Microsoft Cut Xbox Prices

Microsoft thought it would steal a march on the competition when it launched its Xbox 360 video-game console in late 2005. The idea was to secure a lead to build on, something that stopped the company when it launched the original Xbox four years earlier. But the Xbox 360's advantage vanished this summer when Nintendo's rival Wii bolted ahead of the Microsoft device in the number of consoles sold. The Wii's innovative motion-sensing game play lured casual gamers, landing Nintendo atop the $48 billion-a-year business.

Now Microsoft is taking a page from Wii's strategy in its battle against Nintendo in video games. Microsoft will cut prices on all three of its Xbox 360 models in the U.S. on Sept. 5. The latest move includes an $80 price cut on the entry-level Xbox 360 Arcade, which at $199 will be the cheapest of the current generation of consoles on the market

Microsoft is also improving the Xbox to make it more appealing to casual gamers. It has designed a cleaner to navigate through the console, instead of the current that have a computer feel to them. The software will be downloaded to Net-connected Xbox 360s in the fall, and offered on CDs for other customers. Microsoft is also creating a new casual gaming channel on its popular Xbox Live Web site, called Primetime. "They're looking to get a different demographic of consumer," says Bob McKenzie, senior vice-president of video game retailer GameStop Stores. "This is really about the casual gamer."

Second placer

"I'm not at a point where I can say we're going to beat Nintendo," says Don Mattrick, senior vice-president of Microsoft's Interactive Entertainment Business.

Indeed, Nintendo is likely to run away with the lead in the current generation of console gaming, leaving Microsoft and Sony to battle for second place.

Microsoft coupled with the changes it's bringing to the console has the secured top spot, Mattrick says: "We will sell more consoles this generation than Sony."

While Nintendo sold 11.4 million Wiis in the U.S. through the end of July, Microsoft is solidly in second, selling 10.7 million Xbox 360s, according to market research firm NPD. Sony is far behind, with 5.1 million PlayStation 3s sold.
 
Worldwide, the race for second is tighter, though Microsoft is still ahead of Sony, according to sales estimates from market researcher IDC. By yearend, the firm estimates that Microsoft will have shipped 27.7 million Xbox 360s, compared with Sony's 24.2 million PlayStation 3s. Nintendo will dwarf both with 44.5 million Wiis shipped.

Still, Sony is gaining ground fast. Gamers are flocking to the console's Blu-ray player, which lets them play high-definition DVDs on their televisions as well as games. And Sony is creating titles that let gamers leap from video console to its popular PSP handheld gaming device. Nevertheless, IDC analyst Billy Pidgeon doesn't think it will be enough for Sony to overtake Microsoft: "I expect the 360 to remain in second place this generation. But it's going to be close."