Allard Fields Questions on Xbox 360 Pricing Strategy

When Microsoft announced last week that they would be launching the Xbox 360 in two different configurations, it immediately set the Internet ablaze with discussion on this new, multi-SKU strategy. While some applauded Microsoft's decision to offer two versions at two price points (arguing that giving consumers choice is a good idea), the majority of the feedback suggested that the $299 or "Core" system is largely useless because it lacks certain critical components such as the hard drive (needed for backwards compatibility) and component cables (needed for HDTV graphics).

To answer some of the public's more pressing questions and to address concerns about the Core and Premium Xbox 360 packages, Microsoft's Corporate VP and Chief XNA Architect, J Allard, conducted an online chat session over the weekend.

The multi-SKU strategy explained

Allard, who said that the chat was "super valuable" to the Xbox team, explained that the Xbox 360 launch has been optimized for three "critical audiences." Xbox 360 has been designed for the game developer "by offering them a no compromises platform with great hardware, tools and the leading online service with live;" for the hardcore gamer "by putting together a configuration with everything you would want at a compelling price;" and for the entry level gamer "that wanted to get into next generation gaming and was excited by the media capabilities and wanted an entry level option."

The question that popped up most frequently during the chat session was: "Why is MS even bothering to market a core version?" Allard admitted that "the multiple configuration strategy has introduced some confusion and concern with the hard core gamers in particular," but he added that, "like the consumer electronics industry or the automotive industry having a family of products (we believe) will be good for the market."

"I think it is really important to emphasize especially for the folks in this chat room that we did not design the core system around you guys... we designed the core system as a way to get folks to come into the family at a cheaper price and decide if and how they scale the system," continued Allard.

Interestingly, Allard stated that MS did consider going with only one SKU at $350 that would have included a HDD and a wireless controller. It was "one of the many combinations we looked at," he said.

Hard drive price and usage

Most of the other questions raised during the chat session involved the HDD. When Allard was asked why MS planned to charge $100 for the detachable drive when 20 GB drives can be purchased for much less on the PC market, he answered, "The 20 GB hard drive is a 2.5 inch user serviceable drive and is more expensive than a PC 'crack the box' drive. It's one of the reasons we pushed to create a compelling premium bundle."

Others were concerned that offering a core version without the HDD would mean that developers would fail to take advantage of its abilities such as streaming data to decrease load times, but Allard insisted that this would not be a problem.

"Speeding up load times is one of the many things a hard drive can be used for but really it is up to the imagination of the developer. We have been talking with game developers for a while now to make sure that games will load efficiently without a hard drive present," he explained. "In terms of load times, as a gamer I am super sensitive to how frustrating load times can be, which is one of the reasons we put in a dual layer 12x DVD in the system to make sure gamers get great performance with or without a hard drive. One of the challenges with new optical formats when they first come out is the performance of the media, which was a consideration when we decided what the optical format for Xbox 360 would be."

HD-DVD for the future?

Speaking of optical formats, it's well known that Bill Gates said that MS would consider adding HD-DVD capability to future Xbox 360 units. Allard weighed in on this as well: "It's going to be interesting to see how and if a high def format for movies plays out. When we designed the initial Xbox many people asked if SACD or DVD audio would be the successor to the CD format for music. As everyone knows the real successor was MP3 and digital distribution with things like Napster, iPod and MSN music. While there is a lot of talk about this in the industry it will be interesting to see what the exact future of this is for movies. Of course I think there will be a need for higher capacity optical media for storage applications. We prefer HD-DVD to Blu-ray in terms of the flexibility it offers to different applications as well as the infrastructure costs to the market," he said.

When it comes to HD-DVD, it's likely that MS is taking a wait-and-see approach, as right now it would appear that Blu-ray has more momentum, but there's a ways to go before the next real DVD format is decided.

Allard refused to reveal that exact launch date for the 360, only saying "stay tuned," but the general consensus in the video game industry is that it will be on store shelves before this Thanksgiving.

The full transcript of the chat session can be found here.

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