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With the Xbox 360 launch just around the corner and with its recently announced multi-tier pricing strategy, the latest Question of the Week asked of our audience of game professionals: "What do you think of the Xbox 360's launch pricing, and what are your views on Microsoft's multi-tiered Xbox 360 bundling strategy?"

Quang Hong, Blogger

August 24, 2005

13 Min Read


Last week's Question of the Week simply asked our professional audience: “What do you think of the Xbox 360's launch pricing, and what are your views on Microsoft's multi-tiered Xbox 360 bundling strategy?”

Overall, and regarding the actual cost for Microsoft's console, the response was reasonably positive, with many thinking that the pricing was fairly competitive, and a minority of complaints. Opinions varied, however, when it came to the multi-bundling strategy. The chief major concern from a developer perspective seemed to be over the lack of a hard drive in the core system, essentially splitting the Xbox 360 user-base in two.


Multi-tiered Pricing and Bundling

Personally, I think that the launch price is lower than I expected. This system is significantly more powerful than the previous Xbox, and (if you compare to the $299 version) it's the same price!! As for the multi-tiered bundling. I think it's generally a good idea, with one exception. While not everyone would want or need a wireless controller, headset or HD cables; Not including the hard-drive with both bundles is a bad idea. It essentially eliminates the hard drive's utility for future games. Who's going to develop a game that takes advantage of the hard drive if it's not an integral part of the system? Other than that, the system (based purely on specs) looks amazing! I can't wait.
-Jason Gowan

I honestly can't complain about the prices. The truth is that all the hardware and accessories are currently worth way more than $400. The hard part is convincing myself that it's ok to pay $400 for a game console. I think that Microsoft's multi-tiered bundling strategy is going to work. I think they're putting out a less expensive system just for the sake of saying they did. Then when they're questioned by the media they can say “people don't have to pay $400. We offer a less expensive, base model.” I think that Microsoft is going to make a killing off anyone that buys the stripped core package. Anyone that buys the core package will quickly find that they can't do anything without the accessories offered in the $400 package so they'll drive down to the game store and dish out $50 per accessory just to bring themselves up to par. They'll easily end up paying over $400 for trying to save a buck in the first place.

I don't think the prices for the $300 or the $400 bundles are unreasonable, but anyone who buys the $300 bundle is going to end up paying more on expensive accessories. $99 for a 20 gig hard disk? You can get a 250 gig hard disk for less than that! If you don't want to get the hard disk, you have to pay $39.99 to save your game. For $39.99, you get 64 MB of flash space. You can get 512 MB of flash memory for less than that! If Sony goes with memory stick for PS3, people will be outraged at how much they have to pay for an Xbox 360 memory card. The base system price is reasonable for what you're getting, as is the extra $100 for a bunch of accessories (Xbox Live Silver membership, a wireless controller, a headset, a wireless television remote control, and a 20GB removable hard drive), but you'll be end up paying a lot more if you don't pay the extra $100 because you have to pay a minimum of $40 to save your game, and you have to pay way too much for too little space.

Seeing as you get a living-room PC, DVD player, music player, wireless media hub, and Internet browser etc, the price isn't that bad. The two-tier thing just makes me wonder whether having the hard drive is necessary at all and if it's a backward step that game developers wont be able to take advantage of (as it may not be there).

I don't have a problem with multiple packages or the prices they are offering them at. I have an issue with having a package that has less functionality than the other - the version not coming with a hard drive. Microsoft has pushed these different things that you can do with the system, some of which require the hard drive, yet if you purchase the cheaper model, you seemingly won't be able to do these things. I don't think it should be one package with a hard drive, one without. I think it should be one package with a small or the smallest available drive, one with a bigger one.

The prices as offered are not as steep as everybody would like to believe. The point is that the 360 is a full entertainment/media station. For just $399 you can have it all. The $399 package is well worth it if you do your research and really find out all the things the hardware can perform. Marketing: the multi-tiered strategy is going to net Microsoft profits, but not that much. The thought behind the tier strategy is that they can put out a budget bundle to catch the consumers that will fall through when they see the hefty $399 tag. But how many people will really fall through? Consumers are smart today and many will do their research before throwing around a chunk of their paycheck. When they find out that the 360 is so much more than a simple videogame system, I have a feeling that most people will be willing to shell out $400 bucks. In addition, instead of releasing it in the spring or summer, Microsoft will be just in time for the holiday season. But the largest factor is will you be willing to pay $100 dollars for more than $100 dollars in goodies? The extra goodies that come with the full package will retail for well over $100.
-Lars Comstock, Smart Bomb Interactive

I think the pricing is very competitive, but I think it's a questionable decision to not include a hard disk in the core system price. Developers will now never exploit the hard disk and the Xbox 360 will be a generation behind the original Xbox in terms of storage. At the very least MS should provide a very large memory card or a smaller hard disk in the base bundle.

In terms of a marketing/business strategy, I think it's a great idea. The next generation of consoles seems to be priced at about the $399 range so to offer a core version for $299 will definitely pull a few more buys. However, from an avid gamer's viewpoint, I do feel it's a bit of a scam. I have a lot of faith in the Xbox crew and would like to think they would want everyone to play on the best version of the new console, not just the one they can afford.
-Micah Peterson, Protagonist Inc.

