Xbox Series X/S Price: Why Microsoft Went Low
A top executive at Xbox explains why Microsoft priced the new Xbox consoles so low.
Update: Sony has now officially announced the price and release date for the PlayStation 5 ($500 USD) and the PlayStation 5 Digital Edition ($400 USD). The consoles are available to pre-order now, and you can check out GameSpot's PS5 Pre-Order Guide to learn more.
Microsoft recently announced the prices of the Xbox Series S ($300) and Xbox Series X ($500), and they came in lower than some might have imagined, especially the lower-spec S model. The consoles were intentionally priced low, and Microsoft is launching the phone-style subscription plan, to make it easier to get people into the Xbox ecosystem and then start spending money on games, according to Xbox CFO Tim Stuart.
Stuart told Barron's that the aggressive pricing for the Series S/X consoles will help Microsoft "kick-start" the new generation.
"Our goal was to increase that top-of-funnel as fast as possible, get people into the ecosystem, get people into that next-gen experience, and frankly kind of kick-start this generation as fast as we can," Stuart said. "If you can get that install base as big as you can up front, you have customers enjoying the next-gen experiences we have to offer. And from a business side, we start to monetize and build a customer lifetime value much faster than a slow build over time."
Microsoft could lose as much as $100 on every Xbox Series X sold, but the company will make up those losses with game sales and subscription revenue like with Xbox Game Pass. It's common for consoles to act as loss leaders, but this is a larger margin than usual. Stuart spoke about this in the interview with Barron's.
"I like to talk about how engagement equals currency," he said. "If customers are playing, they're buying more things from our partners, they're buying more things from us, and their enjoyment goes up."
For comparison, the Xbox One launched at $500, which was a full $100 more than the PS4. This price gap, along with various other stumbles by Microsoft (such as a controversial plan to block used games that was abandoned ahead of launch), led to a difficult position for the company relative to the competition.
This generation, Microsoft is starting off from a stronger position with a lower price (when factoring in inflation) and the smartphone-style Xbox All Access program where you get can an Xbox Series S for $25/month or an Xbox Series X for $35/month.
Kotaku did some calculations and reported that the Series X ($500) is less expensive than the launch prices for the Xbox 360 ($529) and the Xbox One ($555) when adjusting for inflation. The original Xbox, released in 2001, cost $299 at launch.
While Microsoft has announced the price and release dates for its next-generation consoles, Sony has yet to divulge the launch details for the PS5 and the digital PS5. We also don't know if Sony will follow Microsoft's path and offer a subsidized program as well for the consoles.
Sony is holding a PS5 showcase on September 16, so it might not be long until we learn more about the console and its price/release date.