Should Microsoft Ship a Discless Xbox One?

(Source: Xbox.com)

In the history of the console gaming industry, very rarely has the most expensive system emerged as the market leader. For this reason, many have speculated that Microsoft (NASDAQ: MSFT  ) will need to slash the Xbox One's $500 MSRP in order to compete with the $400 PlayStation 4 from Sony (NYSE: SNE  ) . Capturing the interests of hardcore gamers is important around the launch of a platform, but the real winners are usually crowned by manner of mass-market appeal. Price has historically been a big factor in this.

With motion gaming not being the firestarter that it was in the last console cycle and Xbox One's Kinect camera adding a substantial amount to overall build cost, most speculation suggested that Microsoft would introduce a Kinect-less version of its latest console. Recently circulating rumors imply that the company might take a different approach to lowering cost, however. Supposed leaks from the company indicate that Microsoft might introduce a cheaper Xbox One that ships without an optical drive. Is this the route that Microsoft will take to ensure that its console stays competitive with Sony's?

How soon is now?
In the midst of all the controversy that was kicked up by the original product vision for the Xbox One, Microsoft is said to have toyed with the idea of going all digital. Such a move would have likely been disastrous as retailers were already showing a preference for the PlayStation 4. The proposed plans to ship the Xbox One with connectivity requirements that tied software to the system account and restrict access to used games was already generating push back from GameStop (NYSE: GME  ) . Reacting to concerns from retail partners with a move that would cut them out of software sales would have been a bold and arrogant move on Microsoft's part. If Microsoft does plan to introduce a discless Xbox One, the conditions for doing so are becoming more agreeable.

(Source: Sony.com)

Sony's PlayStation Now service has been billed by many as an attack on GameStop and traditional retail channels. The upcoming service will allow consumers to rent games a la carte or to pay a subscription fee and have access to the entire available library. For Sony and Microsoft, achieving growth with this generation of console hardware will largely be about building online ecosystems and directing consumers to their respective online stores. Now that Sony is making its first big generational push to encourage digital adoption, Microsoft likely has a little more breathing room to implement its desired strategies.

Is it worth sticking with Kinect?
When Corporate VP Phil Harrison stated unequivocally that "Xbox One is Kinect," and that one would never ship without the other, there was good reason to be skeptical. Microsoft had already changed course significantly with regards to its plans for the new console and had recently done away with the requirement that the camera be plugged in order for the console to function. It's easy for Microsoft to say that it will stick with a given strategy, but if such a strategy is not returning the right market results then concerns about the validity of past PR statements become tertiary at best.

Microsoft revisits Sony's PlayStation 3 problems
With the PlayStation 4 establishing an early sales lead across North America and Europe and almost certain to be the generational leader in Japan, it's common sense that Microsoft needs to shave Xbox One's price. In many respects, the situation looks similar to what Sony encountered with its PlayStation 3 console in the last cycle. That system launched with its deluxe SKU at $600 and frequently received inferior versions of third-party titles throughout its lifecycle. Sony stripped backwards compatibility and other features from the console and also incurred substantial losses in order to get it to a market-friendly price and head off the mind and market share gains that Microsoft was making with the Xbox 360. Microsoft faces similar problems this time around.

(Source: Xbox.com)

If it's one or the other...
Whether Microsoft would be better off with a console that drops camera technology or ditches an optical drive is now the pertinent question. If the company decides to go discless, it will be realigning its broader console platform with the initial vision that generated so much push back. It's unlikely that consumers would be as vocally displeased in such a situation, but GameStop and other retailers would view the device with suspect eyes as these companies rely on software sales. The consolation prize of selling download cards to consumers who don't want to use a credit card online is a laughable one. Digital distribution is certainly the future, but Microsoft needs to be careful to not be overeager in pursuing it. 

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Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 07, 2014, at 10:39 PM, Computerworgen wrote:

    Considering that most people do not have 50MB+ internet service in their homes, or don't want to spend Hours downloading Games that be be as large as 8 Gigabytes in size with a slow connection, nobody with a working brain will buy a Discless Xbone system. They need to get rid of that Kinect, not the Optical Drive. Also, Optical Drives are way cheaper to make than the Kinect is. Removing the Optical drive will not result in a $100 price drop. But then again, Microsoft wants people to buy games from their Cloud Servers, & not be able to loan them out to anyone like there unpopular methods they wanted to employ at launch that got them tons of negative feedback. I guess a Discless System would be a way to pucs Fools towards that goal.

  • Report this Comment On February 07, 2014, at 11:36 PM, tjc206 wrote:

    Yes.

  • Report this Comment On February 08, 2014, at 12:22 AM, Dragonslayer wrote:

    No they shouldn't

    Digital only distribution for console games is still a good ten or fifteen years from being anywhere near feasible.

    They should take the whole Kinect 2.0 product and throw it in Puget Sound because its a worthless piece of garbage.

  • Report this Comment On February 08, 2014, at 9:25 AM, cvxxx wrote:

    Here we go again. Microsoft is wasting itself in consumer unfriendly ways. I buy consoles for one purpose: to play games. I do not want to connect to the internet with an Xbox esp with kinect. It's just waiting to be hacked or invade my privacy. I like to purchase the games so if need be I can take it with me on vacation.

    I play single person and have no interest in playing with a bunch of annoying people.

  • Report this Comment On February 08, 2014, at 10:36 AM, paintrain1 wrote:

    I would buy one, but it's definitely not for everyone. Entirely depends on your bandwidth connection. There are plenty of folks in rural America who could never go this route simply because of the lack of cable/dsl internet access

  • Report this Comment On February 09, 2014, at 11:01 AM, techy46 wrote:

    No, it's not worth the effort!

  • Report this Comment On February 10, 2014, at 9:52 AM, eQil1 wrote:

    No, look how everbody freaked out when they first announced X-box1. A discless one would be the same thing & the gaming world is not ready for it yet.

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