Microsoft Makes a Smart Move
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Microsoft (NASDAQ: MSFT) has recently launched a subsidized $99 Xbox 360 package with a Kinect motion, the plan requires a two year subscription for Xbox Live, which costs $15 per month and customers are subject to an early termination fee. Microsoft could be making a very smart move with this last initiative, generating both a convenient deal for customers and, perhaps more importantly, generating a strong entry point into customer’s living room.
Under this new plan, customers end up paying pretty much the same as before, but in the upfront price for the hardware will of course be much lower. The strategy is quite similar to what phone carriers do with many high end products, subsidizing the purchase price of the product and recovering the difference via more expensive data plans over time. Microsoft is obviously thinking that customers will end up spending more money once they become regular users.
Reducing the initial purchase price could be a strong advantage versus competitors, even when clients know they will be spending more money in time, having a low threshold on the initial price can be a very powerful marketing tool. Microsoft really needs to reinvigorate sales in its gaming division, which has been falling behind competitors lately.
But the best advantage for Microsoft would be turning the Xbox into a complete home entertainment system, having a strong entry point in the battle for the living room against titans like Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG) or Amazon (NASDAQ: AMZN).
This is not a battle about games only, which is a very lucrative and growing business by itself, video, music and all kinds of digital content will be a very exciting opportunity over the next years, and the big tech companies are doing all they can to get a piece of that action.
Apple has made a very interesting inroad into those businesses with the iPad, the product has been tremendously successful and an ideal platform for many kinds of content. But the iPad is still a personal device, not a home entertainment platform. Tim Cook has intimated that Apple is still working on a smart TV product worthy of Apple´s brand name and quality standards. Although there is no launch date available yet, investors and consumers are eagerly waiting for a big announcement from the Cupertino giant.
Google is getting into the hardware business with the acquisition of Motorola Mobilty, and both tablets and TV are part of Google´s roadmap in the near future. Amazon has chosen to focus on streaming, offering very low prices via Amazon Prime and steadily adding more content to its offering.
The Xbox provides access to popular services like Netflix (NASDAQ: NFLX) as well as its own music and video services, a modified version of Bing search engine is also included. The company seems to understand the importance of an integrated platform approach in the battle for digital content; it´s not just about products, companies need to create an ecosystem around those products.
This last move leverages the success Microsoft has had in games, and it also opens the door for many opportunities in the future. It looks like Microsoft is finally starting to implement a competitive strategy which could produce some interesting results in the near future.
acardenal owns shares of Apple and Google. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Amazon.com, Apple, Google, Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.