Microsoft’s $100 Offer Exposes its Fear That Sony Will Win the PS4 vs Xbox One War

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Last week, Microsoft (NASDAQ: MSFT  ) offered U.S. gamers $100 credit toward the purchase of an Xbox One if they "ditched" (traded in) their Sony (NYSE: SNE  ) PS3s. This offer, which lasts until March 2, has raised the eyebrows of investors and gamers alike.

In a previous article using data compiled by GameSpot's GameTrax, I noted that only 10% of surveyed Xbox One buyers previously owned a PS3, compared to 28% of PS4 buyers who previously owned the Xbox 360. Those unbalanced conversion ratios indicated that Sony would gain an edge over Microsoft as the eighth generation console race progressed.

There's one question on everyone's mind: "Is Microsoft really that worried about competition from Sony's PS4?"

Meanwhile, the most recent sales figures from show that Microsoft has sold 3.37 million Xbox Ones, while Sony has sold 4.88 million PS4s. Both consoles, which were launched last November, are closing in on Nintendo's (NASDAQOTH: NTDOY  ) Wii U, which has sold 5.62 million units since November 2012.

There is now a trail of clues indicating that the gap between the Xbox One and the PS4 is widening:

  • On Jan. 31, Sony unveiled sales figures from market research group GfK's Chart-Track service that indicated the PS4 was outselling the Xbox One by 50%.

  • On Feb. 3, the PS4 version of Square Enix's Tomb Raider: Definitive Edition in the UK outsold the Xbox One version 2:1.

  • On Feb. 4, (NASDAQ: AMZN  ) UK's Ketu Patel made an ominous statement that the Xbox One has "a lot of catching up to do," but Electronic Arts' (NASDAQ: EA  ) Titanfall (a PC/Xbox 360/Xbox One exclusive) might help it catch up.

  • There are now persistent rumors that Microsoft plans to drop the price of the Xbox One and possibly remove the Blu-Ray drive. Microsoft has denied these claims.

The logic behind Microsoft's $100 trade-in offer
All of these clues indicate that sales of the Xbox One are slowing more than expected. What could offering a $100 trade-in rebate to PS3 owners accomplish? Let's crunch the numbers.

Source: Microsoft

An Xbox One has an estimated manufacturing cost of $471 and sells for $499. A price cut to $399 would cause a loss of $72 per console, so that wouldn't be employed unless Xbox One sales completely stalled out.

Removing the Kinect ($75) and the headset ($10) could shave $85 off the production cost, which has led to speculation that the Kinect, at least, could be removed in a cheaper version later this year.

A pre-owned PS3 sells for $200 to $230 at GameStop (NYSE: GME  ) . However, GameStop only pays $100 for a 500GB PS3 system. Therefore, all Microsoft is really doing is offering the same trade-in deal as GameStop, but using it as a publicity stunt to desperately boost its conversion rate of PS3 gamers.

Gamers who don't want an Xbox One can simply go to GameStop and trade in their used PS3 systems for $100 in store credit to reduce the price of a new PS4 to $299 instead.

Why Titanfall might not matter
EA's Titanfall, which is scheduled to be released on March 11, is widely expected to boost sales of the Xbox One. The Xbox One and PC versions will arrive first, and the Xbox 360 version will be released on March 25.

It's fairly obvious, based on the fact that Microsoft's "$100 for your PS3" promotion runs to March 2, that Microsoft expects Titanfall to provide the boost it needs to catch up to the PS4. In other words, Microsoft expects Titanfall to be to the Xbox One what Halo: Combat Evolved was to the original Xbox.

Titanfall trailer. (Source: Youtube)

While that's certainly an optimistic view of things, there are five huge problems with that theory:

  • According to GameSpot GameTrax's January 2014 survey of 3,500 gamers, Titanfall ranked 16th in the most anticipated games of the year. Only 67% of gamers were even aware of the title, and of those gamers, only 30% planned to purchase it.

  • EA's profit-maximizing strategy of releasing the game on the PC and Xbox 360 will inevitably dilute sales of the Xbox One version.

  • The cross-generation release of the game also makes Titanfall look like a mere half-step up from seventh generation consoles.

  • Titanfall doesn't have a single-player mode, meaning the player is required to play online at all times.

  • Considering EA's terrible track record with "always online" games like Simcity, server problems could crush the game's reputation the moment it launches.

Moreover, Titanfall doesn't look much different from Crysis, Halo, or most other modern shooters. The only thing that stands out about the game is its acrobatic freedom and seamless swap from ground-based combat to mech-based combat.

