Thursday May 9, 2002 | hardcore_pawn
Xbox - Price Slash
By Todd Mowatt
With the Electronic Entertainment Expo two weeks out, Microsoft let the proverbial cat out of the bag earlier this week, indicating to retailers and analysts that the company will soon slash the U.S. price of the Xbox console to $199.
The price drop is expected to take effect on May 23, right in the middle of E3.
“The price drop for the Xbox isn’t going to be a shock to anyone in the industry,” said Edward Williams an analyst with Gerard Klauer Mattison. “Sales of the Xbox have slowed in March and April and retailers are becoming more vocal for the need for a price cut.”
Two other analysts, who asked to remain anonymous, confirmed the time frame based on the Microsoft conference call.
Williams said the expected Xbox price cut will cause a ripple effect at Sony, who will also lower the price of its PlayStation 2 console system.
“It’s not a slam dunk for Sony to follow right away with a price cut. But they are also under growing pressure from retailers to follow Microsoft’s lead to $199.99,” Williams said. An announcement from Sony could come as early as May 21, to coincide with a planned media event that morning.
Historically, a $100 price drop from $299 to $199 is not unheard of. Sony did exactly that for the original PlayStation console system, when it faced competition from the Nintendo 64 system.
“Dropping the price to $249 doesn’t do much for you; it wouldn’t give either Microsoft or Sony the incremental sales boost that $199 does,” Williams said.
The reason for the price drop now, Williams said, is that there are no big titles being released this time of year to boost hardware sales. The timing, then, is ripe for a price drop to create some activity at retail.
Williams said the price cuts shouldn’t be construed as ill-health in the interactive entertainment industry.
There were five times more systems sold at $299 during the PlayStation 2 and Xbox hardware cycles than there were during the last (PlayStation/Nintendo 64) hardware cycle. The adoptive rate for software is also 3.5 times greater.
The price cuts also make sense considering that Microsoft announced price cuts in Europe and Australia on April 26. Just yesterday, Microsoft was announcing a sales surge in Europe because of the price cut, with a corresponding increase in software sales.
Microsoft and Sony representatives had no comment about the expected cuts, but it’s clear that both companies are looking to make a splash at E3.
Retailers and the media have already seen most of the games, so Microsoft and Sony will be vying for mind share and battle each other with announcements and press releases. Beyond the price cuts, both companies are expected to reveal more about their plans for `online console gaming.