A Very Interesting Article Concering Microsoft's Xbox 360 Strategy

Chris in Cali

Chris in Cali

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Now before you start reading this please note it starts out kind of weird. As I started reading I thought to myself, "What the Hell is this guy talking about?" After the "third round" it really starts to make sense, it's like the Fahrenheit 9/11 of Xbox 360.....



Xbox 360 Vs. Xbox CORE = Xbox CORE Wins

Let me get straight to the point, the Xbox CORE system will become the dominant of the two SKU’s when all is said and done. I base this outcome on quotes from Microsoft Executives, retail behaviors and past history of video game consoles.

The opponents

- Xbox 360 Console - Microsoft’s 3 ton gorilla, packed with chrome detailing, faceplate, wireless controller, HD-AV pack, Ethernet cable, backwards compatibility, Xbox Live headset, Xbox Live Silver service, Xbox Live Gold 30 day trial, and the controversial HDD (Hard drive). MSRP - $399.99 USD

- Xbox 360 CORE – Microsoft’s 2.5 ton gorilla, packed with faceplate, wired controller, STANDARD-AV pack, Xbox Live Silver service, and Xbox Live Gold 30 day trial. MSRP - $299.99 USD

Looking at the two SKU’s it’s obviously a no-brainer, the Xbox 360 Console has more ‘bang for the buck’ and would easily be the dominant of the two SKU’s. However as we’ll shortly find out the Xbox 360 CORE will dominate. You see the Xbox 360 CORE will become dominant because the game has been fixed from the outset to favor the underdog.

Ding, Ding Ding, First Round begins

This November fan boys, gamers and electronic aficionados alike will be clamoring to get their grubby paws on an Xbox 360 Console. Microsoft clearly has packed in goodies and value for the price, on the other hand gamers snarl and look at the Xbox 360 CORE as the Xbox 360’s aborted little brother that is clearly lacking the HDD, HD-AV pack and wireless controller.

Microsoft has priced these optional components at relatively high prices, for instance the HDD is priced at MSRP $99.99 USD, the wireless controllers at MSRP $49.99 USD, the HD-AV pack at MSRP $39.99 USD, and finally the Xbox Live Headset at MSRP $19.99 USD. Adding these components and the Xbox 360 CORE together you basically get the Xbox 360 Console, but at a total price of MSRP $509.95 USD. Clearly buying the Xbox 360 Console at MSRP $399.99 USD is the better bargain.

The majority of ‘hardcore gamers’ will obviously be buying the Xbox 360 Console, and ignore the Xbox 360 CORE completely. The ‘hardcore gamer’ will see the hard drive as an essential component to the console, with a hard drive games can be enhanced by caching content, saving data, having persistent objects within games, and offer better texture and graphics to games that otherwise may not be possible; provided the developer supports these features within their games. Microsoft intends that the majority of customers will be purchasing the Xbox 360 Console to be the case and clearly has priced these optional accessories accordingly. From a recent interview article at IGN with Peter Moore:

‘IGN: Do you think that gamers will by more for one SKU than the other? Do you have research that proves the higher price point is going to take off?

Peter: My firm belief, and in all of the discussions I’ve had in the last couple days with the analysts who are starting to look at this and tear this thing apart, is that the great majority of sales will be at $399. That is huge value for the money. We absolutely project that the Xbox 360 will outsell the Core System in the early going. Over the life cycle that balance will probably change, but for $399, it’s phenomenal value.’

So Microsoft has done their homework, their analyst’s feel the Xbox 360 higher priced SKU will sell well and I would have to agree with them. At the outrageous price of the optional accessories and the ‘bang for the buck’ factor, the premium priced Xbox 360 Console is clearly the better option, or is it?

On to Round Two

At this point, Microsoft (if everything goes according to plan) is enjoying the sales of the Xbox 360 Console and Xbox 360 CORE sales. The ‘hardcore gamers’ are buying untold number of Xbox 360 Consoles, while the general consumer is purchasing the Xbox 360 CORE SKU.

Microsoft feels they have tapped the number of ‘hardcore gamers’ that are willing to purchase the console at the current MSRP $399.99 USD price point and are preparing to battle against Sony’s Playstation 3 console (Sony PS3).

It is estimated that Sony’s PS3 console will retail for around $499.99+ USD. How can Sony really compete against the Xbox 360 CORE when it retails for MSRP $299.99 USD and Sony’s machine is expected to retail for $499.99+ USD? Microsoft obviously will be marketing the CORE version to consumers, to cut right where it counts – the wallet. Consumers will be heading in droves to stores to purchase the latest console of choice, and at MSRP $299.99 how can anyone resist picking up a console equivalent to if not better then the Sony PS3?

