Let's play the "guess the console" game. I'm thinking about a video game system put out by a company that used to dominate the market, but it's struggling during this generation. The top dog is padding its lead at the expense of this console, and in a sign of desperation, the hungry and desperate console that I'm thinking about has turned to a price cut just months after it initial release.
I could be thinking about Nintendo (NASDAQOTH:NTDOY), which announced a price cut on the Wii U just nine months after its release two holiday seasons ago. I could also be thinking about Microsoft (NASDAQ:MSFT) and its Xbox One, turning to a price cut even sooner than Nintendo did a year earlier.
The Wii U was widely panned as a flop after selling 3.45 million units in its first fiscal year of availability through the end of March last year. On a comparable basis through the end of March this year, we saw Microsoft selling roughly 5 million units. Market leader Sony (NYSE:SNE) claims to have sold at least 7 million PS4 systems through to consumers. In other words, Microsoft is a lot closer to Nintendo than to Sony five months into a lunch.
Don't go thinking that what translates to a price cut at Microsoft -- removing the camera-based Kinect controller from the $499 Xbox One to sell at $399 starting on June 9 -- will be the answer. Nintendo slashed $50 off the price of the Wii U to take it down to $299 last September, but it wound up selling just 2.72 million Wii U consoles in its fiscal year ending in March of this year.
It's not just about matching the PS4 at $399 with the new Xbox One price. Microsoft is also going to lower the cover charge for casual gamers who were balking at paying Xbox Live Gold memberships for the right to stream into their own Netflix accounts and other entertainment apps. Those will now be accessible to non-paying subscribers, just as it is across the other platforms.
Modesty is a trait that Microsoft has been learning to wear since announcing the Xbox One to a less than enthusiastic reception last year. It's had to back away from connectivity requirements and copy protection features before the launch, and now it's scrambling to make the console resonate as a compelling value.
That won't be easy. Nintendo is showing us that cutting prices and showering loyal customers with free digital games aren't effective ways to win back relevance. Microsoft may not think it's following in the Wii U's footsteps with the Xbox One, but it's hard to argue otherwise when it's holding on to the Nintendo playbook.
Rick Munarriz owns shares of Netflix. The Motley Fool recommends Apple, Google (A and C shares), and Netflix and owns shares of Apple, Google (A and C shares), Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.