in remote parts of our own country? Then to make it worse, the executive from MS stating yesterday arrogantly they have an answer for those people-the XBox 360. Clearly someone has overdosed on the company kool-aid.

    3) The used/borrowed games policy is also unrealistic. People like to share-it is also free advertising and endorsement. It is also a large reason why people end up buying the game themselves. To be greedy by forcing the market to pony up cash so they get 100% of the proceeds is wrong and not customer friendly. You don't see Lazy Boy harping on home owners for not getting any piece of the resale on furniture they hock at garage sales and on Craigslist do you? Then why would you expect that for video games? Secondly, it is bad for the economy as the used game market has created thousands of jobs-and even better, more advertisement for MS!

    4) Lastly, Kinect and privacy has a lot of people enraged. I bet someone from Anonymous is feverishly rubbing their hands on the opportunity to take a crack at proving MS wrong-and I bet one of the first people to get hacked will file a massive lawsuit against MS. It boggles my mind this even cleared legal. Secondly, it forces peripherals on consumers and drives up the cost of the unit. Not many people invested in Connect and forcing it down their throat won't entice them either. It was poorly supported by software and developers have largely ignored it. Either it has market interest or it doesn't and making consumers pay for it makes no business sense at all.

  • Report this Comment On June 15, 2013, at 9:34 AM, madav1138 wrote:

    Used games are simple to understand.

    I buy the rights to that game. The license is mine, therefore I have the right to sell or give it to whoever I feel like it.

    MSFT wants to double dip on game sales, if they don't redesign the console to allow offline play and pullback on used games policy, which they have time to do, its over.

    Wii U here I come!

    Wii U has been panned as a failure, but my own searching has shown it to be a great console.

    You can use your own external hard drive, controls your tv dvd player, ect, has all the streaming services, downloadable content, a competent web browser, and a raved about online community. I am going to give this system a go, at that price, why not? You aren't breaking the bank and if you don't like it...trade it in, with no restrictions!

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