It's definitely pretty, but there's nothing so Earth-shattering about the title that makes it a "must buy" title for eighth generation consoles, especially without a dedicated single-player campaign.

I'm not sure why Microsoft believes that Titanfall could be the Xbox One's Halo, especially since Activision's (NASDAQ: ATVI  ) Destiny, from Halo developer Bungie, has a much better chance of claiming that title.

The bottom line
In conclusion, Microsoft's $100 PS3 rebate is just the latest in the company's new strategy of petty pokes against its rivals, and will do very little to boost Xbox One sales.

Encouraging gamers to "ditch" their PS3s isn't much different from its attack ads on Apple's (NASDAQ: AAPL  ) iPads using Siri's narration, or its "Scroogled" campaign against Google -- it's simply desperate, immature, and embarrassing.

Perhaps Microsoft believes that the rebates could hold it over to Titanfall's arrival, but I have serious doubts that it will be the Xbox One's salvation.

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Read/Post Comments (37) | Recommend This Article (13)

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 08, 2014, at 12:10 PM, Heimdallr wrote:

    Meanwhile in the real gaming world... PC gamers are STILL the master race of gaming.


  • Report this Comment On February 08, 2014, at 12:30 PM, NErnst79 wrote:

    Even if it is true that MS is 'worried' about PS4 dominance(and that could be true, to be fair), this is still a completely brilliant promotion. I wouldn't use it personally, but it's still impressive.

  • Report this Comment On February 08, 2014, at 12:40 PM, tjc206 wrote:

    This article might as well be called "Titanfall: Death of the PS"

  • Report this Comment On February 08, 2014, at 12:41 PM, coasterrider wrote:

    I won't buy Xbox because I would have to pay MS a monthly fee if I want to use the device to access Netflix, Hulu, etc. in addition to the fees charged by those services.

  • Report this Comment On February 08, 2014, at 12:48 PM, Plan wrote:

    Heimdallr is correct, PC is still the cutting-edge platform, and it's the preferred choice for "serious" gamers. However, the article makes a good point about Titanfall's cross-generation, cross-platform release -- us PC users are still tethered to games limited by console hardware.

    For PC exclusive games, we're far beyond even "next gen" console capability, but for major cross-platform titles like Titanfall, we're getting essentially console games with the ability to increase the resolution.

    Also, I can't recall a shooter that allowed PC players and console players to mix -- and that's because it's impossible to compete with keyboard+mouse accuracy when using a controller.

    Let's not forget that the PS4 and XBoxOne have laptop processors and GPUs roughly equal to GeForce 8800s. That means these new, "next generation" consoles are less powerful than PC gaming rigs circa 2008. When both SONY and MS scrimp on hardware like that, we all lose.

  • Report this Comment On February 08, 2014, at 12:55 PM, tjc206 wrote:

    Soon Microsoft's only competitor in the video game sphere will be itself. Dunno if you guys saw the news this past week, but the consumer products side of Sony is falling apart.

  • Report this Comment On February 08, 2014, at 1:05 PM, Vlarot wrote:

    I had always been a big fan of Xbox.

    But with all the money i have invested, and not being able to play on the newest console my previous games is a killer. I am very upset with all the other variations Microsoft was adding to make the deal more lucrative and giving us the finger. (Some of those bad ideas have been already removed)

    I have decided not to spend one more penny in any of the new consoles or games, i have the 360 and will only continue buying games compatible with 360. After that I will probably switch to a different console.

  • Report this Comment On February 08, 2014, at 1:30 PM, AverageGuy wrote:

    PC gamers should stay away from console news articles. Yes, we are well aware PC's can toast consoles with hardware specs, but to build that PC to toast consoles one would easily spend double, or triple, the amount of what it costs to purchase a PS4 or XB1. And hardcore gamers like to stay ahead of the curve which requires hardware upgrades every year or so. Money. Money. Money. Personally, I think a gaming PC is more of a money-pit than a console.

    And while I'm here, might as well reply to tjc's comment regarding Sony in the news this past week - it's only their VAIO computers that fell apart. Which quite frankly I'm not surprised. PCWorld nailed it on the head with their statement of Sony VAIO computers being too expensive. I thought they were badass looking lappy's when they first came out, but then saw the price tag and went further down the aisle to see what had comparable specs for less money. Everything else is from Sony is safe at the moment. Except for this SmartWig idea they patented. Not sure what that's all about. I smell flop. But hey, every company makes a flop now and then.

