Microsoft tries a new tack with $99 Xbox

Why is Microsoft launching a $99 Xbox 360/Kinect/subscription bundle now? Here are a few theories.
Written by Mary Jo Foley, Senior Contributing Editor

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.

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