Microsoft just confirmed yesterday that they are testing a new sales skew for the Xbox 360 that they are running as the “Pilot Program”, which is being offered only at the select 16 Microsoft stores throughout the United States. The program allows one to purchase an Xbox 360 for $99 with a two year contract of Xbox Live at $15/month. The version of the Xbox 360 offered is the 360 S, 4GB model with a Kinect.
It only takes some simple number crunching to realize that at the end of the two years, you’ll have paid $360 for your Xbox 360 and Xbox Live altogether. The alternative is to buy the same model of the Xbox 360 for $200 and two years of Xbox Live for $60/year, which comes to a grand total of $320. The difference here is that with the Pilot Program, day one you are only paying $115, but are locked into paying $15/month for another 23 months after that. Alternatively, you could buy the same model of Xbox 360 for $200, spend either $15 on three months of Xbox Live Gold to see if you like it, or buy the year for $60, bringing your grand total to $260 on day one, without the worry of a contract.
After a helpful comment from N4G, I realized that the Xbox 360 version in the deal included the Kinect, meaning it was the $299 version of the console, so this part is now null.
The problem with the current skew of the Pilot Program is the contract. You’re locked into a contract for two years just to buy the same console for $100 cheaper (minus the Kinect) with zero benefits. Microsoft confirmed that the rumors one would get access to streaming programs on top of an Xbox Live Gold membership with the Pilot Program were false, meaning you’re paying more per year for Gold than you would for just getting the same Xbox 360, only more expensive, on day one.
Now this is a good business decision for Microsoft, because it opens them up to an audience that can’t spend a lot of money at one time. Paying less for an Xbox 360 and being on a contract for a good service is a great idea, but without any benefits to separate the skew, any customer who does a little research will see they’re getting ripped off. An alternative would be to have the same contract, only slightly more expensive, with a choice of maybe one or two streaming services on top of the Xbox Live Gold. Including a service such as Netflix, Hulu Plus, or HBO Go with the contract would instantly increase its value. Plus, it would strengthen the already healthy relationship between those services and the Xbox 360.
Giving the customer a choice of one or two of those services with their contract would put the Xbox 360 out there as powerful entertainment box for only $99 on contract, allowing it to compete with other products such as the Roku Box. Plus, the customer would get a slightly better deal out of this, so as they would not have to pay the $8.95/month for Netflix or Hulu on top of the Xbox Live Gold monthly fee.
The Pilot Program seems like a fresh idea that could lead to a very interesting future for consoles if it permeates into Microsoft’s competitors. The service just has plenty of room for improvement and could definitely benefit the customers that would much rather pay less up front if it meant they had access to services that are a clear value proposition. Otherwise, a few internet searches from those would-be customers would have them rethinking a purchase, as it is clear they would be losing money in the long run should they avoid the Kinect bundle.
Send your responses or thoughts on Microsoft’s Pilot Porgram to the editor via the comments below or email: Alex@IrrationalPassions.com. They may just get read on the podcast.