Consumers are confronted with a dilemma of multiple options when they head to the stores, buy the MSRP $299.99 USD version of the Xbox 360 CORE, buy the $399.99 USD version of the Xbox 360, or buy the $499.99+ USD Sony PS3. Those that do purchase an Xbox 360 clearly will be going for the cheaper model; because when you get to the basics, both versions of the consoles play the exact same games, thus why not save $100 dollars and purchase the cheaper model? You must also realize the majority of these buyers at not ‘hardcore gamers’, as most of the ‘hardcore gamers’ would have purchased the console around launch (majority – not all).

Microsoft too has a dilemma, more and more of their customer base is purchasing the Xbox 360 CORE at this point, compared to the Xbox 360 Console. As Peter Moore was quoted, ‘over the life cycle the CORE probably will shift the balance’; and this is exactly what has occurred.

On to Round Three, Wait the match is over??

The match is over at this point. The Xbox 360 CORE continues to sell at astronomical rates. Microsoft will market, push and sell the Xbox 360 CORE version to counter Sony’s PS3 offering.

By this point developers have caught on, they take notice in the shift from Xbox 360 to Xbox 360 CORE; and have shifted away development from supporting the HDD (hard drive). But lets be honest, there were only a few developers that supported the HDD to begin with. J Allard was quoted in the September 2005 issue of Game Informer:

“We’ve said [to developers], ‘Hey look, don’t bank on the hard drive always being there,’” he revealed. “‘There may be a scenario in the future where we don’t want to have a hard drive, and in that case, we have to make sure that the games that you’ve created are accessible to the broadest possible audience.’”

The few developers that actually supported the HDD at this point have shifted away and focused on supporting the Xbox 360 CORE only. Developers feel supporting a minority of the ‘hardcore gamers’ is not worth the effort considering at this point the majority of the Xbox 360 consumer base is without a HDD.

The Xbox 360 CORE has won the match against its older brother; however will it win against the PS3? That is another story.

I’m crying foul – The fix is in, the fix is in!

Now after describing that lengthy scenario lets get to the meat of this article. Microsoft from day one planned this entire strategy out. They released two SKU’s to compete against each other, by overpricing accessories it becomes clear to consumers that the premium priced Xbox 360 console is the better ‘bang for the buck’ version. It is in the mind of ‘hardcore gamers’ that a hard drive is essential to enhance game play and graphics. The idea behind this two SKU strategy was to appease the ‘hardcore gamers’ with the Xbox 360 version and offer a base product to the casual gamer – Xbox 360 CORE. At the same time the ‘hardcore gamer’ subsidized the Xbox 360 consoles by paying a higher premium.

Looking back at comments that Peter Moore and J Allard made it is very clear that: yes, the fix was in since the beginning. Microsoft’s plan was to always have the Xbox 360 CORE become the victor in this battle between titans. By ditching the HDD (hard drive), Microsoft can continually drop the price of the Xbox 360 CORE SKU to combat against Sony’s PS3. On the other hand by including a hard drive Microsoft will always be stuck at a certain price point that is beyond their control; thus making it harder to cut costs and under-cut Sony’s pricing.

However, Microsoft did this at the cost of being deceptive to their ‘hardcore gamer’ customer base. The HDD has become nothing more than a glorified memory card at this point and to be honest if Microsoft can defeat Sony – it will be at any cost. Microsoft knows a few of the ‘hardcore gamers’ will not be pleased when HDD support is all but dropped by developers. But Microsoft feels they can counter this by releasing quality software titles, Xbox Live content and thus having those ‘hardcore gamers’ completely forget how they were used and manipulated to buy an overpriced memory card – (HDD)

Yes the aborted brother Xbox 360 CORE won. But will games suffer in quality because the lack of the HDD support? Will graphics, game play, download content suffer when the HDD support is dropped? We will never really know because the potential of the HDD will be unknown.

http://www.majornelson.com/2005/08/20/chat-with-j-allard/
 
This guy forgets to mention how the hard drive is needed for backward compatability, He Spun the whole article to complain about his "facts" threw his eyes.

Let's be honest, When it comes to a choice between 300 and 400, and you wanted to actually play all your old xbox games, why bother wasting money on memory cards and have another flipping xbox on your shelf or stored away that need to bring out everytime you play....

