Why $249 is an unsustainable price for the first all-digital Xbox [Updated]


Our prices are insane! —

Disc-free MSRP isn’t any lower than the current de facto Xbox One S price.

Kyle Orland

Microsoft needs to give customers a better deal to convince them to give up discs for good.
Enlarge/

Microsoft needs to give customers a better deal to convince them to give up discs for good.

[Update:Since Microsoft’s announcement, the Xbox One S All-Digital Edition has appeared for pre-order on retailers such as Amazon and Best Buy for the MSRP for $249.99. As outlined below, the more capable, disc-drive-equipped Xbox One S currently sells for the same price at those very retailers.]

Today’s announcement

of the

previously rumored

“All-Digital Edition” of the Xbox One S is

one

of the

few instances

when a redesigned version of a home console is, from a features perspective, strictly worse than the version that came before it. The removal of the disc drive means the All-Digital Edition can’t play Blu-rays, DVDs, or old disc-based games you (or GameStop) might have lying around, and it won’t let you resell any games you might buy for it. The new box isn’t even any smaller, even though the bulky optical drive has been removed.

Microsoft intends to make up for this loss of features with a lower price point for the new unit, which will sell for a $249 MSRP starting May 7. But that suggested price point—while technically lower than the official $299 MSRP for a 1TB Xbox One S bundle—doesn’t seem likely to convince many people to invest in the disc-free console future.

An old low price?

To understand why $249 is such an odd MSRP for this new, less-capable Xbox One, we have to look back at the history of Xbox One pricing. After a higher-than-expected $499 launch with a bundled Kinect, the Xbox One saw some relatively rapid price reductions after the 2014 Kinect unbundling. By September 2016, players could already get into the Xbox One ecosystem (with a bundled game) for the low, low price of $249.

Yes, that price was for the bulkier original Xbox One design, and it only included a 500GB hard drive. But that unit, available 32 months ago at $249, plays all the same games as the “All-Digital” Xbox One announced today for the same MSRP. And the old unit can play those games on disc, to boot.

Similar pricing for the redesigned Xbox One S—disc drive and all—has not been hard to find in the past. The 500GB version of the system was available for as low as $249 in Black Friday bundles back in 2016. After the holidays, Microsoft again offered an official 500GB, $249 Xbox One S bundle withMinecraftin March 2017. In summer 2017, you could spend $249 for a 500GB Xbox One S and get a $50 gift card, too. By the end of that year, 500GB systems were going for $189 during Black Friday closeouts.

Sure, the All-Digital Edition has twice the hard drive space as those old deals. But 1TB Xbox One S systems, with disc drives, were being offered at $249 with a bundled game nearly a year ago. And though $299 is the “official” MSRP for a 1TB Xbox One bundle these days, there has been an extended, de facto price drop to $249 at all major retailers (including Microsoft’s own stores) since late January.

  • This is the Xbox One S All-Digital Edition. Sure looks like an existing Xbox One S, doesn’t it?

  • The existing Xbox One S and its new, no-disc sibling. Other than that solid panel where the disc drive slot used to be, they’re identical.

  • New box, seen from the front.


    Microsoft

  • DISC-FREE GAMING. DISC-FREE GAMING. DISC-FREE GAMING.

  • It appears Microsoft forgot to put the French and Spanish translations on this North American box mock-up. English repeats three times in every slot for some reason.

Unlike a temporary holiday sale, the multiple months that have been spent at the lower $249 price are going to make it hard to convince customers (and retailers) to ever go back to the “actual MSRP” of $299. That becomes even harder when you consider that a 1TB Xbox One system withBattlefield Vis currently available for $199 from Walmart or $219 from Amazon.

And yes, the All-Digital Edition comes with three downloadable games rather than the single disc usually bundled with disc-drive-enabled Xbox One S units. But those games—Sea of Thieves,Forza Horizon 3, andMinecraft—are low-priced legacy titles that were released one year, 2.5 years, and 4.5 years ago, respectively. All three digital games are available for free through an Xbox Game Pass subscription, as well. The bundles Microsoft is currently offering for the original Xbox One S, meanwhile, let customers choose from more recent (and higher-priced) hits:The Division 2,Anthem,Fallout 76,Forza Horizon 4,Battlefield V, and NBA 2K19.

The unenforceable MSRP

Historically, console makers have been able to enforce their MSRPs with an iron fist. Companies like Sony, Nintendo, and Microsoft would impose “minimum advertised price” requirements on distributors and retailers, then refuse to provide future stock to any stores that dared attempt to undercut the competition.

By officially keeping the full-featured Xbox One S at a $299 MSRP, Microsoft gets to keep its slower-selling hardware in parity with Sony, which has sold 1TB PS4 bundles at that price for a while now. But with the de facto retail price for an Xbox One being lower across the board, things get a bit weird. Yesterday, when I asked my Twitter followers what the MSRP for a 1TB Xbox One S bundle was, almost half of them picked the $249 price. That’s not a scientific survey or anything, but it’s also not that surprising, considering $249 is the price retailers have been charging for the system for months.

That’s a perception problem that Microsoft Platform and Devices GM Jeff Gattis told Ars he was “painfully aware of.” But the official pricing of the newer system doesn’t show such awareness. For this new hardware to really make an impact, Microsoft should have launched it at a $199 MSRP, trumpeting console hardware that breaks through the $200 barrier (before sales pricing) for the first time this generation. That could have been packaged with an official drop to $249 for the disc-drive version of the Xbox One S, locking in a price that has been the de facto standard at retailers for months now.

As it stands, this kind of below-MSRP pricing is likely what we’re going to see happen at retail anyway. Stores that currently sell an Xbox One with a disc drive for $249 can’t really get away with selling the same console without a disc drivefor the same price. If they do, they’ll soon find customers ignoring the All-Digital Edition until the price comes down below Microsoft’s unsustainable MSRP.

We’ve

long argued

that there’s a market for an all-digital console that’s priced aggressively compared to the competition. But for that kind of pricing to work, Microsoft has to stop pretending that the 1TB Xbox One S is still a $299 system in practice.

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