JULY 18, 2014 • The $399 Xbox One SKU without a Kinect sensor has spurred a strong 155% boost in sales of the Microsoft console in the United States compared to the prior month. The lower priced package went on sale June 9 and generated 197,000 units sold for the month. The PlayStation 4 remained the sales leader at 269,000 units sold – itself an increase of 37% over May. The tallies were compiled by the NPD Group, which also reported that The PS4 has sold 3.6 million units, and the Xbox One 2.9 million units since both systems were launched in the U.S. last November. Both consoles are selling about twice as many units combined during their first eight months in release than the PS3 and Xbox 360 recorded.

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Impact: Price matters. With good industry press exposure after the Electronic Entertainment Expo coupled with the start of summer the Xbox One would have seen a sequential increase in units sold without the $399 SKU. But the number would have been much, much smaller than the 155% jump seen in June. Unfortunately NPD does not break out how many of these sales were the $499 model with the Kinect included. The hard reality is that most core console gamers are less concerned with broad entertainment features in their consoles if those options come at an extra cost. Given how the Kinect helped to lift Xbox 360 sales between 2011 and 2013, we can see how Microsoft made the calculation that consumers were ready for the sensor to be a standard feature. But what makes sense to gamers at the start of a cycle is different than as an add-on cost at the end of a cycle. Another sign that Microsoft overplayed its entertainment hand is the announcement this week that the company was closing down its Xbox Entertainment Studios division that was set up in Santa Monica, Calif. back in 2012 to produce original video programming for the Xbox. Projects in production will be continued but Microsoft’s experiment in video content creation cannot survive as the company looks for ways to cut back on expenses after the costly acquisition of Nokia and the continued investment into tablet hardware. There is also the sense that new leadership at Microsoft is less enamored with selling hardware than leasing cloud services. The Xbox One still fits in well with that strategy as a cloud content conduit, yet Microsoft needed to get many more units into homes to facilitate that strategy – something the $399 SKU is accomplishing.