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

Desperate times call for desperate measures as Microsoft attempts to narrow its growing sales gap against Sony PlayStation 4’s console lead.

May 19, 2014 at 3:05PM

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

Xboxone

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

Playstation

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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Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Microsoft and Netflix. 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.

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