This is freaking stupid....Microsoft should of just priced the console at 360, cut the headset and the remote, and offer them optional.
 
oh and another thing, this whole recent trend with game systems in value packs with the accessories released individually are crap.

i was at best buy last month and saw the PSP (5 of them) headphones for 19.99.

Comon gimme a break, its added value that's not there. If nintendo can afford To give away free SP headphones, then sony is making itself look very dumb.

Yesterday i was at best buy, and guess what i saw? the same 5 psp headphones that have been there for a month.

it wont work microsoft. its just a laughable cause.
 
[quote name='thingsfallnapart']oh and another thing, this whole recent trend with game systems in value packs with the accessories released individually are crap.

i was at best buy last month and saw the PSP (5 of them) headphones for 19.99.

Comon gimme a break, its added value that's not there. If nintendo can afford To give away free SP headphones, then sony is making itself look very dumb.

Yesterday i was at best buy, and guess what i saw? the same 5 psp headphones that have been there for a month.

it wont work microsoft. its just a laughable cause.[/QUOTE]

Isn't that because EVERY PSP system comes with those headphones? I'm not even sure why they sell them (and the case) separately right now... who's gonna buy them?

I'd argue that Microsoft WANTS the more expensive version to sell because they make money on the packed in accessories, and only put the CORE version out to advertise that it starts at 299. Sure, some people will get confused, or not be able to find the expensive system on shelves and settle for the core..
 
[quote name='fujishig']Isn't that because EVERY PSP system comes with those headphones? I'm not even sure why they sell them (and the case) separately right now... who's gonna buy them?

I'd argue that Microsoft WANTS the more expensive version to sell because they make money on the packed in accessories, and only put the CORE version out to advertise that it starts at 299. Sure, some people will get confused, or not be able to find the expensive system on shelves and settle for the core..[/QUOTE]

Exactly, you answered your own question. The reason they release the accessiores seperate is because you look at their High prices (of the accessories) that are set by sony (who set them high with no expections of sales because they cost little too produce and make the PSP value pack that much more appealing to buy) and say to yourself "damn, those accessories and the psp together is a great deal in the value pack"

Very sneaky and microsoft is trying the same damn thing.

Look at like this, microsoft will prolly make the retail stores put all the accessories together with the systems for sale. When you look at the core 299 plus all the accessories seperate, youll say "oh crap, 399 is an awesome value (for the special 400 release)!" While in reality, they are overpricing the hard drive (99.99? whatever!), and the wireless controller (gimme a break? 49.99? i bought my logitech one for 18 shipped to my house and it works perfect and looks great!) so that you can say to yourself the accessories added up seperate from the core system make the expensive version look that more appealing.
 
This guy completely ignores the fact that no one is going to buy the 360 if there isn't anything worth playing on it. So far it's not looking good....
 
[quote name='MrMaddness']It's not an article then, it's just some guy expressing his feelings, who has absolutely no credibility.[/QUOTE]



Apposed to an article where some writer expresses his feeling that has no credibility? I guess if you don't have your own website, you can't be right about anything, great logic.
 
This is the exact "essay" that I was talking about in the 360 chat or pricing thread. I think it was the chat one. I don't know if things are quite as cynical as this guy makes them out to be, but I do worry developers will approach things the way the writing mentions and I do believe that didn't even want to include the hard drive, but thought they'd get too much flack if they didn't.

Honestly, I think a part of their logic for not using the hard drive is they expect you to fill it up with games like Final Fantasy and such so you'll have to buy a second one anyway and if its hogged with games it can't be used for optimizing games on a disc still. Though they could partition a bit of it for that.
 
what were you expecting, chris in cali has been bitching about the next gen xbox 360 since the pricing announcement. This guys article supports his disappointment with the 360. It really doesn't make a difference. This guy might be correct in his assumptions on microsoft pushing the core system when the ps3 launches. Maybe he is way off base, lets hope that he is correct that xbox will please the hardcore gamers with great games.
 
