The X-Box 360 Deal – The Future?

Doing a 360 everywhere!

In one of those interesting moves that invoke both interest and revulsion, Microsoft have confirmed the rumour that they will be offering the 4GB X-Box 360 and a Kinect for an initial outlay of just $99.

You won’t get off lightly though, because this also comes with a caveat – a 24-month contract with X-Box Live Gold at $14.99 a month.

This adds up to an interesting total sum of $458.76 – which is about $60 more than buying all the parts seperately. For a two-year contract deal, it must be said I’ve seen far worse and it’s not a bad deal all told.

But that isn’t what makes this interesting. What makes it interesting is why Microsoft have decided, in the twilight year of the X-Box 360, to offer this now.

For you see, the first interesting part is that this was announced before E3. It is going live just as the talk is of the Wii-U and the possibility of either at E3 or later this year seeing the initial signs of the new Microsoft and Sony consoles. To me, this is Microsoft testing the waters and seeing how the market, and the market analysts and critics, reacts to such a contractual deal. So far, most of us think for a two-year deal, an extra $60 over 24 months adds up to a small $2.50 a month – a very reasonable extra ask when getting such deals on credit can often ask for several times that.

Why now? Well, if it goes down well, you can bet that Microsoft will offer a similar deal for their new console – a cut price basic model with a long-term contract bolted on. This has a pretty serious implication – it lowers the barrier of entry on a brand-new console.

Let’s say there will once again be two versions – one with a big HDD and one with a small HDD. Let’s just throw out two numbers – £349.99 for the big one and £299.99 for the small one. Note these are presumptive numbers – just something to work with, nothing more.

Microsoft could ask £199.99 for the cut-down smaller HDD version, with a £14.99 Live contract on top over 24 months. This alone adds up to £359.76, with the console on top that is £559.75.

That may sound like a lot overall – but here’s two important details to note.

Firstly, by lowering the initial asking price point, Microsoft can get more market penetration faster, which is a good thing as it allows them to gain more presence within the market at a swifter pace. This means they can capture a larger chunk of the market over their rivals – well, one of them at least. People won’t mind that they’re paying $50 more over the course of two years – in fact, compared to most credit deals, that’s an absolute bargain!

The second to note is that this $50 extra is, effectively, extra profit coming into Microsoft. Very few consoles make money straight out of the gates, and therefore a deal that is designed to be initially cheaper BUT make more money overall for Microsoft is a tantalising deal that they clearly thought long and hard about.

It’s unlikely we’ll see this deal leveled at the more expensive option though. People who buy the “Elite” bundle often have the disposable income for it, or have saved for some time for it, and this means that they often have extra money to spend on games as well. Hitting them with a credit deal won’t tend to go down well. Besides, it isn’t really aimed at these hardcore early adopters like myself – we’ve got the savings to back up our hobby. It is aimed at pulling in a more modest, cautious crowd a lot earlier on in the lifecycle of the machine than would be normal. Rather than wait for a price cut, they can get their cut-price console, just with that extra catch.

It bodes well for Microsoft that very few people see this as a bad thing. Some may think we should be horrified, but these are businesses selling luxury products. Of course it makes more sense to buy it outright – it’s cheaper and it’s yours, no strings attached. But there’s a deliberate gap in a consoles lifecycle when it has burned through the early adopters and the rest of the market is waiting for an inevitable price cut. This dead zone sees sales plummet before they pick back up again.

Why bother waiting for the price cut when the “cheap credit” option is available? It means a more sustainable first year or two of sales, with relatively little or less sales slump, and this makes shareholders happy which in turn keeps the shares market happy which keeps Microsoft happy which keeps us happy.

It’s a clever and interesting idea, and I’m sure Nintendo and Sony are very much keeping an eye on how this pans out. It makes sense in a plain business way. It’s quite nice for consumers as well if you think about it.

But it will entirely depend on how it pans out with the X-Box 360. If it does well, you can guarantee everyone will be in on it. Extra income is extra income. But at this late stage of the life of the X-Box 360, one has to ask the question – isn’t it a bit late to be offering a 2-year deal, when the next console will arguably be out in that time?

It could be a lovely idea. But it may also be coming in too late in the day to take off. Either way, it provides a new glimpse into how consoles might be sold in the future, and that makes it worth watching out for.

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