  • Report this Comment On February 08, 2014, at 2:08 PM, JaredM80 wrote:

    how is the pc for serious gamers? please explain. not saying it isn't but i would like to know why yall think it is.

  • Report this Comment On February 08, 2014, at 2:09 PM, normcf wrote:

    I wonder what Gamestop et al think of these promotions. Instead of paying $100 and being able to resell the PS3 for a profit, microsoft takes them and, undoubtedly, destroys them. Effectively, microsoft is taking this additional revenue stream from the game stores.

  • Report this Comment On February 08, 2014, at 2:10 PM, GuitarJim wrote:

    "An Xbox One has an estimated manufacturing cost of $471 and sells for $499. A price cut to $399 would cause a loss of $72 per console, so that wouldn't be employed unless Xbox One sales completely stalled out."

    Leo, you should have studied business along with economics and finance.

    First, that manufacturing cost is an estimate made by someone who disassembled an Xbone and guessed how much the parts and assembly cost (in quantity, of course). Nobody except Microsoft knows if that number is remotely accurate.

    Second, Microsoft doesn't sell direct to consumers, and retailers generally expect at least 30% profit on each unit sold. That means the retailer probably paid no more than $280 wholesale for that Xbone. If an intermediate distributor was involved then they kept at least 20% of the wholesale price, which means they paid no more than $225 for that Xbone when they bought it from Microsoft.

    In other words, if that manufacturing cost is even remotely accurate then Microsoft is already taking a beating on the hardware. It's called a "loss leader" (they teach this stuff in business class). The margins are so high on the games that they can afford to lose their shirts on the hardware - they only need to sell at least four games to make it up. Everything after that is gravy.

    The wholesale/retail cost structure is determined by the cost of manufacturing and the number of games an average user will buy over the lifetime of the system. There's not much they can do about the average number of games, so they won't drop the price unless the cost of manufacturing comes down enough to justify it. Nintendo created this business model in the mid 80's, and every console maker has used it ever since.

  • Report this Comment On February 08, 2014, at 2:14 PM, atomblack wrote:

    How insulting! Microsoft is a complete idiot... My PS3 is worth more than $100 and it is still the most used console in my home.

  • Report this Comment On February 08, 2014, at 2:31 PM, FoolKiller wrote:

    Seriously these writers should stay away from games period, or else they're going to be bigger fools then they already are.

  • Report this Comment On February 08, 2014, at 2:49 PM, tjc206 wrote:

    PS3 worth more than $100 lol. Heard of ebay?

  • Report this Comment On February 08, 2014, at 3:24 PM, vinnybaggadonuts wrote:

    I personally think Titanfall is the equivalent of a life preserver being thrown to a drowning man.

    I think a lot of people - particularly PC gamers - still have bad memories from when IW essentially thumbed their noses at the PC crowd with the removal of dedicated servers in COD:MW 2 & 3.

    In fact, IW's rival studio, Treyarch, was the last developer of the COD series to keep dedicated servers in the game (with Black Ops).

    I have a very strong suspicion that because of this, not many PC gamers are going to take the chance of being jerked around again.

  • Report this Comment On February 08, 2014, at 3:43 PM, Sfrancis wrote:

    Article fails to mention that Sony's PS 4 launched in 48 countries and the Xbox One is only available in 13 at the moment. That, along with the $100 increased cost of the Xbox One is why they have sold more. Once the One launches worldwide the margin will narrow. If you are going to write a story make sure to include as many facts as possible instead of feeding people misinformation.

  • Report this Comment On February 08, 2014, at 3:51 PM, gepet0 wrote:

    Is the motley fool on Sony's payroll? Everyday there seems to be a negative story about Xbox one. The reality is it is two early to tell.

    Especially being 10 generations ahead of them as far as online play is concerned. It is becoming to obvious please balance it out.

    I actually like both been gaming for 37 years.

  • Report this Comment On February 08, 2014, at 4:31 PM, URALLFOOLS wrote:

    "Moreover, Titanfall doesn't look much different from Crysis, Halo, or most other modern shooters. The only thing that stands out about the game is its acrobatic freedom and seamless swap from ground-based combat to mech-based combat." --


    Couldnt we say that about ANY genre? Thats what makes ONE game stand out from a crowd of similar games IN the same genre. Things like "acrobatic freedom" and "seemless swap from ground-based to mechbased combat." So which other game in the genre does this? None.. Hence, stands out. To just write off what makes it unique just to justify your argument that its just "another shooter" shows this entire article to be disingenuous and quite biased. Your statement was so contradictory I actually thought you were being sarcastic.... Either that or you are a new blogger and were hoping to boost your "hits" with such fanboy rhetoric and drivel.