Harddrives have failed to attract attention because games have failed to use them as little more than nonportable memory cards. You cannot have just one game and no support for anything else (FF), and you cannot have some concept games bomb and just give up (Blinx). MS should either have embraced the harddrive completely or left it out, splintering the userbase has more potential for trouble than positive gain. System add-ons have historically failed almost without exception and yet companies continue to make the same errors.
In the face of precendent, purchasing the harddrive separately will not be realistic for the majority of people that buy the 360lite. SO the majority of lite sales will be cannibalizing the main 360 base. The better it does, the less likely developers will be to embrace the harddrive because they will have a smaller market if they sell games that require the harddrive to use. Even Nintendo trying to maximize the connectivity between gba and gamecube could not succeed. And I would argue that a very high percentage of gamers with a cube have a gba.
The bottom line is having two systems leaves gamers out in the cold, separates developers from potential consumers and confuses mainstream/casual gamers who could not care less what the specs are as long as it plays madden.
 
dont forget that it is predicted that about 85 percent of the xbox360's shipped to stores will be the premium package and about 15 percent will be the core package...i hope that when all the core packages are sold out, MS won't ship more core packages so that customers are forced to get the one with the HDD...
 
I find the premise of this "article" to be completely rediculous. By the way, this is not an article. Its a comment on a blog. Allow me to explain the difference. An article has your real name on it, and its on some type of media outlet, a website or whatever, big or small. What you write in this article reflects both on the author and the site publishing it, and affects their credibility for better or worse. And, by knowing who the author is and who the publisher is, you can consider who the source is, what their credibility is, and what their motivations are.

What this is, is an anonymous comment, on someone elses blog. Do you see the difference?

Now, here is my anonymous comment, on someone elses website, completely devoid of credibility, about why this simply isn't how its going to work out.

MS loses signifigantly more money on the core system. Retailers make less money on the core system. If a consumer is going to buy a system at launch, they're more likely to spend a little more to get more, rather than spend lots of money on what people see as an inferior system. The budget concious people will wait for a price drop or go with the previous gen.

MS can easily reconfigure the HD bundled system and make it cheaper. They can stop including the wireless controller, remote, HD cables, headset, etc and "drop" the price.

The core system will continue to be around, to compete on price. MS will keep the full console's price comparable to PS3. But the benefits of the hard drive will only increase as time goes on. MS wants to create this immense online community with not only user created content, but downloadable music, movies, games, concerts, lots of on demand content. Games will continue to have a lot of downloadable content. The number of backwards compatible games will increase as time goes on. And you might need a hard drive for media center capability. All of these factors make it extremely beneficial to have a hard drive, and much more so down the road.

And while keeping the hard drive bundled console at the same price point as a no hard drive included PS3, the hard drive will not be seen as "extra", like its potrayed now. I do agree that the number of core systems sold will go up over time, but it won't overtake the full console.
 
The core system will not become the dominant SKU. The initial shipment is going to be 85% @ $400 the remainder is the core. It's going to shake down to be an 85-95% HDD adoption rate. Once people look at the price of two memory cards, which they all have if they've become accostmed to Sony or Nintendo gaming, they're going to bite the bullet eventually if not right out of the box.

Current Xbox owners are NOT going to take a step backwards in droves. They know the value of a HDD for downloads, saves, custom music, patches/fixes and not having to buy memory cards. Imagine Halo 2 with no patches or fixes. Don't think that value is lost on gamers. Don't think that anyone that's been playing Ubisoft games, Ghost Recon 2 especially, will want to go back to game without a hard drive when that game doubled in size for online maps for nothing. We've counted some excellent games extended beyond what was on the disc; Halo 2, the Ghost Recon games, Splinter Cells, Crimson Skies, roster updates for sports games, Mech Assault became an entirely new game from what was out of the box and for what, $5 on top of a couple of free downloads. The list goes on and on.

People are panicking over this for no reason. Relax, it's going to work out in the end.
 
[quote name='Chris in Cali']Apposed to an article where some writer expresses his feeling that has no credibility? I guess if you don't have your own website, you can't be right about anything, great logic.[/QUOTE]


I don't know where you got that from, I ws just expressing the fact that you called this an article, whereas it is more of an essay.

There's a huge difference between the two.
 
Its pretty simple.
The Hard Drive is for the Hard Core
And the Core is for Johnnys Christmas present.
When Johnny becomes Hard Core,
Johnny can buy the Hard Core Drive!
Thats about it.

However I think any wired controllers are completely outdated for any next gen system.
 
[quote name='PittsburghAfterDark']The core system will not become the dominant SKU. The initial shipment is going to be 85% @ $400 the remainder is the core. It's going to shake down to be an 85-95% HDD adoption rate. Once people look at the price of two memory cards, which they all have if they've become accostmed to Sony or Nintendo gaming, they're going to bite the bullet eventually if not right out of the box.

