Microsoft tries a new tack with $99 Xbox

Microsoft tries a new tack with $99 Xbox

Summary: Why is Microsoft launching a $99 Xbox 360/Kinect/subscription bundle now? Here are a few theories.

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The Verge's sources were right. On May 7, Microsoft launched a deal via which it will sell a 4 GB Xbox console, plus a Kinect sensor and two-year Xbox Live contract for $99.

The new bundle is available only to those who are 18 and over who purchase a new Xbox Live Gold contract for $14.99 per month for two years. It is available through the Microsoft brick-and-mortar stores. The offer doesn't have an expiration date, but the fine print says Microsoft may terminate it at any time. (I don't see anything saying this is a U.S. only offer; I've asked if there will be a way to sign up other than by going into a Microsoft Store.)

Update: So it turns out, this is just a pilot program, according to a company spokesperson, designed to determine how Microsoft can best serve its customers. It is U.S. only; no word on when or if it will expand beyond that. And the only way to get the deal is to go into one of Microsoft's 17 16 physical retail stores and redeem it. Perhaps this is just as much a way to try to drum up Microsoft Store business as a way to sell more Xboxes.

As Business Insider noted in a back-of-the-envelope calculation last week, the total cost to a customer of the new deal is roughly the same as a user would pay today for the same console, a Kinect sensor and an Xbox Live subscription. (It's roughly $460, either way, BI said.)

So why might Microsoft be offering this new deal?

One theory: A $99 entry price could make the Xbox more appealing to first-time customers who have balked at paying $300 for an Xbox console/Kinect combination. Microsoft's goal for a while now has been to broaden the Xbox customer base beyond hard core gamers. And it's done an admirable job getting those who don't aren't into first-person shooters to give it a try. According to Microsoft's data, more current Xbox customers are using it for general entertainment purposes than for gaming.

Another theory: A $99 entry price gives Microsoft more of a credible competitor to Apple TV, Roku, etc.. In other words, this is Microsoft TV, though it's not branded as such.

And still another theory -- and none of these theories is exclusive; they all may apply: Microsoft prefers recurring subscription revenue to a one-time payment. It allows the company to continue to have an ongoing relationship with customers, who may be open to purchasing other complementary games, add-ons, etc., each and every month, rather than one time only. (This is just a new piece of hardware with which Microsoft is using the "subsidized by carrier" model. It works with phones and had mixed results with netbooks. Let's see how it does with a gaming console...)

As Microsoft noted during its Q3 fiscal 2012 earnings report last month, Xbox sales were off substantially compared to the year-ago quarter. This is, in part, because videogame console sales are down. It's also because the Xbox 360 is pretty close to end of life. Microsoft isn't planning to release a new Xbox this year, but it may start talking about that device (which some say is codenamed Durango) in calendar 2012. In the interim, the Softies need a way to squeeze the last bit of life out of the Xbox 360 that they can.

Topics: Microsoft, Hardware, Mobility

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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16 comments
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  • Xbox is handy for media

    I just don't like the new interface. Too may adverts! It's like reading a sleazy magazine that is full of adverts but not much content.
    happyharry_z
  • Why not i say

    This plan works well with smart phones, why not give it a try?
    ClickHouse
    • Why not?

      Yes, why not sell MORE, to produce MORE, then to waste... MORE?

      "why not?" one's ask.
      coz our 'ALWAYS MORE' so-called 'civilization' doesn't mind
      "bumping into the wall"

      Let's see where it will lead. Human brains has always found "solutions" so far. So, maybe I worry MORE than needed :)
      emanwebdev
      • Dang!

        Take your daily pills, please!
        ubangeee
  • Xbox Entertainment

    What I think would be cool, is if MS comes out with an Apple TV console equivalent, which MS gives away with a Kinect controller for free - with a subscription. The Xbox Live Entertainment console and Kinect would be able to play arcade games and run Xbox Live apps. MS could focus on building out its Xbox Live apps ecosystem, and marketing Xbox Live subscriptions to a much broader range of consumers, while it works on the successor to its Xbox 360.
    P. Douglas
  • Bussines plan for the next Xbox

    Remember when Microsoft was losing money selling Xbox 360 in the first(two) year(s) because of the high production cost? I think they are finding a way not to suffer from the same reason when they release Xbox 720.
    nimatra
  • What a marketing scheme rip off!