  • Report this Comment On February 08, 2014, at 5:21 PM, ZephyrGumby wrote:

    Guitar Jim

    You don't get the economics of video games at all. Retailers make only a few dollars on the console...they are sold at virtually retail price to the retailer with the retailer expecting to make money on games & accessories. Even those items come at a much lower margin than traditional retail goods much in the way retailers have a low margin on dvds, blu-rays and music cds. I have seen an invoice for a retailer with the xbox one cost at $484.

  • Report this Comment On February 08, 2014, at 5:26 PM, ZephyrGumby wrote:

    Forgot to mention...I doubt Microsoft would destroy the trade in PS3s. I would expect them to sell them to liquidation companies who would clean them up and sell them cheap as remanufactured...we've seen it before with all kinds of electronics. Either way, the retail market price for used PS3s (and Xbox 360s) will continue to if you have one to sell...better do it sooner than later.

  • Report this Comment On February 08, 2014, at 7:12 PM, wizardaeon wrote:

    I fail to see how this is a war. Many appliances co-exist peacefully in a persons home. People have choices, its a shame people feel that the competition has to be so fierce when theres no need. I own a Wii, a ps3, and a 360. I have many games for each one. Its apples and oranges

  • Report this Comment On February 08, 2014, at 9:28 PM, jimmyledcoch wrote:

    what this article fails address is what's to be done with microsoft's newly acquired ps3s will they destroy them? will they flood the market with deeply discounted ps3s. the real point here is sony can't afford to do anything like this microsoft promotion... they are bleeding money every quarter and the sharks can smell it. this is not going to be pretty playstation owners i am very sorry.

  • Report this Comment On February 08, 2014, at 9:43 PM, thejmurphy wrote:

    when will people learn the world is full of lemmings just following suit.... whatever people say to buy is what people buy and say to buy.. etc.. the xbox is losing only because people keep saying its losing.. its worse for the wii just happens because people make it happen. no real reason whatsoever

  • Report this Comment On February 08, 2014, at 10:26 PM, frankenstein wrote:

    Hey LEO SUN, Stick to financial advice because when it comes to the gaming industry you sir are lost. Microsoft didn't just offer this deal for the PS3, it also applies to any newer Xbox 360 too. So you can trade in your 360 for $100 also towards an XB1. Sony has taken plenty of jabs at Microsoft, where is you article on that? And Titanfall does not have a single player campaign because Respawn is a start up studio with 60 devs. They said that in their research of FPS/MP games only a small fraction of players actually ever complete the campaign, most just play the multiplayer. And you say Titanfall doesn't look much different than Crysis, or Halo ??? Any game can be simplified and deduced to sound basic and ordinary. Last of us is an award winning game but at the end of the day its just a 3rd person shooter that isn't much different than Resident Evil. See how easy it is to say things like that. It is clear from the majority of your article that you are biased and realistically have little actual knowledge about games and gaming. A laughable article.

  • Report this Comment On February 08, 2014, at 10:50 PM, Vitabrits wrote:

    What will kill Titanfall is when EA makes it "pay-to-win" which are curse words in the gaming world.

    A financier may love that concept but gamers abhor it.

  • Report this Comment On February 08, 2014, at 10:56 PM, headlesspiderman wrote:

    Why would a PS3 user sell their PS3 essentially for $100 rebate when games are still being made for PS3 and you can still play different current titles plus there is a large market of used games.

    Xbox 1 sounds like they are desperately trying to lure stupid people.

    PC gaming is essentially the best because you don't usually have to buy several consoles to play different games. Right now PC gamers can purchase games made exclusively for PC, PS3, Xbox 360, and Xbox 1 most of the popular games made for the console are made compatible for a PC. You might spend more money on the initial PC build or purchase, but you can certainly use your PC for other purposes than playing games consoles not really unless your into purchasing Netflix or Hulu which are already easily accessed in a computer.

  • Report this Comment On February 09, 2014, at 1:30 AM, TMFSunLion wrote:

    Thanks for the comments --

    @GuitarJim, @ZephyrGumby is right.

