Microsoft announced last week that they will begin selling their Xbox 360 with Kinect and an Xbox LIVE Gold subscription for $99.00. The user would also sign a two-year service agreement, paying $14.99 a month, thereafter.
This kind of business model is a first for the videogame industry, but we’ve all seen it before. The cell phone industry has been doing this for decades, and thrives on it. You get a great piece of new hardware for a cheap price, and make small monthly payments to be allowed to use the device on the companies network.
For people who don’t want Xbox LIVE, this is not appealing, but those people are few and far between. For those that do want that online connection, and can’t afford the high asking price for a new Xbox, this may be exactly what they’re looking for.
Many people would tell you that having Gold Member status on Xbox LIVE is the best reason to own the 360. Without it, the system is just another video game console, but with it, users are opened to a whole new world. DLC, Netflix, and online play enrich the Xbox user experience exponentially, and once you’ve entered this world, it’s hard to go back.
Let’s examine the costs of Microsoft’s current business model, and their new one:
The cost of a new 4GB 360 with Kinect is $299, up front, and two years of LIVE Gold would be an additional $120 ($5/month), totalling $419 over the course of two years.
With the subscription model, you pay $99 up front, then $14.99 a month for 2 years. The total cost winds up at $458. Only about 40 dollars more.
Would you pay an extra 40 dollars ($1.67 a month) to spread out the cost of the Xbox over two years? I know I would, and I bet most consumers would.
By changing their business model, Microsoft opens up the doors for thousands, maybe even millions, of new customers who could not afford the high cost of entry. And by focusing on getting these people online, they will gain more sales on things such as DLC, microtransactions, and the Zune Marketplace.
There is no doubt in my mind that this strategy will succeed. This is the future of gaming - everyone online - everyone connected. The world of the traditional console is over, and I will gladly leave it behind, if it only costs me an extra $1.67 a month.