Elite Won't Replace Premium or Core Skus

As the day has progressed, more information about the 'Elite' has become available. GamesIndustry.biz is reporting that the other two 360 skus will still be available. The Elite is not replacing either of them. Interestingly, there's no word on a price drop for them either. Major Nelson's most recent podcast has several interviews and details about the new offering, which you may find informative. There's more analysis available, if you find that interesting: CVG wonders aloud who is going to buy this thing, while a Wedbush Morgan analyst mentioned to GamesIndustry.biz that he thinks this validates the PS3 strategy. "'It appears to me that Microsoft sees the writing on the wall - Blu-ray is going to win the format wars ... Ultimately, Microsoft will likely offer a Blu-ray drive with the 360 Elite, and I think consumers will be able to select based solely upon other drivers.' Pachter also believes that although the Xbox 360 Elite will register with early adopters of hi-def content, the current 20GB model will still be sufficient for many consumers."

Comments

What the fuck is with SKU? It's a product.

[Anonymous Coward]

Is everyone suddenly a merchandiser or something? I'll replace your sku.

PS3 Advantage

[tb3]

But the PS3 advantage (if they can establish a price point and sell enough of the damn things) is that the Blu-Ray drive is standard. That means that the larger capacity can be used for game data. No matter what optional drives Microsoft ships for the 360, game designers will always be hobbled by the constraint of the DVD as the lowest common denominator.
If the PS3 survives its games will end up looking a lot more impressive than 360 games of the same vintage.

Why?

[MeanderingMind]

Why did Microsoft do this?

Releasing a console with built-in HD-DVD would be interesting. Though there are potential reasons to avoid this.

1) Price being too close to the PS3, in some ways validating it.
2) No guarantee of success and thus subsidizing of the HD-DVD drive.

But that said, decided not to include an HD-DVD drive pratically makes the whole thing a wash. Without the HD-DVD drive, all we have is a more expensive premium console that has a larger hard drive, HDMI hookups, and is black.

Without any truly tangible benefit, it shrinks the extremely important price difference between the consoles. My points 1 and 2 above apply in almost the exact same way.

1) Price too close the the PS3, in some ways validating it.
2) Lack of backing of HD-DVD can be seen as implying a lack of confidence in the medium.

The whole thing seems ill-conceived. If they didn't want to release a console with an built-in HD-DVD drive, they could have simply upgraded live and announced a new, larger hard drive alone and perhaps a black case mod for the first 1000 buyers. A whole new SKU for this is a ridiculous waste of resources, while at the same time killing several key talking points for the 360.

Re:Why?

[Itchyeyes]

Actually the why is pretty simple.

From an article I originally posted here:http://vgecon.blogspot.com/2007/03/purpose-of -xbox-360-elite.html.

The answer is that the Xbox 360 Elite is aimed at people who are willing to pay $479 for an Xbox 360. That may seem a little too simplistic, so I'll explain. One basic rule of economics is that a product's price is partially determined by how much the consumer values it. However, every individual has their own concept of what the product is worth. Ideally a manufacturer would want to sell to every customer at exactly what they're willing to pay, as long as it's higher than the cost of producing the product. Unfortunately this is just not practical in the real world, especially with a large volume product. Just because someone is willing to pay a certain amount doesn't mean that they won't pay less if they can. People would find out that you're selling the product to others for less and demand that price even if they would have been willing to pay more.

There are two alternatives to this. First, you could set a single price; but this is a gamble. If you price too high you will lose sales to people who valued the product less. If you price too low, you lose profit margins from people who would have been willing to pay more. The other alternative is to still set your product at multiple price points but vary each version slightly. An excellent example of a company that uses this tactic is Starbucks. A regular coffee at Starbucks is only around $1.60; but a double foam mocha latte... whatever can cost you upwards of $4.00. In truth, both products cost Starbucks approximately the same amount of money to make. Price sensitive customers will choose the regular coffee, and people who are willing to pay more may spring for the more extravagant drink.

This is what Microsoft is doing with the Xbox 360. Sure, the Premium costs Microsoft more to make than the Core, and the Elite costs them more then the Premium; but it's less than most people think. Microsoft may still be losing money on the Core, but they're probably breaking even on the Premium at this point. At $479, the Elite might even turn a small profit.

