The world’s largest software maker Microsoft Corporation’s (MSFT) gaming console, Xbox One is now available at its original price of $400 at retailers across the US.
In Nov 2014, Microsoft had slashed the price of Xbox One by $50 to $349 to gain a price advantage against Sony Corp. (SNE) during the holiday season. However, the cheaper version didn’t feature the Kinect motion sensor for gesture and voice control.
The aggressive price cut strategies resulted in strong sales of the console that was launched in Nov 2013 and also effectively challenged PlayStation 4 (PS4) sales. Sales more than tripled in the U.S. According to the company, more than 10 million Xbox One consoles have been sold to retailers.
We note that Microsoft had slashed the prices by $100 to $400 in May 2014 after the company removed the compulsory Kinect following lower demand for the peripheral. Xbox One users were previously compelled to buy an extra accessory for the system, which made the console more expensive than Sony’s new device. This likely affected sales.
Therefore, the decision to exclude Kinect from Xbox One was based on consumer response as well as to enable the system to contest with Sony's popular and cost-efficient PS4.
These strategies have paid off well for the company at least in the short term. The company may as well have to reconsider a price cut which would provide the necessary impetus to sales.
Xbox sales are not only threatened by PS4 sales but also need to consider competition from social games. The emergence of mobile platforms, such as smartphones and tablets from Apple (AAPL) and Samsung remain headwinds for video game hardware sales. Video game publishers are now inclined to make games that are compatible with these devices. Only time will tell whether Microsoft succeeds in maintaining Xbox sales.
Microsoft has a Zacks Rank #4 (Sell). Adobe Systems Inc. (ADBE) is a better-ranked stock in the technology space with a Zacks Rank #2 (Buy).
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