Microsoft Officially Declares Xbox 360 Elite Price Cut to $299

As was expected, after Sony lowered the PS3 fat price and introduced a new PS3 Slim for $300, as a response,  Microsoft is cutting the price of its high-end Xbox 360 Elite, which comes with a 120 Gigabyte hard drive, by $100 from $399 to the price of $299, starting Friday. The current $299 60GB model will be reduced to $249 while supplies last. That means eventually, the only two models at retail will be the 120GB version and the $199 Arcade model without a hard drive.

Starting Friday, the Xbox 360 Elite will be priced at $299, $100 cheaper than its current price. The Xbox 360 Pro, which currently retails for $299 will be priced at $249 starting Friday. Once retailers sell through their entire stock of Xbox 360 Pro units, that SKU will no longer be offered by the hardware maker.

Going forward, Microsoft will offer only the $299 Xbox 360 Elite with its 120GB hard drive, and the $199 Xbox 360 Arcade which comes bundled with five games and a 256MB memory unit.

“This is really an effort to pass the cost reduction we are able to achieve through engineering and manufacturing onto consumers,” said David Dennis, Microsoft Xbox 360 product manager. “Reducing the number of (models) really just simplifes our manufacturing and makes it easier for our retail partners to manage their inventory and makes the purchase decision easier for consumers. It’s really a win-win-win all around.”

Dennis noted that the Xbox 360 “already had great momentum this year with 17% sales increases over the first seven months of 2008, while other systems have slowed sales. The Xbox 360, launched in November 2005, has sold nearly 16 million in the U.S., putting it in second place behind the $249 Nintendo Wii (nearly 21 million) and ahead of the $299 Sony PlayStation 3 (8 million-plus). “This sets us up for the holiday,” Dennis said, “and a lot of people are doing back to school shopping so being at a reduced price at this time is good for that reason.”

On the system’s reliability, Dennis said that “with any consumer electronics device you constantly engineer and reengineer to drive better performance and better reliablitly. Obviously, we had some reliability issues but we feel they are largely behind us based on the quality of the product we are manufacturing today.”

Jesse Divnich, director of analyst services at Electronic Entertainment Design and Research, does not expect Xbox 360 sales to rise significantly because of the price change. “Some would argue that Microsoft’s new pricing scheme represents more of a pseudo price drop than an actual price drop since consumers looking to purchase a core Xbox 360 system will still have to pay $299, as they had prior to the new hardware line-up,” he said in a report. “The price drop on the Xbox 360 Elite means that Microsoft’s core hardware SKU now boasts a bigger hard-drive and HDMI support than its Xbox 360 Pro predecessor.”

Even though the Xbox 360 and Sony PlayStation 3 are both priced at $299, Divnich said that “technologically the Xbox 360 is not at the same level as” the PS3. “This puts the Xbox 360 into a tough position where it is outmatched in terms of hardware capabilities at $299 and the Nintendo Wii remains alluring to casual and price sensitive consumers at $249,” he said. “Over the next year Microsoft will most likely reposition the Xbox 360 Elite model closer to the $249 price point to both pressure Sony and attract potential Nintendo Wii consumers. From a strategic standpoint this would then allow Microsoft to introduce the new Natal model in 2010/2011 at the $299 price point and still have an option for consumers cheaper than the (PS3).”

“The price cuts by itself won’t stop people from buying Wiis. The users are too different,” he said. “With Nintendo, the issue is not about the price so much as saturation and ability to grow in new markets.”

Microsoft shares were down 8 cents to $24.47 in thin premarket trading.

Other changes?
Microsoft was quick to say that no other changes will be made to its offering. The Xbox 360’s design will remain unchanged. Accessory pricing on products, such as Wi-Fi adapters and hard drive add-ons, will also stay constant.

Say good-bye to free cables
Perhaps the most glaring omission gamers will find when they pick up the now cheaper Xbox 360 Elite is that it will not be bundled with an HDMI cable. Current units on-sale for $399 include one.

When I asked Microsoft why it decided to ditch the it, the company had a rather interesting take.

“When we first launched the Xbox 360 Elite, HDMI cables had high perceived values,” Greenberg said. “Now, they’re commoditized.” Greenberg went on to say that research Microsoft performed found that the majority of its customers weren’t using the cable. Realizing that, it decided to remove it from the Elite packaging and “pass the savings on to customers.”

That logic flies in the face of Microsoft’s contention that HDMI cables are being commoditized. Commoditization suggests production costs are low and including them with the Xbox 360 Elite wouldn’t be as costly as they once were. It’s debatable that Microsoft is actually helping consumers by taking the HDMI cable out of the Xbox 360 Elite box.

Browsers and Blu-ray
Windows features a browser. Windows Mobile has a browser. And the upcoming Zune HD sports one too. But so far, there isn’t a browser in the Xbox 360. I asked Greenberg if Microsoft plans to offer an Xbox 360 browser in the near future and he didn’t hesitate: no chance.

“It’s a pretty bad experience,” Greenberg said when asked why Microsoft won’t offer a browser in the Xbox 360. Microsoft has decided that it wants its console’s software to focus on home entertainment. A browser doesn’t quite fit into that strategy, although it’s worth noting a software update that’s slated to be released later this year will add native applications for Twitter and Facebook.

Microsoft also has no plans to bring Blu-ray disc playback to the Xbox 360. The hardware maker doesn’t see a reason to add Blu-ray to its console when users can already get HD content through Xbox Live.

Looking ahead
So, a new pricing battle has been started. Starting Friday, you’ll be able to choose between an Xbox 360 Elite for $299 or a PlayStation 3 for the same price.