It's a very strong offering. Microsoft really seems to have grabbed the whole customer servicing option and run with it, in the same vein of the iPod mini and the iPod. It's for these and many related reasons that I think Microsoft is going to dominate this business within 5 years. It may not happen with the 360, but with the 720 (or whatever they call it), but it will happen.

The “low cost" option comes without any sort of storage capability. So, right there, you need to add another $40 for a memory unit, probably $80 for two of them, to make the system truly useful. Of course, lots of consumers will probably only find that out after they've already left the stores...

Microsoft really screwed the pooch with this launch strategy. They set the expectation that the $299 price point would include a hard drive. Now they come out with a bastard child in the form of the core system, which has no hard drive and comes with a wired controller rather than a wireless. This version is a joke since it has limited Xbox Live capability (no downloads or updates), no backwards compatibility, and can't utilize the multimedia capabilities that Microsoft has been hyping so much. The other problem is the fact that developers will design to the lowest common denominator so the hard drive will not be used to it fullest potential. The “no more wires” pitch also gets thrown out with the bath water, since the core system only includes a wired controller. The initial reaction within the online Xbox community has not been positive, which doesn't bode well for a successful launch. Any missteps at this point can't be good, especially with the Sony PS3 juggernaut on the horizon.
-James Diaz

It would be very interesting to see how well the premium bundle sells against the core package. Early adopters will most likely opt for the full-featured version because the core package appears incomplete even though you can play almost all Xbox 360 games with it (with FFXI being the exception I believe). Microsoft stated that the casual consumer is the reason why they are releasing the $299 SKU, but how many of these consumers are early adopters? The mass-market will most likely wait for a price drop on the core system instead of outright buying one for almost $300, they'll probably wait for a price drop in the games as well considering their new sticker price of $60. As a gamer, I felt that the Xbox HDD was underutilized, now that Microsoft is splitting the userbase with these two packages I hope they have games in the pipeline that will take advantage of the HDD so the hardcore gamer would feel that their purchase was worthwhile as well as giving casuals a reason to upgrade.
-Carlo Delallana, Ubisoft

I feel they are somewhat making a joke of the $300 version, as it seems like a total waste with what you get compared to the $400 version, especially at launch with the bonus remote. Pricewise, I think it's too expensive for what I feel is a mediocre looking system that was rushed into production.
Kenneth Stojevich, Art Institute of California San Francisco

To split your userbase on day one is never a good thing, as it almost ensures that only half the developers will support the hard drive, especially if the small bundle outsells the "real" version. I could understand the inclusion of a smaller hard drive, but none at all is unacceptable. Better to just price it right at $399 and say: "This is it". You can certainly bet that Sony is happy to see even more people now waiting for a PS3 so they can compare.
-Sheloman Byrd, Upper Deck

I think it will hurt Microsoft. Splitting the hard drive up will limit the games that utilize it, and by making it so the 360 requires the hard drive to play older games will make a lot of casual gamers mad. I hope they're prepared to deal with the legions of people who buy the 300 dollar 360 in hopes of using it as an “upgraded” Xbox, and then find it that doesn't work. And 100 bucks for the 20 GB add-on drive? Come on. I think that their cheap model will end up hurting their image. They say it's targeting non-hardcore gamers - but the original Xbox is doing that right now. The non-hardcore gamers aren't going to buy any console at launch. And if they do, it's true they'll probably buy the cheaper one - the question is if they'll actually think it's worth it. Personally, I think the non-hardcore gamer will see that the cheap version can't play Xbox games, can't play DVDs, doesn't have a wireless controller, doesn't have a HD for music and they'll be pissed.
-Colin Torretta

Releasing a version of the 360 without a hard drive will hurt product quality. Publishers will force developers to support consoles without a hard drive and also make enhanced versions for the consoles with a hard drive. This will mean extra time and costs for the developers, so something else will have to give. Also the extra cost and time involved in QA for two distinct platforms will stretch resources and eat into profit margins.

Wearing the developer hat, it sucks because, as always, we all need to target the lowest common denominator. Since game development is crossplatform, it's not worth spending development effort on peripherals. How many games support Sony's PS2 hard disk? It won't be quite _that_ bad; I estimate that 75% of 360 games will ignore the hard disk entirely. This in turn makes it a worse value proposition for the consumer, ensuring that it remains mostly unsupported. (Disclaimer: If some popular game engine or middleware makes use of the hard disk in some clever way that's unobtrusive to developers, then the hard disk will get used by a lot of games.) Wearing the business hat, yay, they're keeping the costs down for price-conscious consumers, which will expand the installed base and increase the sales of all our games. And the price of the console will probably come down faster than it did in this generation: Microsoft has been telling us that one of the obstructions to their lowering the price of the original Xbox has been that hard disks mostly get bigger and not cheaper as time goes on. I can see the first price reduction being $50 on the basic console, with the premium bundle staying at the same price but with a bigger hard disk.
Bill Dugan, Torpex Games

I think it follows in the footsteps of what Sony has already announced. It's not earth-shattering on any level, but I think that Microsoft may push a quick price drop (even at the risk of larger losses) based on what the PS3 tiered-pricing debuts at.
-Rob Lazenby, The Drop


[Please note that the opinions of individual employees responding to the Question Of The Week may not represent those of their company.]

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About the Author(s)

Quang Hong


Quang Hong is the Features Editor of Gamasutra.com.

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