Why Is Microsoft Corporation Still Pushing the Xbox 360?

Though it's been nearly a year since the launch of Microsoft's (MSFT -1.84%) Xbox One console, the company continues to support its predecessor, the Xbox 360, and has even announced a special edition of the older gaming system for the upcoming holiday season.

Microsoft recently said it will sell a special blue version of the 360 for $249. The console will be available only at Wal-Mart (WMT -0.65%) and through Microsoft stores starting Oct. 7. The package includes "an iconic blue console and controller with arctic blue accents," as well as copies of Call of Duty Ghosts, Call of Duty Black Ops II, one month of Xbox Live Gold, and a 500GB hard drive. 

At $249, the new 360 bundle is priced lower than the Xbox One, which has a base price of $399 but is often sold bundled with a hot new title at that price. By not only keeping Xbox 360 available but also promoting it, Microsoft is hedging its bets it in its battle with Sony (SONY 0.37%) for console customers.

The move shows that it's not as important for Microsoft to put its newest technology into people's homes as it is to maintain control of the living room. Selling Xbox Ones to people would be best, but if they won't buy the $399 console, then pushing an Xbox 360 to them is certainly better than losing a customer to Sony.

The $249 Xbox 360 bundle. Source: Microsoft.

Is Microsoft losing ground?
Sony's PlayStation 4 has consistently outsold the Xbox One since the two consoles were launched last fall. That was true again in August, as the PS4 led in sales for the eighth straight month despite an increase in sales for Microsoft's console after its price was lowered to $399 because the Kinect motion sensor was dropped, according to data from NPD Group.

Sony, in a statement on Sept. 11, also said it led Microsoft for combined home console sales (PS3 and PS4 vs. Xbox One and Xbox 360) for the third straight month, according to Geekwire. The company had previously claimed sales of over 10 million PS4s on its blog. Microsoft hasn't released specific sales data, but most peg the number of Xbox Ones sold at around 5 million.

Sony is doubling up on its rival in the next-generation console fight, which makes it all the more important for Microsoft to keep offering the 360 if there are people who still want to buy it.

It's all about the living room
In the previous generation of consoles, both Microsoft and Sony sold around 80 million Xbox 360s and PS3s, respectively. Many of those are still being used.Though there are only 5 million or so Xbox One owners, Microsoft's Xbox Live network has 48 million members. 

That means that even if every single Xbox One customer is on Xbox Live (which actually is likely, given how integral the network is to the new console), there are still some 43 million Xbox 360 users on the platform.

Through that network Microsoft can sell games, apps, and subscriptions to streaming services to its customer base. Though there are enhancements to Live available only to Xbox One users, most of the services work with a 360. Since the network basically lets Microsoft operate a store in your living room, the success of its game division hinges at least partly on having people spend money there.

In 2013, Microsoft's Entertainment and Services Division had $10.21 billion in revenue and an $888 million profit. Though the company doesn't break down revenue by product, Xbox is a key revenue driver for the division, which also includes Windows Phone (a likely drag) and Surface (a big money loser so far). 

How long will 360 live?
Microsoft has already said it will support the 360 through 2016, though that claim was made before the launch of the One, so the timetable may well extend.

"If you look at 360, that platform lasted for seven to eight years, and it's going to go for another three years. It's incredibly profitable now in the tail," said Xbox Chief Marketing and Strategy Officer Yusuf Mehdi in September 2013, Eurogamer reported.

That makes sense, because 360 requires no new innovation or development beyond whatever it took to give it a new look for the promotion. If customers want a cheaper, good enough console option, Microsoft should continue providing one in the same way Apple uses its older iPad and iPhone models as lower-cost options.

Though it has often been the practice, there is no reason to drop the previous-generation console just because a new one has come out. If Microsoft needs two price points to gain Xbox customers, then it should offer them as long as demand remains.