Why's the original Xbox cost more now?

February 6th, 2006, 20:23 Posted By: wraggster

A reader dropped us a tip asking the following good question. Because the question and answer shed light on the console wars, we're sharing it with you.

"I recently decided that I would like to have an Xbox for my upstairs bedroom so that my fiancée can play games that she enjoys such as DDR and Psychonauts.... I have since discovered from numerous store managers that Microsoft has discontinued the core version of the original Xbox. Now instead of paying $149.99 for an Xbox, as one has been able to do since 2003, it is necessary to drop $179.99 for an Xbox packaged with Forza Motor Sport (a game made by Microsoft).... The real kicker is that the only way to buy an Xbox now is to pay $30 more than the system cost for the past 2-3 years just because it is packaged with a first party game that retails for $19.99 (new).... Since when did console makers RAISE the prices of consoles towards the end of their cycle?"

Good question. We searched Amazon, Buy.com, and Wal-Mart.com and could not find an original Xbox console for less than $170. All of the consoles found at these sites (except used consoles offered through Amazon.com third-party sellers) came bundled with Forza. Why has Microsoft chosen to restrict (or discontinue) the supply of core Xbox systems at exactly the moment when console manufacturers have tended to drop prices?

There are a few reasons why we imagine Microsoft might pursue what appears to be a perverse strategy.

The Xbox is installed in fewer than 25 million homes worldwide versus the PlayStation's estimated install base of around 100 million. At this point, no sane third-party developer or publisher is going to release an exclusive for the Xbox given the lower overall demand for Xbox games. It's also unlikely that Microsoft is going to force its first-party developers to pour resources into a last-gen console at a time when the Xbox 360 needs and requires 100% of internal support. Given the situation, the game is no longer about Xbox vs. PS2 sales. Any additional support of the original Xbox in the form of games or even price subsidies would be counterproductive.

So forget the idea that Microsoft will do anything that supports the Xbox. Heck, they're going to actively discourage Xbox sales by bumping up the price so that the Xbox 360 looks even more attractive relative to an Xbox purchase. Every prior-gen system sold at this point is lost walletshare that could have been dedicated towards next-gen gaming. The price increase is a great way to encourage recalcitrant gamers to consider upgrading to an Xbox 360.

There's some evidence that Microsoft's strategy is working. The biggest games publishers are having difficulty making money right now because demand for previous-generation gaming has dried up as gamers increasingly look toward the Xbox 360, PlayStation 3 and Nintendo Revolution. This shift in consumer demand forces developers and publishers to jettison or retool prior-gen projects and turn more squarely towards the future--a future that is so far dominated by the only console on store shelves: the Xbox 360.

Expect Nintendo and Sony to do what they can to keep gamers suckling at the teat of prior-gen systems. Neither Sony nor Nintendo are eager to cut off a revenue stream before they've launched their respective next-gen consoles. If they can keep gamers happy for just a little bit longer, they have a better chance of keeping those gamers as customers when their next-generation systems finally launch later this year.

http://www.joystiq.com/2006/02/06/wh...cost-more-now/

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