Subsidizing the Xbox 360

Xbox 360

Yesterday, Tom Warren penned a revelatory post for The Verge in which he uncovers Microsoft’s forthcoming plan to subsidize the cost of the Xbox 360. Foregoing the traditional $299 (and higher) price point, Warren reports that Microsoft is set to announce a $99 Xbox 360 supported by a $15 monthly fee. The console and associative fee afford the end-user a Kinect sensor and two years of Xbox Live Gold.

Regardless of any evident discrepancies between the subsidized pricing model and the current full-price offering, I cannot help but regard this decision as astoundingly shrewd on Microsoft’s part.

Console manufacturers are in the business of selling their respective devices at a loss when first arriving at market. Upon reaching manufacturing parity with cost, manufacturers inevitably gouge the price of their product. In other words, console manufacturers are in a constant game of aggressive marketing toward a variety of demographics — price often being touted as the most important element of this intensive equation.

Despite this incessant price posturing, however, consoles rarely break into the impulse purchase zone until their replacement has arrived in the marketplace. Thus, by subsidizing the existing Xbox 360, Microsoft looks to utterly reshape the gaming landscape.

Boasting extensive media offerings, an enormous library of games, and the Kinect’s wonderful capabilities, Microsoft has a device capable of winning the core battle for the living room. Regardless of the ongoing $15 fee, consumers will purchase the $99 Xbox 360 in droves. In doing so, Microsoft will utterly reframe the Xbox’s target use-case — shifting from video gaming to general entertainment consumption.

Given the choice between a $99 Roku, Apple TV, or Xbox 360, I imagine the vast majority of people would purchase an Xbox 360. Offering a much broader pedigree of entertainment, deep-seated support for streaming media, and many more benefits, the Xbox 360 simply poses far too many positives for the average consumer than does a dedicated Roku or Apple TV.

Perhaps the subsidy model is somewhat misleading but, in my eyes, it is the shape of things to come for the consumer landscape. Whether it’s Adobe’s Creative Cloud subscription, the Dollar Shave Club, the venerable mobile phone contract, or even Netflix’s various offerings, it is clear that the subsidized model of commerce is capable of attracting — and sustaining — customer intrigue.

Concordantly, Microsoft’s recognition of the shifting tide in the marketplace strikes me as a resonant endorsement of a resurgent technology giant, and certainly betrays a latent sentiment of optimism many harbor for the company. Rather than casting an arrogant eye across the technology landscape, Microsoft has assumed the role of a scrappy startup and, in doing so, has adopted an affable demeanor worthy of praise. In recent weeks, Microsoft has endured waves of positive press with regard to Bing, SkyDrive, and, to a lesser extent, Windows Phone — a subsidized Xbox 360 will certainly add to this positivity.

The announcement of the $99 Xbox 360 is expected to occur “next week.”