Some people have pointed out that the new price tag erases Microsoft's price advantage over the $500 PS3. From a marketing perspective, it may seem that way. From an economics perspective though, things are still very different. The key point is that Microsoft is going to be ready for a price cut far sooner than Sony will be. Before the Elite, a price cut would have meant that they would have to sacrifice any profits from people who were still willing to pay top dollar for a system. A new high end model allows them to maintain their position in the $400 range, while extending their market by dropping the low end of their price range.

I am no marketing expert, so I can't really say what the effects will be there. Economically though, this is a smart move by Microsoft.

Blu-Ray

[*weasel]

It appears to me that Microsoft sees the writing on the wall - Blu-ray is going to win the format wars

It appears to me that Microsoft is acknowledging the format wars are stillborn. Their support for HD-DVD was just about defusing the PS3 anyway, not defeating Blu-Ray. MS already has their license fees secured, regardless of how the little-plastic disc formats fare.

The media victory Microsoft is after, is digital delivery.

Prices

[Applekid]

Prices are funny. Microsoft is obviously milking every dime they can get out of gamers who buy a system before they drop the prices. While there is no sign of that happening, you can pretty much count on any PS3 price drop to be matched by a 360 price drop of equal or greater value.

That "validation" of the PS3 strategy by way of price is a bit misleading, though. Sony equates the PS3 to fine equipment whose price indicates its value. But it's a genuinely expensive device to make. What the PS3 price points have proven to the people who figure out the prices of consoles is that consoles have been too cheap and the market could sustain them at higher prices than previously thought.

Other very expensive consoles have gone down in flames for home use... but the median price for the majority of consoles at the market at any given time has been a $200 - $250 sweet spot. The only thing that Microsoft and Sony have done is show that the sweet spot can be coaxed higher.

What I don't understand is why Microsoft isn't playing a price war yet. They've got the biggest userbase for this generation, most established games (excluding Wii's ability to play Gamecube games), and they're turning a profit on current consoles sold. Sony's machine costs $800 and putting pressure on them to lower a price point could hasten any future demise... if it's in the cards.

My only stab at trying to understand is that Microsoft eventually wants to buy the Sony gaming division, but I'll be the first to suggest that's an outrageous claim. Hmmm...

Does it really matter?

[FrozenFOXX]

I think that most people are missing the point. For the general population who's interested in obtaining a game system who cares? The comparing value versus price between PS3 and 360 is only valid if you're looking at doing everything BUT gaming.

I mean really, you can tell me for instance that the PS3 will do everything from clean my laundry to wash my car but at the end of the day it doesn't have my Gears of War. It doesn't have my Crackdown. There's no Forza Motorsport. There's no XBLA. To top it off it's also a lot cheaper for me to get to play a large library (and ever-growing...just check out upcoming releases like The Darkness, Bioshock, and others) of great games that look spectacular with a superb online system. Can I play Blu-Ray movies? No, but then, did I really want to buy a game system to play movies?

It's part of the same reason the Wii is selling. It's cheap, it plays good games, and nobody gives a fuck if it can't wipe your butt for you, too. So what does this new 360 do? Who does it cater to? People that feel they have to have the "extra shiny" version of a console to feel superior to other people. The other people are those interested in the Marketplace for downloading things which means there isn't a value comparison with the PS3 since the PS3 doesn't have access to the Marketplace...the very source of content the interested users wanted in the first place. The rest of us just get the Premium and rock on because it lets us play our games which is what WE wanted in the first place.

There will be a true features/price comparison between the 360 and PS3 when the PS3 has a large library of awesome games (and for the cross-platform ones like DMC4, VF5, and others it's going to need to be worth coughing up several hundred dollars for a better experience or we're still going to get them on the cheaper system that gives the same or better experience) that make it worthwhile to have for playing games.

Anyone seriously interested in a media server has probably already gotten an Apple product or some other personal computer solution since they tend to be better at it overall. This is all for show and to cater to an elitist (though not necessarily "elite") portion of the interested 360 population, not to the rest of us who buy game systems for playing games.