Why Microsoft's new Xbox costs $500 - and why that's fine
You might think it's crazy that Microsoft is once again introducing a new game console with a $500 price.
But it's just possible the company is being crazy like a fox.
Microsoft is pretty certain there's a good market for its new Xbox One X game machine, despite its high price point. More importantly, the company is pretty excited about who's likely to buy the new device. The kinds of customers who will be attracted to the Xbox One X tend to be the best game customers of all, Phil Spencer, head of Microsoft's Xbox operations, said in a recent interview with Business Insider.
"The thing that we should all realize is that that customer buys a lot of games," Spencer said. "That customer plays a lot of games."
That's a pretty strong argument for why huge companies like Microsoft and Sony are bothering to create more powerful, more expensive iterations of their existing consoles, even if those consoles only serve a small minority of console buyers.
Because at first blush, the fact that Microsoft is offering another $500 console seems absurd. Notoriously, the Xbox One launched in 2013 with a $500 price tag, and that high price is one of the main reasons why the Xbox One lags so far behind Sony's PlayStation 4 in adoption. The PS 4 debuted at $400, and has seen double the number of sales as the Xbox One.
Spencer understands this problem and perception, and he's not unrealistic about how sales of the new console will compare with the Xbox One S, the new base model Xbox One that costs $250.
"We're gonna sell more Xbox One S consoles next year than we will Xbox One X," he said.
But as Spencer indicates, there's a method to Microsoft's apparent madness.
The company's betting there's a ready audience of folks ready to buy what the Xbox One X offers. This is a console that's capable of outputting games in 4K resolution - the next step after HD. There are definitely people who have a 4K TV and who are itching for a game console that can take advantage of it.
"You've got a person who really wants a premium experience.
"You ask who is that person today? I'm gonna bet a large percentage of those people have a current-generation console already. So in that world I have to show them an experience that's demonstrably better. And that's where we started with Xbox One X.
"We get some interest from PC people who have been playing 4K games on their PCs now for awhile, and say, 'Okay here's a console that can play a true 4K game with a controller sitting on my couch. And I think a lot of the other people have a current generation console and are looking for a premium experience and something that really looks different."
While Microsoft is offering gamers a premium experience, it isn't really charging them a premium to get it, even in spite of the Xbox One X's relatively high price. The company won't be making any money from selling Xbox One X consoles. That's because the components required to power the level of graphical fidelity the box offers are expensive. Indeed, the Xbox One X actually looks like a bargain compared to what you'd have to pay for a PC that has similar capabilities.
And what makes the Xbox One X so interesting for Microsoft is that the kind of folks who buy "premium" consoles like it and the PlayStation 4 Pro are the kind of folks who not only buy more games, they also tend to buy more accessories, and services than the average customer.
Sony has already paved the way for a pricier, more powerful console with its PlayStation 4 Pro. The company says that Pro purchases now make up about 20% of all PlayStation 4 sales. Spencer expects similar adoption for the Xbox One X.
From where he's sitting, though, that wouldn't be a problem.