Current Xbox owners are NOT going to take a step backwards in droves. They know the value of a HDD for downloads, saves, custom music, patches/fixes and not having to buy memory cards. Imagine Halo 2 with no patches or fixes. Don't think that value is lost on gamers. Don't think that anyone that's been playing Ubisoft games, Ghost Recon 2 especially, will want to go back to game without a hard drive when that game doubled in size for online maps for nothing. We've counted some excellent games extended beyond what was on the disc; Halo 2, the Ghost Recon games, Splinter Cells, Crimson Skies, roster updates for sports games, Mech Assault became an entirely new game from what was out of the box and for what, $5 on top of a couple of free downloads. The list goes on and on.

People are panicking over this for no reason. Relax, it's going to work out in the end.[/QUOTE]

It has absolutely nothing to do with the usefulness of a HD or with current xbox owners for that matter. Microsoft has told developers to not count on a presence of a hard drive. Thus they won't. Period. Even if it is 85%/15% (which I believe that will quickly change as more casual consumers buy the cheaper one-simply because to John Smith a HD is not worth $100, when you can get a memory card for $40. Remember, most people do NO research on what they are buying.), MS is not going to greenlight a game that 15% of their installed base can't play. And since PS3 has been announced to not be shipping with a HD, the HD's future in gaming is not looking too good. IMO, it is one of the greatest advancements in gaming, but if no one is using it, it WILL disappear. If no games are made that require a HD (which MS has already said most likely won't happen), most people will buy the cheaper one if it is available. They are shipping 85% $400 for two reasons: To get more money up front and because they know most of the early adopters of any system are hardcore gamers, who know the value of a HD. Betty Smith, when she's buying Bobby's birthday gift in march, won't, and you can be damn sure she'll buy the $100 cheaper version. "Gamers" are in the vast minority now. I know it is hard to accept, but it's true. Gaming is "cool" now. Many people who game now don't know a damn thing about tech, they just know whether something is fun to them or not, and the difference between $300 and $400. The core will dominate, because MS can drop the price on it through the floor, and they won't really be able to do that with the $400 version. I totally agree that the HD is one of the things that makes the box so special, but with the abiltiy to stream music from your PC, they could just make all game changes server side, additional content a thing of the past or a incintive to buy a HD. Remember, no one said "The majority of 360s won't have hard drives." Just that the core would eventually outsell the more expensive package. Say they keep the difference in price and package contents the same. Release the much talked about 40GB HD for $90, and you instantly make the core system sell 20 times the amount of the bigger package. We're not talking about by Christmas, but over the lifespan of the system. I truely hope the HD comes into use the way it did in the current xbox, but there is absolutely no guarentee of that.
 
Interesting points, but its pure speculation. The whole arguement stems from his bitterness about the hard drive not being standard.


Nobody knows that the PS3 is going to be $500, much less when its going to be released. As Chris Morris pointed out (which we discussed on CAGcast), Sony could just be blowing smoke up our asses.

Sony has the benefit of being able to use the 360 launch as live market research. We all know 360's will sell out at Xmas time, but what will be cooking in mid '06? If the 360s aren't flying off the shelves, Sony can fire up its marketing machine and wait a few months, launching the PS3 a full year after the 360 launch. The differences in hardware power could be more significant by then.

I think the real question is: Will a significant number of potential customers not purchase a 360 until PS3 is released? I think the answer is yes.

We'll have to wait and see what the 360 has to offer in the next 12-18 months. I don't think any of us could possibly know at this point.
 
[quote name='dafoomie']Retailers make less money on the core system.[/QUOTE]

Actually, retailers make the same on both SKU's of the 360. I was talking to my manager buddy who works at Gamestop and they make $8 on either SKU of the 360. I then asked him how much the store makes on each PS2 and he said $8. It seems like $8 is the magic number for what retailers (well atleast Gamestop) get per console sold.

On another note. I found out they make between $6-$8 per new game sold.

This info is new to me because I never thought to ask about it until the other day. Hope that enlightens a few of you like it did me.
 
[quote name='Morpheus']Actually, retailers make the same on both SKU's of the 360. I was talking to my manager buddy who works at Gamestop and they make $8 on either SKU of the 360. I then asked him how much the store makes on each PS2 and he said $8. It seems like $8 is the magic number for what retailers (well atleast Gamestop) get per console sold.

On another note. I found out they make between $6-$8 per new game sold.

This info is new to me because I never thought to ask about it until the other day. Hope that enlightens a few of you like it did me.[/QUOTE]

But if people buy the core system they are gonna need to buy a memory card or hard drive as well, so i'd guess that retailers would make more from people buying the core
 
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