As Sony and Microsoft battle for the hearts and minds of gamers, Sony has held one big advantage: The Playstation 4 was cheaper than the Xbox One. Now things are different. Xbox has steadily moved toward cheaper prices, and one of the things that Sony didn’t announce at E3 this year was a price cut that would have kept pace. A standard Xbox now costs $50 less than a standard Playstation. Combined with Microsoft’s announcement that the Xbox One will be able to run older games, this change could affect the balance of power as the two companies battle to win the loyalty of the most enthusiastic gamers. Playstation’s decision not to follow suit was seen as a surprise in some corners of the gaming industry.
Most people who follow gaming think that Microsoft made a strategic blunder in late 2013 by charging $100 more for the Xbox One than Sony was charging for the Playstation 4 ($500 vs. $400). Since then, Microsoft has been doing everything it could to lower the price of the Xbox without admitting that this is what has been going on.
First Microsoft stopped requiring people to purchase a Kinect along with the Xbox, getting the price down to Playstation levels. Then it offered an additional holiday discount of $50, which ended in January. Less than two weeks later, the company started offering a “special price” of $350—essentially reinstating the holiday deal. In the runup to this year’s E3, it made that price permanent and allowed people to spend an additional $50 for twice as much storage space and a slightly improved controller.
During the last round of the console wars, Sony consistently sold the Playstation 3 at much higher prices than Microsoft's Xbox 360. It also sold fewer of them, as the chart below shows1.
The price discrepancy then was greater than the current one. But price is likely to become more of an issue the farther the companies expand beyond sales to early adopters. For the last two years, millions of so-called core gamers have purchased Xboxes and Playstations—but mostly Playstations.
As time goes on, several dynamics start pushing down prices. The companies get better at making consoles and start benefiting from economics of scale in manufacturing, as well as incremental improvements in making the consoles' components.
The market also changes after the core gamers have purchased consoles, when Microsoft and Sony begin to rely on drawing in more casual customers. Unlike people who waited in line at midnight two Novembers ago, the most recent customers consider cost no object when it comes to gaming. A $50 saving could make a difference to them.