Microsoft's $99 Xbox 360 has a Surprise Inside

Microsoft has a new Xbox 360 bundle that costs $99, but consumers that buy it will have to commit to a two-year contract for an Xbox Live Gold membership. And that two year membership will cost you about $15 a month. While the idea might be to subsidize or finance the console as a trade-off for the low price point, the move also smacks of false advertising because the console will ultimately cost consumers $99, then 24 months of paying $15, for a grand total (not including sales tax) of $459 (24 months x $15 = $360, plus the price of the console at $99).

Several analysts speaking to GamesIndustry International described the new bundle as a bad deal for consumers.

"Microsoft could gain some additional market share and Xbox LIVE Gold subscribers with a deal like this, but the offer doesn't hold up for consumers who do the math," Billy Pidgeon of M2 Research told the publication. "At current prices the offer would save the buyer about $200 on the hardware, but XBL Gold is currently $5 per month. Increase the subscription price by $10 a month and the consumer pays for the hardware break in the first year, but is tied into the service at the same high rate for an additional year. Great for Microsoft, not so great for consumers."

"I think subsidizing hardware with a subscription service can be a great business model, and I'd like to see Microsoft, Sony and Nintendo experiment with better offers for consumers," he continued. "Online network platforms are a primary value differentiation for hardware, and provide an essential transition bridge between hardware cycles. Renting hardware with value-added subscription services linked to cable or satellite television providers would be a more radical end-cycle subsidized play."

Michael Pachter of Wedbush Securities agrees with Pidgeon's assessment.

"Maybe I'm just a finance geek, but the $99 360/Kinect with a 'subscription' looks a lot like a full priced sale financed at around 10% to me," he said.

And David Cole of DFC Intelligence agrees. "As a consumer the prices being talked about look like a sucker deal to me. However, there definitely is going to be a consumer type out there that would go for it. Especially it may appeal to college students on a budget." "I have been fascinated by the possibility of subsidizing a console with a subscription for some time. Sega has already done that with the Dreamcast... Really any console could do it, it basically just a financing plan and if you structure it right the consumer pays more in the long run," he said. "It is really an interesting marketing play... I think you will see more creative type marketing packages coming in the future from all the manufacturers."

Finally, Scott Steinberg, CEO and lead analyst for business consulting firm TechSavvy, sees the appeal in subsidizing a video game console, but isn't too sure about this particular approach.

"Product subsidies have been used to tremendous effect in consumer electronics and services businesses such as telecom and mobile connected devices, and are slowly creeping into other verticals such as eReaders and tablet PCs, making it little surprise that similar strategies might be experimented with in the video games industry," said Steinberg. "Given the tremendous success of both the Kinect and Xbox Live, and the duo's ability to work in tandem as software playback and original content delivery platforms that potentially boost user engagement and revenues, it would be a relatively organic brand extension for Microsoft to attempt to move in this direction - and a potentially wise one, given the growing importance of needing to maintain a captive audience and migrate it to digital platforms."

Ultimately I think it’s fair to say that Microsoft may open itself up to litigation of some kind or a class action lawsuit unless the packaging for this particular model clearly states that there's a catch inside the box...

Source: GamesIndustry International