Two Versions of Xbox 360

In its effort to make Xbox profitable by mid-2007, Microsoft will release Xbox 360 in a bare-bones edition without a hard drive at the same price as the first Xbox when it was released (US$300 in the United States), and a full-featured edition that costs significantly more (US$400). Microsoft is also selling a wide array of peripherals at fairly high prices, opening further opportunity for profit. Although necessary to make Xbox a profitable business, this pricing strategy could make the console a hard sell to the casual gamers and home entertainment enthusiasts whom Microsoft hopes to reach.

Learning from History

When Microsoft launched the first Xbox in Nov. 2001, Sony’s PlayStation 2 (PS2) was already well established. To be competitive, Microsoft had to release Xbox at the same price as PS2 and cut prices when Sony did (as of July 2005, both consoles retail for about US$150). At the same time, because Xbox includes a built-in hard drive and PS2 does not, Microsoft was never able to break even or turn a profit on the hardware and has had to rely on software sales and Xbox Live subscriptions to take up the slack. As a consequence, Microsoft’s Home and Entertainment division (in which Xbox is included) has lost more than US$3 billion since the launch of the console.