Microsoft drops price of 120GB Xbox 360 system

As was expected, Microsoft is cutting the price of its high-end Xbox 360 Elite, which comes with a 120 Gigabyte hard drive, by $100 from $399 to the price of $299, starting Friday. The current $299 60GB model will be reduced to $249 while supplies last. That means eventually, the only two models at retail will be the 120GB version and the $199 Arcade model without a hard drive.

"This is really an effort to pass the cost reduction we are able to achieve through engineering and manufacturing onto consumers," said David Dennis, Microsoft Xbox 360 product manager. "Reducing the number of (models) really just simplifes our manufacturing and makes it easier for our retail partners to manage their inventory and makes the purchase decision easier for consumers. It's really a win-win-win all around."

Dennis noted that the Xbox 360 "already had great momentum this year with 17% sales increases over the first seven months of 2008, while other systems have slowed sales. The Xbox 360, launched in November 2005, has sold nearly 16 million in the U.S., putting it in second place behind the $249 Nintendo Wii (nearly 21 million) and ahead of the $299 Sony PlayStation 3 (8 million-plus). "This sets us up for the holiday," Dennis said, "and a lot of people are doing back to school shopping so being at a reduced price at this time is good for that reason."

On the system's reliability, Dennis said that "with any consumer electronics device you constantly engineer and reengineer to drive better performance and better reliablitly. Obviously, we had some reliability issues but we feel they are largely behind us based on the quality of the product we are manufacturing today."

Jesse Divnich, director of analyst services at Electronic Entertainment Design and Research, does not expect Xbox 360 sales to rise significantly because of the price change. "Some would argue that Microsoft's new pricing scheme represents more of a pseudo price drop than an actual price drop since consumers looking to purchase a core Xbox 360 system will still have to pay $299, as they had prior to the new hardware line-up," he said in a report. "The price drop on the Xbox 360 Elite means that Microsoft's core hardware SKU now boasts a bigger hard-drive and HDMI support than its Xbox 360 Pro predecessor."

Even though the Xbox 360 and Sony PlayStation 3 are both priced at $299, Divnich said that "technologically the Xbox 360 is not at the same level as" the PS3. "This puts the Xbox 360 into a tough position where it is outmatched in terms of hardware capabilities at $299 and the Nintendo Wii remains alluring to casual and price sensitive consumers at $249," he said. "Over the next year Microsoft will most likely reposition the Xbox 360 Elite model closer to the $249 price point to both pressure Sony and attract potential Nintendo Wii consumers. From a strategic standpoint this would then allow Microsoft to introduce the new Natal model in 2010/2011 at the $299 price point and still have an option for consumers cheaper than the (PS3)."

By Mike Snider