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Will a $400 Xbox One Help Microsoft Catch Sony’s PlayStation 4?

Since they made their debut prior to last year's holiday season, Sony's (NYSE: SNE  ) PlayStation 4 console has developed a decisive lead against Microsoft's (NASDAQ: MSFT  ) Xbox One in their quest for console superiority.

Early last month, Sony once again called attention to the strengths of its

Source: Microsoft

PlayStation 4 sales, saying it has sold roughly 7 million consoles as of April 6, firmly above Sony's supposed sales targets thus far this year. Perhaps even better, Sony also said that it still can't produce enough PS4s to meet demand. All told, Sony's PlayStation 4 appears to firing on all cylinders. 

On the other hand, Microsoft hasn't been quite as transparent about the strength of its Xbox One sales. Microsoft also provided investors with an April sales update as well, saying it had sold 5 million Xbox Ones, painting it as the clear loser in the console wars between Microsoft and Sony. But Microsoft recently made a move that should help level the playing field against Sony's PlayStation 4.

Microsoft's price cut: How long can you go?
Microsoft recently announced that next month it will be lowering the price the Xbox One by $100 to $399, hopefully reversing some portion of the ill will Microsoft with its original pricing on the Xbox One. 

Although it's unclear to what extent it did so, Microsoft undoubtedly burned some bridges with some of Xbox enthusiasts when it chose to price the Xbox One console at $499, a full $100 more than Sony's more reasonable pricing for the PlayStation 4. Microsoft did bundle its Kinect motion-sensing attachment with the Xbox One in hopes of driving more interest from consumers and game developers alike.

Today, with the benefit of several months of sales data, it's clear the Kinect add-on wasn't necessary to many of Xbox's core customers. What's more, Microsoft also further gouged consumers by them to pay for an Xbox Live Gold subscription to access third-party apps like Netflix and HBO Go.

And now it appears that Microsoft has seen and admitted to the errors in its ways. On June 9, Microsoft will begin selling the stand-alone Xbox One for $399. Although at this lower pricing point, Microsoft doesn't plan to bundle its Kinect motion sensor, but rather will still sell the combined Xbox One and

Source: Sony

Kinect at the original $499 price point. Microsoft is also dropping the required Xbox Gold subscription to view third-party content apps as well. Better late than never I guess

Is this a win for Microsoft though?  
From a unit sales perspective, unbundling and lowering the price for the Xbox One is a positive move for Microsoft. There's little question that reducing the price and removing hardware many weren't interested in will go a long way in helping to level the playing field against Sony's PlayStation 4.

More to the point, Xbox is a financial one-off for Microsoft, which still generates the bulk of its billions of dollars of quarterly profits from the sales of Windows, Office, and various cloud services. A good or bad year for Xbox alone won't have a noticeable financial impact on Microsoft or its investors, so making any move that drives more shipments should be viewed as a win for Microsoft.

It's also worth noting that the sales war between Microsoft's Xbox One and Sony's PlayStation 4 isn't as fair a fight as it might seem on the surface as Sony's PS4 is available for sale in 72 countries across the global versus just 13 for Microsoft's Xbox One. This fact alone probably has as much to do with the sales lead for Sony's PlayStation 4 as does the soon-to-be-gone price differential does. So all said, Microsoft should find itself in a substantially better competitive position as the console wars enter their next phase.

We won't know just how much this price change will benefit Microsoft at least until June sales figures are released, but this is a move that should have Microsoft investors cheering. Like I said, better late than never.

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  • Report this Comment On May 19, 2014, at 3:45 PM, jayess71 wrote:

    I really like the xbox one and I do use the kinect for voice commands...not really great for hand gestures. I prefer the games on the xbox to the ps4 to this point..... However......I really don't see how the price drop without the kinect is going to help much. When I bought the xbox one, I took advantage of the 450.00 price with Titanfall (a 60.00 game) so I effectively paid less than 399 for the console. So, I'm not sure that 399.00 for just the console is going to make much of a difference if it didn't with the game included. Now, if they drop it to 349.00, that may generate some interest, but 399.00 is not going to get the job done.

  • Report this Comment On May 22, 2014, at 12:54 PM, indigodoe wrote:

    It's such common place for articles to state that one of the reasons PS4 is outselling Xbox is because it's available in many more countries. In reality PS4 is outselling Xbox in the 13 countries that Xbox is in so that point is mute.

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Andrew Tonner

Andrew Tonner is a tech specialist for The Motley Fool. He is a graduate of The University of Arizona with a degree in Finance.

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