by InvestorPlace Staff | May 8, 2012 11:39 am
So all you Gamers out there: what will you pay for a console and its games and services?
The question comes into play as Microsoft (NASDAQ:MSFT) considers a $99 price tag for its Xbox 360 with a catch: the requirement to sign up for a $15 per month subscription to Xbox Live.
Perhaps more importantly, the question is whether or not this pricing strategy will become the norm for Microsoft as they roll out Xbox 720 down the road.
The model is essentially in place, albeit for another technology offering: cell phones. The phones themselves are priced for entry into the market, in many cases subsidized by cell phone makers, while the services are the money-makers.
Microsoft’s idea to essentially undercut the pricing for the hardware (console) in order to sell a “plan” (subscription) may turn out to be the model of the future for the gamer market.
According to IGN, several analysts contacted were enthusiastic about the concept, including Michael Pachter from Wedbush who said “The model for next gen is interesting. It allows the hardware manufacturer to disguise the price of the hardware by bundling with an expensive service offering, not unlike the iPhone that retails for $499, but which costs only $199 with a two-year, expensive data plan.”
Lowering the cost of the hardware component is a key strategy for gaming companies, particularly in trying to lure first-time users to what will perhaps soon be an older generation model.
Conceptually, these users will migrate to the newer model sooner than they otherwise might due to a lower price on the next generation (Xbox 720) console.
Microsoft has not yet formally announced their program plans, but it seems to be a viable way to cut costs on the hardware side of expenses while drawing in a large user base willing to pay on a monthly basis for connected-gaming.
With the Xbox 720 model not expected for at least another 18 months, Microsoft will have plenty of time to work through the pricing model.
This article was written by Marc Bastow, an Assistant Editor at InvestorPlace.com. Mr. Bastow is long MSFT
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