Last week Microsoft announced it was it cut the price by $200 just months after launch.
In a normal scenario I’d advise against a straight price cut. Microsoft’s actions are a result of struggling sales because of an inability to communicate the value of its product vs. its biggest rival the PlayStation 4.
But, there is a bigger point to the Xbox One price cut that might be immediately obvious.
Technology companies are selling much more than a single product. Much like when Apple cut the price of the iPhone, Microsoft is selling an ecosystem. Getting a large user base is important to entice developers to the platform who can in turn write games to tempt even more people into buying the console as well as to retain existing owners. It’s important to get that traction early before a competing platform, in this case the PlayStation 4, becomes too dominant. Given the social nature of gaming there is the impact of network effects to consider as gamers opt to buy the same console as their friends so as to allow them to play together. Furthermore, the more games a user buys the more invested they become in the platform, making switching both costly and time consuming.
Whilst the price cut does speak of a little panic it does also hint at Microsoft’s belief that price is an important factor when people choose which platform to buy into. The company should also be commended for its bundle offer (£399 for the console with the major game Titanfall) that is closer to value pricing.
Clearly Microsoft has its work cut out growing Xbox One sales in the UK, but the price cut should help. If it can help it sufficiently enough that those extra customers stick around for years to come and in doing so buy games, accessories and other media, then it most likely will have been worth it.