    You can buy a xbox 360 4 GB with kinect for $300 and 2 years of Xbox live gold at $5 a month for 2 years at $120. Grand total of = $420 buying outright. With this new DEAL (ha) you can get the same Xbox for $100 with 2 years of Xbox live gold at $15 a month for $360. Grand total of = $460
    blay189
    • Not A Rip Off...

      Actually it's not a rip-off at all. Consider this: Xbox 360 4GB + Kinect = $299, 2 yrs of Xbox Live subscription = $120, One additional year of warranty ~$30. Add that up and you get (drum roll...) ~$450. That's right, add the convenience of not having that money all at once and I'd say it's a pretty good deal IMO.
      Sadatay
      • Don't Forget Sales Tax

        I know it varies from state-to-state, but here in CA, the average sales tax rate runs as high as 9.75%. On a new console at $300, one would pay $29.25 in sales tax; whereas on this $99 deal, one only pays 9.65. That's a difference of $19.60. It may sound like a small deal, but $19.60 will buy you some quality content on Xbox Live. With this bundle deal, you're basically paying the same as you would outright but you're deferring your full payment without interest. Frankly, as a consumer, options are a good thing.
        robbys22
  • Is 4GB enough?? Isn't that the size of the OS alone??

    Serious question.
    wackoae
    • Memory is small, but easy to expand.

      Yes, 4GB isn't much, and will limit the amount of online and digital content, but the OS is small and you still have nearly 3 gb give or take. Plus it's easy to add a 250gb or 320gb hard drive by just opening a little door and sliding it in. (Also you can add up to two 16gb flash drives.)

      You can stream at 1080p with 5.1 sound and with Kinect you can asked it to find you a movie, actor or Tv show and it will look it up and tell you where you can watch it. It's a pretty need 'try before you finish buying' package.
      Zappykins
      • Expanding 4GB

        The Xbox has a USB connector. You can easily plug in a thumb drive as well to expand the memory. While it is nice to have 250+gb, it is easy enough to run to Fry's and buy a 32gb thumb drive for < $30 and add 4x the space the machine originally came with.
        zyvxn
  • Microsoft misses the problem

    I think Microsoft misses the problem. Xbox sales are down because games are so expensive. Not because the console is expensive or Gold membership is. Microsoft I know wants more Gold members in order to expand their media offerings. But I never found the Xbox to be a good media content provider. In the end the Xbox is still mostly a gaming console and gaming is moving toward a cheaper form factor. The console is dying just as PC gaming died a while back. The reason is costs. Yes, I agree console gaming is better then iPad gaming. But many question how much better?
    jscott418-22447200638980614791982928182376
  • Are you kidding?

    gaming dying? microsoft is killing the 360 by driving the games so high the average budget won't allow buying them. I've have had to go to alternate sources to aquire a couple of the games. the 360 was made so to get the full benifit of the machine you have to purchase LIVE.
    I wonder if the new game system be similar to 360, just upgraded and current will be compatable of will they go the course of some other systems and make them obsolete? Consoles are better but have become too expensive through the years. the economy nearly killed the systems and the prices may finish the job....
    mosko1181
  • Upgrade Theory

    When MS does finally get around to releasing the next generation of the XBox, people who took this deal are more liely to buy in. 1) Because buying something to upgrade what you paid $99 for is less painful than upgrading something you paid $300 for. B) If the customer is already into a two year commitment to the MX service, they are more liekly to wait for the new MS box than change brands and pay for another monthly service.
    TBone2k
  • All about Windows Phone and Windows 8

    This is all about getting more people into the connected infrastructure of Windows media. This is one advantage that Android and Apple do not have over Microsoft. The tablet, XBOX (Gaming), PC, and Phone will seamlessly integrate with each other. This is all about the re-branding of Windows from PC to multimedia and hoping to give a boost to it's Windows Phone with gamers.
    MichaelWells