MS plans subsidised X-Box street price, $500m promo blitz

Microsoft will subsidise the street price of its X-Box games platform, due out next year, and is planning to spend $500 million in total on making the machine a success. The $500 million will cover subsidies, marketing and support to retailers and software developers, and will make X-Box Microsoft's biggest launch ever - according to Microsoft, that is.

Microsoft's war chests tend to be just the teensiest bit imaginative, including quantities of virtual bucks that move around the columns but never quite leave the bank. In this case, however, necessity suggests that the sum is at least of an accurate order. Microsoft has already bought, co-developed and subsidised its way into the PC games market, and that process will continue with X-Box.

So you could wonder if future purchases and deals with games developers would count as part of the spend, but if they did, it's reasonable enough, and if they didn't the total X-Box promo budget could actually be said to be a lot more. Microsoft will also have to put money into retail deals in order to get the channel fired-up and selling, and natch, it's going to have to promote it via advertising.

All this will add up to a big number which Microsoft almost certainly can't yet quantify, so with some regret we'd probably best just call the $500 million claim a marketing pitch, and stick with the view that the total will be somewhere vaguely in that territory.

But the user subsidy is interesting. This admission seems to have been a Ballmer blurt at the analysts' meeting, and while it's not an unexpected development, it's worth kicking around a tad. Game console makers generally do subsidise the hardware, just like the mobile phone companies and the cable companies, in the expectation they'll make their money out of software. Microsoft has clearly been moving in this direction (e.g. with the Web Companion, which we're sure will be subsidised, like its rival from AOL), and anyway it would have to do it in order to compete with Nintendo, Sega and Sony on hardware prices.

But we've got a better grasp of the cost of what goes into X-Box than we do as far as a Playstation or Dreamcast is concerned. X-Box will have a Pentium III, custom graphics (which MS has already spent a lot on), 64 megs RAM and an 8 gig hard drive. By late 2001 you could be knocking out a pretty cheap PC based on these components, if you thought you could get anybody to buy it.

So if Microsoft went for a serious subsidy, the street price would be 'pretty cheap PC minus X,' where X is the subsidy level. This alone might not be enough to take out Sony, but we have here another blurt. Games division senior VP Robbie Bach reveals that it'll link into WebTV and MSN services, and while this is again logical beyond the point of obvious, it gives Microsoft a potentially huge advantage.

Microsoft can put out a PC-like (minus the crashes, we trust) device at ultra low prices that leverages the company's existing online and software assets, and that stands a chance of becoming the standard home gaming/communication/Internet appliance. It'll be out well in arrears of rivals from the existing console companies, but they have a lot of ground to make up, considering the cards Microsoft already holds. ®