Speculation surrounding the launch price for the Xbox has bordered on the ridiculous in recent months. Some rumors said that Microsoft would launch the Xbox with a $1000 price tag, while others read a little too much into our article about Microsoft's $500,000,000 Xbox budget and swore that Microsoft would just give its new console away.
The truth, of course, is somewhere in the middle. Microsoft must strike a happy balance between a consumer approachable price and one that doesn't put the company in so much debt that software sales will never make up the difference.
Here are the possible launch prices for the Xbox.
Price Point: $399 and above
Likelihood It Will Be The Xbox Launch Price: Extremely Low
Reasoning: Even though the Xbox is estimated to cost Microsoft $375 per unit, the company cannot afford to make its money on hardware sales. The most important goal during the first two years of a launch is to establish a massive installed base so that software revenue can begin to pay off initial losses.
Because Sony has already kicked off the current generation of videogame hardware, Microsoft has to play by the PS2 pricing rules. If the Xbox is $100 or more than the PS2, it simply won't be attractive to console gamers.
Historical Context: The Sega Saturn launched in the US for $399 and the 3DO launched with a hefty $700 price tag. The rest is history.
Price Point: $349
Likelihood It Will Be The Xbox Launch Price: Extremely Low
Reasoning: The $350 price point has traditionally been viewed as too much for a new videogame console in the US. Also, like we stated before, Microsoft must remain competitive with the PS2 in terms of price, and Sony isn't about to raise the price of the PS2.
Historical Context: None.
Price Point: $299
Likelihood It Will Be The Xbox Launch Price: Medium to High
Reasoning:
In recent years, the $299 price point has proven to be a wise starting point. If Microsoft launches at this cost, it will only lose an estimated $75 a console, and that can be quickly made up in software sales if the public buys into the Xbox.
The key determining factor, however, will be Sony's pricing strategy for the PS2. If Sony drops the price of the PlayStation2 in order to hurt its new competitor, Microsoft will have little choice but to match prices. Its only chance otherwise would be to offer special deals such as Dreamcast and PS2 turn-in programs at retail outlets that would drop the price of the Xbox and get a few of the competing consoles out of the way.
If Sony doesn't lower the price of the PS2, this is the most likely launch price for the Xbox.
Historical Context: The PS2, the PlayStation and the Intellivision all launched at $299. It worked for all three.
Price Point: Between $249 and $299
Likelihood It Will Be The Xbox Launch Price: High
Reasoning: If Microsoft wants to fiddle around with the launch price of the Xbox, it could easily fall within this range. If, for example, Microsoft was able to launch the Xbox at $279, it would be only slightly cheaper than the PS2, but it would nonetheless be cheaper... and that's important. This slight difference would also keep Microsoft from losing too much money during the early months of the Xbox launch.
Historical Context: Sega priced the Sega Genesis just $10 cheaper than the price of the SNES at launch.
Price Point: $249
Likelihood It Will Be The Xbox Launch Price: Medium to High
Reasoning: Sony will take the Microsoft threat seriously, and the company knows that it could seriously hurt the Xbox's early bottom line with a preemptive price cut. If Sony dropped the price of the PS2 down to $249, Microsoft would be almost forced to follow suit.
Also, the $249 price point would attractive to early adopters and even a few casual gamers. Microsoft would lose an estimated $125 a console, but if this would help build a solid installed base for the Xbox, it would be worth the early losses.
Historical Context: The Atari Jaguar, the Atari 5200 and the N64 all launched at this price.
Price Point: $199 and below
Likelihood It Will Be The Xbox Launch Price: Extremely Low
Reasoning: The Xbox technology is just too costly at this point, and Microsoft can't lose more than $200 per console. If Microsoft were to launch the Xbox at this price, it would have to crank out extra Xbox units or else suffer through shortages throughout the holiday season.
If Sony were to drop the PS2 to this price (which is unlikely), Microsoft might buckle under and do the same, but this all but certainly won't happen. Sony is selling as many units as it can produce at $299, and it hasn't shown that it considers the Xbox to be a great threat so far.
Nintendo, on the other hand, could make things interesting if it actually delivers the Gamecube at the expected price of $199 or lower. Microsoft probably won't try to compete head-to-head in terms of pricing with Nintendo's new console, but a cheap Gamecube certainly would put pressure on the Xbox team.
Historical Context: The Atari 2600, the Sega Genesis (actually $189), SNES and the Dreamcast all shipped for $199. All did very well during their early years. (The Dreamcast, however, didn't last.)
The NES launched at only $159, and became one of the most popular consoles of all time.
Looking at all the options, our best estimate is that the Xbox will ship somewhere between $249 and $299. But a lot depends on what Sony does with the PS2 price at E3, so we'll all have to wait a little longer to know for sure.
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