    The cut for retailers is ridiculously slim for consoles -- there's no retailer out there that expects a 30% cut of Xbox One or PS4 console sales. The model you are referring to is true for other consumer goods, not video games/consoles.

    A more accurate way to refer to those consoles as actual "loss leaders" would be the steep discounts that were offered during Black Friday doorbusters.

    As for Titanfall, say what you will about my "Crysis/Halo" comparison, but seriously, this game seems ridiculously overrated, and the expectations that it will "save" the Xbox One are ridiculous.

    @Sfrancis -- No misinformation here. Microsoft hasn't launched the Xbox One in more countries because it knows that it will get crushed (true for most of Asia).

  • Report this Comment On February 09, 2014, at 2:28 AM, speculawyer wrote:

    Microsoft has already lost. The only question is how big the gap will be.

  • Report this Comment On February 09, 2014, at 6:09 AM, sypoth wrote:

    Um, the race just started in November last year. I say last year because the Wii U isn't seen as an 8th gen system like the PS4 or Xbox One by developers and the majority of gamers. Hell most people don't even see it as anything other than Nintendo trying to get you to buy an expensive piece of hardware that is only going to have boring unfun games that are just more shovelware garbage leaving it sitting in the living room gathering dust. So since the race just started in November I doubt that anyone can be claiming they are a winner or that they are loosing(outside of Nintendo that is) the arms race for home consoles. In the Mean time PC gamers compete over what their custom rigs can do to squeeze all the performance they can out of them and have machines that exceed any of the consoles on the market today especially considering that what the 8th Gen consoles are capable of was standard computer game prerequisites 4 years ago.

  • Report this Comment On February 09, 2014, at 4:57 PM, jturner1981 wrote:

    At the end of day, Gears of War, Forza, DR 3 will only be available on the ONE and God of War and Uncharted will only be available on the 4. So I got both. I believe graphics have come to a point now where gameplay, storyline, ingenuity is going to win out. I don't care how many either of them has sold, just give me fun games to play.

    I personally think ps4 coming out first is what put them ahead and their wide availability, regardless if they outsold the ONE in every region the PS4 is exclusive to, nobody could possibly think that 1.5 mil xbox wouldn't be sold in 35 extra territories to tie this ridiculous "race" up.

    I'm also curious about the U.S. numbers alone, because the entire world's favorite sports is soccer, but American football does okay for itself. So if PS4 is soccer and XboxOne is American football, Im good with that.

  • Report this Comment On February 09, 2014, at 5:02 PM, jturner1981 wrote:

    As for the peeps commenting on the economics of a gaming console. It takes like 4 years before console developers anticipate profit from the sell of the console itself. Microsoft & Sony's big money is made by selling the rights to make games on their consoles, or the game sales from developers they own.

  • Report this Comment On February 09, 2014, at 7:49 PM, OneSucks wrote:

    XBOne owner here and regretting the purchase. My biggest complaint right now is that I have to pay them money every month to use the IE browser that is built into the console. Can somebody at MS tell me why that is? Talk about trying to squeeze the consumer...

  • Report this Comment On February 10, 2014, at 2:41 AM, Valentine26 wrote:

    What is up with all the Nintendo and xbox bashing articles. I mean i love all three consoles but it seem's like this site is run by sony fanboys.

  • Report this Comment On February 10, 2014, at 8:51 AM, Soakee wrote:

    " the eighth generation console race progressed..." This might be a dumb question, but what are the eight generations of console gaming?

  • Report this Comment On February 10, 2014, at 9:28 AM, TMFSunLion wrote:

    @Soakee -- The eighth generation refers to the Wii U, Xbox One, and PS4.

  • Report this Comment On February 10, 2014, at 9:28 AM, eQil1 wrote:

    Really! Titanfall looks to be no different than Halo & Crysis but Destiny does. They are all shooters same basic concept reguardless of multiplayer. I understand competition is good but why does that have to be a deciding factor on if a console is successful. PS3 was behind 360 for a long time but no one ever said it was unsuccessful not even when it launched at 600$. As for PC gamers why is it you guys think you are better than console gamers. We get it you have a more powerful machine but not everbody has the money,time & know how to put into building a great pc rig (without half assing it). What happen to the days of gaming being for fun not spec & numbers. Play what you want on what you want & have fun doing it.

  • Report this Comment On February 10, 2014, at 10:52 AM, solofatty09 wrote:

    Am I the only one reading this that is saying to himself, "OR... keep your PS3 and save $100 by purchasing the PS4 instead of the XBone"

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