Thursday, August 18, 2005

More Notes on 360

Okay, here's the second tier of thoughts concerning what could be driving the pricing announcement yesterday.

This is the question: when it appeared for several months that $299 would include a wireless controller and hard drive, what happened to change that plan?

I think these are the reasonable possibilities:
1. Microsoft finally got hard numbers for what it was going to cost to build the console and just didn't want to eat that much of a loss. They couldn't back out of the $299 price point, but they could make a barebones package that wasn't very attractive compared to the higher-priced bundle. That's a common retail strategy.

What this makes me wonder: by all indications, Sony's console is going to be more expensive to manufacture than Microsoft's, possibly significantly so. So if Microsoft had to do this, what features will Sony cut to get to $299?

Prediction: Sony uses the same pricing strategy as Microsoft. For either $299 or $349 you will be able to buy a PS3 with composite cables, one controller, and no memory card. And I wouldn't rule out the barebones system having a regular DVD drive, not a Blu-Ray drive. I could see the "Premium" version going for $449 or even $499.

2. Microsft has manufacturing limitations that will make it unable to fulfill demand for the new console this fall. So if they can't meet demand, they could go for a slightly higher price point and still sell out. However, not being able to meet demand could cripple Microsoft's chances to build a large installed base before the PS3 comes out.

3. Microsoft has inside information about Sony which indicates that Sony is well behind in their plans for a Spring 2006 launch. If Sony doesn't launch the PS3 here until Fall 2006 (which is what I expect--a September 2006 launch date), Microsoft can launch at a higher price point because they'll have ten months to build the base.

I'm sure that Microsoft and Sony both have information on each other, so this scenario wouldn't surprise me at all. And my sense is that Sony is well behind, although I have no hard information to prove that.

In a surprising way, I think pressure is shifting from Microsoft to Sony, for one simple reason: Microsoft prints money. Sony doesn't. Microsoft can take significant losses from their console and it's not going to impact their core business. In many ways, though, gaming IS Sony's core business now, at least in terms of profit contribution. Sony's core businesses also revolve around entertainment, and as such they're much more unstable. Microsoft can be second in the console race in the U.S. and Europe and it's no problem for them financially. If Sony is second, though, it's a disaster.

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