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Last Call for Microsoft's Xbox One?

It may be too late to level the playing field, but tomorrow is the day Microsoft (NASDAQ: MSFT  ) finally decides to battle rival Sony (NYSE: SNE  ) at the $399 price point. The Xbox One will match the price of Sony's PlayStation 4, but this isn't really a $100 price cut. Microsoft is doing what Sony did last November, stripping out the camera-based controller as an included accessory to make it cheaper to produce.

That's a pretty big deal, and not just because it burns developers that have been making games under the assumption that every new Xbox console comes with voice and visual recognition. The push to match Sony on price finds it fighting a battle without understanding the cause of the war.

Yes, the Xbox One has been getting smoked by the PS4 since both systems were introduced a week apart in November. The PS4 had a slight edge in unit sales early on, but the gap has been blown wide open lately. Shortly after Sony announced that it had sold more than 7 million PS4 systems to consumers earlier this year we had Microsoft reveal that it had sold more than 5 million Xbox One consoles to retailers. In other words, we're talking a chasm that is at least 2 million consoles wide plus all of the Xbox One systems sitting unsold to consumers on retailer shelves. 

Being a fading silver medalist is a pretty big deal in the console war, because you need the support of software developers to justify these steep upfront investments on behalf of diehard gamers who are choosing between platforms. If you don't think that's a big deal, consider Nintendo (NASDAQOTH: NTDOY  )  and its sorry state. The Wii U hit the market a year earlier than its competitors, but it sold a mere 3.5 million units in its first fiscal year of availability. It cleared just 2.7 million Wii U systems in its latest fiscal year, so all that means is that the Xbox One may even technically be a bronze medalist here in terms of cumulative sales of the current generation.

Nintendo's fate should scare Microsoft. After all, it announced a price cut on the Wii U halfway through the Japanese gaming pioneer's fiscal year and unit sales still dropped. This means that a price cut isn't always enough. However, the fact that Nintendo's Wii U has been cheaper than the Xbox One and PS4 and is still a flop suggests that this isn't a game of limbo where the winner is the one that can go the lowest with a pricing gun. All that a price war does is obliterate margins for an industry that's already struggling to sell the games that hardware companies need to generate high-margin royalties. 

Maybe the majority of gamers chose PS4 over Xbox One for more than just the opportunity to save $100. One can argue that Microsoft didn't make a lot of friends by initially suggesting policies that would restrict users to connectivity requirements or brick secondhand games. Microsoft eventually backed away from those tactics, but it seems as if there are plenty of diehard gamers out there that just don't trust Mr. Softy.

That's not going to get any easier once the market begins to realize what Microsoft is doing in promoting the Xbox One. Have you seen the new commercial?

It stars Breaking Bad's Aaron Paul -- and that's good -- but then it goes on to show him using a lot of Kinect-based features in an ad that closes with the new $399 price point. The fine print spells out that the Kinect is sold separately, but how many people will buy it come Monday only to realize that Paul sold them some bad meth via bad math? 

Adding insult to injury, the Kinect as an add-on accessory reportedly won't be available for months. The spot is bad in so many ways, and a company that probably thought introducing a cheaper Xbox on the eve of the industry's critical E3 conference would be a winning move is going to get raked over the coals for its iffy marketing.

Wish Microsoft luck. It's going to need it.

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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 June 09, 2014, at 12:36 AM, kwright62 wrote:

    The Xbox One is far more than a game console, it is an entertainment computer system that integrates with cable boxes, A/V receivers and televisions of all types.

    It isn't done yet: MSFT has released revised rules for subscribers as reported as well as written a very nice remote control program for cell phones and computers.

    No doubt Sony is off to a great start but the race hasn't been won.

  • Report this Comment On June 09, 2014, at 2:49 PM, URALLFOOLS wrote:

    Apparently Motley Fool has officially started to scrape the bottom of the barrel for bloggers.... and here I thought it was a rarity for garbage like this. It's now becoming the norm.

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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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