Microsoft's $99 Xbox 360 has a Surprise Inside

May 8, 2012 -

Microsoft has a new Xbox 360 bundle that costs $99, but consumers that buy it will have to commit to a two-year contract for an Xbox Live Gold membership. And that two year membership will cost you about $15 a month. While the idea might be to subsidize or finance the console as a trade-off for the low price point, the move also smacks of false advertising because the console will ultimately cost consumers $99, then 24 months of paying $15, for a grand total (not including sales tax) of $459 (24 months x $15 = $360, plus the price of the console at $99).

Several analysts speaking to GamesIndustry International described the new bundle as a bad deal for consumers.

"Microsoft could gain some additional market share and Xbox LIVE Gold subscribers with a deal like this, but the offer doesn't hold up for consumers who do the math," Billy Pidgeon of M2 Research told the publication. "At current prices the offer would save the buyer about $200 on the hardware, but XBL Gold is currently $5 per month. Increase the subscription price by $10 a month and the consumer pays for the hardware break in the first year, but is tied into the service at the same high rate for an additional year. Great for Microsoft, not so great for consumers."

"I think subsidizing hardware with a subscription service can be a great business model, and I'd like to see Microsoft, Sony and Nintendo experiment with better offers for consumers," he continued. "Online network platforms are a primary value differentiation for hardware, and provide an essential transition bridge between hardware cycles. Renting hardware with value-added subscription services linked to cable or satellite television providers would be a more radical end-cycle subsidized play."

Michael Pachter of Wedbush Securities agrees with Pidgeon's assessment.

"Maybe I'm just a finance geek, but the $99 360/Kinect with a 'subscription' looks a lot like a full priced sale financed at around 10% to me," he said.

And David Cole of DFC Intelligence agrees. "As a consumer the prices being talked about look like a sucker deal to me. However, there definitely is going to be a consumer type out there that would go for it. Especially it may appeal to college students on a budget." "I have been fascinated by the possibility of subsidizing a console with a subscription for some time. Sega has already done that with the Dreamcast... Really any console could do it, it basically just a financing plan and if you structure it right the consumer pays more in the long run," he said. "It is really an interesting marketing play... I think you will see more creative type marketing packages coming in the future from all the manufacturers."

Finally, Scott Steinberg, CEO and lead analyst for business consulting firm TechSavvy, sees the appeal in subsidizing a video game console, but isn't too sure about this particular approach.

"Product subsidies have been used to tremendous effect in consumer electronics and services businesses such as telecom and mobile connected devices, and are slowly creeping into other verticals such as eReaders and tablet PCs, making it little surprise that similar strategies might be experimented with in the video games industry," said Steinberg. "Given the tremendous success of both the Kinect and Xbox Live, and the duo's ability to work in tandem as software playback and original content delivery platforms that potentially boost user engagement and revenues, it would be a relatively organic brand extension for Microsoft to attempt to move in this direction - and a potentially wise one, given the growing importance of needing to maintain a captive audience and migrate it to digital platforms."

Ultimately I think it’s fair to say that Microsoft may open itself up to litigation of some kind or a class action lawsuit unless the packaging for this particular model clearly states that there's a catch inside the box...

Source: GamesIndustry International


Comments

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

I thought Microsoft was going "foward" in terms of innovation. But this just makes them look like money-nazis. I bought my 250 gb Xbox 360 Slim for $300 and I'm happy with paying $40 per year (depending on where you buy your subscription) for Xbox Live.

"It doesn't matter who's got the bigger stick. What's matters is how you swing it"

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

So far, these are some things I do not like about this "deal": (see Terms of Service)

  1. It is a financing deal. Meaning, you will have to pass a credit check and be 18 years of age to qualify. This is exclusionary to many who would find this option appealing. It could also be another avenue in which your credit rating could be harmed. Do we need more of those?
  2. Microsoft could change the terms at any time. While this is something most any company has in its TOS, this is still bad as the onus is on you to keep track of changes as MS will not notify you.
  3. As I mentioned before about the ETF, it is tied to your XBox live status. If you or someone in your family gets you kicked from XBox live, you will be instantly charged the ETF. Depending on where you are in the 24 month finance period, it could be fairly high.
  4. You waive the right to open or join a class action lawsuit over this contract. You are agreeing to either negotiate your dispute in private or through arbitration. This is somewhat alleviated by the inclusion of the right to sue in small claims court, but you are limited in reward amounts going that route. 

Like I said earlier, while it is not horrible, it is still not a program I would participate in. I certainly would never be able to suggest anyone join this program.

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

Since when is Xbox Live Gold $5 a month? It's still $8/month on my end. Maybe if I bought a year at a time, but month to month is $8. Also, this is for people that don't ever have an extra $250-$300 lying around at any one time, but they may be able to scrape together $99. And, $15/month won't be horrible on their wallets. They're targeting the perpetually poor. If you want to see how bad they normally get financially raped, go take a look at the payment programs at Rent-A-Center. MS is taking it very very easy on them in comparison.

- When you look into the abyss, the abyss also looks into you.

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

Overall, the price paid is not horrible, but there is still a lit of information one must absorb before diving into this.

Take the ETF for example. While the ETF is prorated starting the 4th month in, it is still fairly high. Not only is it high, they can force it on you for 3 reasons, one of which being banned from XBox Live. Since there are still instances where people are banned by mistake, being charged $200 in a single month unexpectedly could hurt someone financially.

I really need to go through the rest of the TOS before saying much more. 

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

Not a good idea.  Who are they marketing this too?  People who have been on the fence about getting a 360 since 2006?  I'm sure those are the one's who'll be happy to shell out $15 a month for Xbox Live.

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

I imagine the target audience is probably lower-income individuals and families who can't justify spending $200 on a console, but can get away with $99 and $15/month. If so, this may actually be a good sign for the continued existence of used game sales in future console generations.

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

I wonder if it might not be so much a targeted thing, but a testbed for a new sales model entirely. Imagine if next generation Xbox had this as an option from launch. Pay the full price up front, or pay a much lower price with a locked in monthly contract. It's something people are familiar with - nearly everyone does it with their phones, it's why they can generally afford to get a nice phone and replace it every couple years.

If you would have had the Live subscription anyway and were going to pay month to month, your total net cost here is $267 when you eliminate 24 months at the normal gold rate. Which isn't nearly as excessive as the $459 figure.

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

I can see why that model works for phones.  You need to pay for airtime to make calls.  Signing a contract for a service that will to allow the phone to do its primary function kind of makes sense.  But Xbox Live is an option.  You don't need a Gold subscription to play games on a 360.  It's like having to sign a 2 year contract for a monthly fish stick delivery to get a discount on a freezer.

Re: Microsoft's $99 Xbox 360 has a Surprise Inside

Take a look at your cell phone options next time you go to get a new phone. You can get better up front deals and better phones by taking optional higher tier packages on your contract. Many cable and satellite companies will give you a cheaper price on optional hardware like DVRs if you take a two year contract to a higher tier service, even though the hardware will work just fine on the cheaper service.

Heck, since you mention a refrigerator, Swan's food delivery service used to offer a special pricing plan on a chest freezer as long as you made a minimum purchase every month.

 
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