Microsoft Corporation Just Saved the Xbox One

Microsoft just made a few radical changes to the Xbox One that should help the console close the sales gap with Sony's PlayStation 4.

May 14, 2014 at 9:30AM

Microsoft (NASDAQ:MSFT) announced several major changes to its Xbox One video game console on Tuesday, all of which should make the device far more attractive to gamers. Although Microsoft has fallen far behind Sony (NYSE:SNE) in terms of console sales, its new initiatives could help it regain lost ground.

Kinect is now optional
Starting next month, Microsoft will offer a version of the Xbox One that retails for just $399 -- the same price as Sony's competing PlayStation 4. Rather than a price cut, however, Microsoft is simply removing the Kinect add-on -- the camera/microphone accessory that allows Xbox One owners to control their console with voice commands and hand gestures.

Although Microsoft had insisted that Kinect was integral to their overall vision, forcing it on Xbox One owners generated a great degree of backlash in the gaming community. The Kinect adds many smart TV-like features in terms of navigating the user interface and allowing for Skype video calls but little when it comes to actually playing video games.

Dedicated gamers, looking to utilize their Xbox One as nothing more than a video game machine, may not have found much value in Kinect. Even worse, because of the Kinect's always-on voice commands and built-in camera, it raised privacy concerns with some -- "Spybox" became a popular derogatory term for the console.

Microsoft will still sell a version of the Xbox One with the Kinect, and will eventually sell the Kinect as a separate add-on for those who want to take advantage of its features. But making it an optional purchase was a smart move, and puts its console on an even playing field with Sony's.

Entertainment apps don't require a subscription
In addition to making Kinect optional, Microsoft also announced that all entertainment apps (Hulu, HBO Go, etc.) would no longer require a subscription. Until now, owners of the Xbox One and Xbox 360 that wanted to use these apps had to have an active Xbox Live Gold account ($60 per year).

This won't have much effect on the Xbox One, as most gamers that purchase the console will likely have an active account -- gamers without them cannot take advantage of online multiplayer, a key aspect of most of today's biggest games.

But it's still a welcome change. Sony has never required that PlayStation owners have a PlayStation+ account (Sony's version of Xbox Live Gold) to access entertainment apps on the PlayStation 3 or PlayStation 4. Microsoft, then, is giving consumers one less reason to consider Sony's alternative.

Microsoft plans aggressive digital discounts
Lastly, and perhaps most significantly, Microsoft will begin offering aggressive discounts on digitally purchased Xbox One games. Buyers will need an active Xbox Live Gold account to take advantage of the savings, but Microsoft has promised to offer some of the console's hottest games at 50%-75% off their regular retail price.

Next month, Microsoft will discount Forza 5 and Ryse -- two of the Xbox One's most popular launch titles -- and has promised more sales in the future. In addition, it will give Xbox One owners with an active Xbox Live Gold account a couple free games each month. Sony has been engaging in something similar for quite some time, giving PlayStation+ subscribers free games and offering occasional sales on digital titles.

Although both consoles require a significant up-front investment, over the long haul, this policy could give gamers far more value than anything else. With console video games regularly retailing for $60, buying just seven games is more expensive than the actual console.

Microsoft's Xbox One could bounce back
Last month, Sony announced that it had sold 7 million PlayStation 4s. Microsoft, meanwhile, had shipped just 5 million Xbox One consoles.

With Sony's console 20% less expensive, offering gamers far more value, the state of Microsoft's console business appeared hopeless -- given that it was outselling Microsoft 2-to-1 in the U.S., and keeping in mind its historical strength in foreign markets, Sony seemed poised to dominate Microsoft over the long haul.

But Microsoft's new initiatives could help it close the gap. With a larger install base and a more powerful console, Sony still has the upper hand. But the two consoles are now closer to a level playing field than ever before.

Microsoft's is helping to fuel the next great living room trend
By allowing owners to access entertainment apps without an Xbox Live account, Microsoft is helping to facilitate cord-cutting, a growing trend. You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, or Apple.

Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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