Yesterday, Microsoft lowered the US price of its Xbox video game system from $179 to $149 and announced similar price reductions in other North American markets, fulfilling persistent rumors that the company was preparing to cut prices in a bid to boost sales. Microsoft also lowered prices on best-selling games such as Project Gotham Racing 2 and Crimson Skies. With these price cuts (which Microsoft described as "robust"), a library of more than 400 games, and more than 750,000 active Xbox Live customers, Microsoft hopes to show consumers that not only is the Xbox alive and well, it's superior to Sony's PlayStation 2.
In the bad news department, however, Microsoft canceled its entire range of 2004 XSN Sports Xbox software titles this week, citing quality problems. Microsoft launched XSN Sports in 2003 and promises to have a 2005 lineup ready next year. But missing out on an entire year of lucrative sports upgrades could harm the Xbox irreparably at a time when competition from EA SPORTS and Sega's ESPN Videogames is surging. The company says that not one of the XSN games is permanently canceled.
Microsoft also recently announced a new video game software-development strategy, dubbed Microsoft XNA, which will let PC, Pocket PC, and Xbox game developers work from a common set of APIs, simplifying and shortening the development process. Thanks to XNA, Microsoft says, Windows-based developers will be able to create Xbox Live-like environments for the PC, and Xbox developers will be able to use available Windows-based tools to create Xbox games.
Microsoft launched the Xbox at $299 in November 2001 and has steadily lowered prices ever since, although the company loses money on every Xbox sale. Microsoft hopes to make up the difference in software and hardware sales and Xbox Live subscriptions, which represent fairly lucrative per-unit sales. The company's competitors--Nintendo and Sony--have also lowered prices over time. Nintendo's GameCube is still the champion of the low end, however: The GameCube retails for just $99 in the United States and has experienced a sales resurgence as a result.
Still, even with consistent price cuts and its competitive advantages over rival consoles, the Xbox hasn't faired well. The PlayStation 2 outsells the Xbox by a 5-to-1 margin, and Sony recently announced that it expects the PlayStation 2 to sell strongly for at least another 10 years, dashing gamer hopes that the company will release the PlayStation 3 any time soon.
Microsoft has lost an estimated $1.8 billion on the Xbox since it first released the system. But the company hopes to establish the brand as the most sophisticated video game solution on the market, then reap the benefits of its installed base as more game developers deliver Xbox content and more customers purchase software titles and other add-ons.