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Microsoft's Xbox One Is Now $399 Away From $0

It's time for another price war in the video game console realm. Microsoft (NASDAQ: MSFT  ) is announcing that it will introduce a cheaper Xbox One system come June 9, sacrificing a pretty important feature to achieve a $100 price cut.

There's no mistaking the timing of this announcement and why die-hard gamers will have to wait four weeks for the price break. June 9 happens to be the day before the gamer-centric E3 conference kicks off in Los Angeles. Why announce it now instead of springing it on fans on the eve of E3? Won't that freeze existing Xbox One sales through the next few weeks? Well, with the sales gap widening between the Xbox One and market leader Sony's (NYSE: SNE  ) PlayStation 4, the early announcement also stalls potential PS4 sales. This also provides Microsoft with the perfect scapegoat when Xbox One sales fall off a cliff in May. And they will. 

Unfortunately, the feature that Microsoft will forgo to match the more successful PS4 on price is the motion-based Kinect controller that has been promoted as its most prominent accessory. This is a tactic that Sony knows all too well. It waited for Microsoft to announce that the Xbox with Kinect would retail at $499 during last year's E3 before revealing that the PS4 will sell for $399 without its motion-based camera controller.

Microsoft may have assumed that it would continue to be the market leader with the Xbox One the way it was with the Xbox 360, but Sony's eating Mr. Softy's lunch since both next-gen consoles hit the market in November. Sony recently announced that consumers have snapped up 7 million PS4 systems since its launch. Microsoft followed by announcing that it had sold 5 million to retailers. In other words, the gap isn't just 2 million consoles. It's that in addition to all of the Xbox One boxes sitting on retailer shelves. 

A price cut will help increase demand. How can it not? However, it will find Microsoft once again burning developers. Software companies have been developing for the Xbox One platform under the assumption that every owner has a Kinect controller. It's bundled with the system. That will naturally change come June, and it's not making matters any better by announcing that stand-alone Kinect sensors won't be available until later this fall. Upsetting publishers is never a smart idea, especially when you're falling deeper into second place. Obviously, Microsoft hopes that the price cut will increase its installed base, creating a larger pool of potential buyers for the developers putting out Xbox One games.

That will make it easier for software companies to forgive Microsoft, but desperate actions also introduce a new icy layer of distrust. If Microsoft doesn't play this right it will lose both camps.

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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 May 15, 2014, at 10:33 PM, WesChong wrote:

    One thing everyone knows about Microsoft is that it is in it for the long game and constantly able to make developers happy. Cancelling Kinect with the system probably came after analysis showing not a lot of games had been developed for Kinect and that the addition was slowing adoption. When a Killer game gets made that has Kinect as a necessity it would not be a problem to bundle it at all.

    ~Wes Chong

  • Report this Comment On May 16, 2014, at 8:37 AM, gskinner75006 wrote:

    The Xbox One doesn't run Rocksmith so it's really just a brick.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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