Microsoft's $100 Offer Exposes its Fear That Sony Will Win the PS4 vs Xbox One War

Last week, Microsoft offered U.S. gamers $100 credit toward the purchase of an Xbox One if they "ditched" (traded in) their Sony PS3s. This offer, which lasts until March 2, has raised the eyebrows of investors and gamers alike.

In a previous article using data compiled by GameSpot's GameTrax, I noted that only 10% of surveyed Xbox One buyers previously owned a PS3, compared to 28% of PS4 buyers who previously owned the Xbox 360. Those unbalanced conversion ratios indicated that Sony would gain an edge over Microsoft as the eighth generation console race progressed.

There's one question on everyone's mind: "Is Microsoft really that worried about competition from Sony's PS4?"


Meanwhile, the most recent sales figures from Vgchartz.com show that Microsoft has sold 3.37 million Xbox Ones, while Sony has sold 4.88 million PS4s. Both consoles, which were launched last November, are closing in on Nintendo's Wii U, which has sold 5.62 million units since November 2012.

There is now a trail of clues indicating that the gap between the Xbox One and the PS4 is widening:

  • On Jan. 31, Sony unveiled sales figures from market research group GfK's Chart-Track service that indicated the PS4 was outselling the Xbox One by 50%.

  • On Feb. 3, the PS4 version of Square Enix's Tomb Raider: Definitive Edition in the UK outsold the Xbox One version 2:1.

  • On Feb. 4, Amazon.com UK's Ketu Patel made an ominous statement that the Xbox One has "a lot of catching up to do," but Electronic Arts' Titanfall (a PC/Xbox 360/Xbox One exclusive) might help it catch up.

  • There are now persistent rumors that Microsoft plans to drop the price of the Xbox One and possibly remove the Blu-Ray drive. Microsoft has denied these claims.

The logic behind Microsoft's $100 trade-in offer
All of these clues indicate that sales of the Xbox One are slowing more than expected. What could offering a $100 trade-in rebate to PS3 owners accomplish? Let's crunch the numbers.

Source: Microsoft

An Xbox One has an estimated manufacturing cost of $471 and sells for $499. A price cut to $399 would cause a loss of $72 per console, so that wouldn't be employed unless Xbox One sales completely stalled out.

Removing the Kinect ($75) and the headset ($10) could shave $85 off the production cost, which has led to speculation that the Kinect, at least, could be removed in a cheaper version later this year.

A pre-owned PS3 sells for $200 to $230 at GameStop . However, GameStop only pays $100 for a 500GB PS3 system. Therefore, all Microsoft is really doing is offering the same trade-in deal as GameStop, but using it as a publicity stunt to desperately boost its conversion rate of PS3 gamers.

Gamers who don't want an Xbox One can simply go to GameStop and trade in their used PS3 systems for $100 in store credit to reduce the price of a new PS4 to $299 instead.

Why Titanfall might not matter
EA's Titanfall, which is scheduled to be released on March 11, is widely expected to boost sales of the Xbox One. The Xbox One and PC versions will arrive first, and the Xbox 360 version will be released on March 25.

It's fairly obvious, based on the fact that Microsoft's "$100 for your PS3" promotion runs to March 2, that Microsoft expects Titanfall to provide the boost it needs to catch up to the PS4. In other words, Microsoft expects Titanfall to be to the Xbox One what Halo: Combat Evolved was to the original Xbox.

Titanfall trailer. (Source: Youtube)

While that's certainly an optimistic view of things, there are five huge problems with that theory:

  • According to GameSpot GameTrax's January 2014 survey of 3,500 gamers, Titanfall ranked 16th in the most anticipated games of the year. Only 67% of gamers were even aware of the title, and of those gamers, only 30% planned to purchase it.

  • EA's profit-maximizing strategy of releasing the game on the PC and Xbox 360 will inevitably dilute sales of the Xbox One version.

  • The cross-generation release of the game also makes Titanfall look like a mere half-step up from seventh generation consoles.

  • Titanfall doesn't have a single-player mode, meaning the player is required to play online at all times.

  • Considering EA's terrible track record with "always online" games like Simcity, server problems could crush the game's reputation the moment it launches.

Moreover, Titanfall doesn't look much different from Crysis, Halo, or most other modern shooters. The only thing that stands out about the game is its acrobatic freedom and seamless swap from ground-based combat to mech-based combat.

It's definitely pretty, but there's nothing so Earth-shattering about the title that makes it a "must buy" title for eighth generation consoles, especially without a dedicated single-player campaign.

I'm not sure why Microsoft believes that Titanfall could be the Xbox One's Halo, especially since Activision's Destiny, from Halo developer Bungie, has a much better chance of claiming that title.

The bottom line
In conclusion, Microsoft's $100 PS3 rebate is just the latest in the company's new strategy of petty pokes against its rivals, and will do very little to boost Xbox One sales.

Encouraging gamers to "ditch" their PS3s isn't much different from its attack ads on Apple's iPads using Siri's narration, or its "Scroogled" campaign against Google -- it's simply desperate, immature, and embarrassing.

Perhaps Microsoft believes that the rebates could hold it over to Titanfall's arrival, but I have serious doubts that it will be the Xbox One's salvation.

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The article Microsoft's $100 Offer Exposes its Fear That Sony Will Win the PS4 vs Xbox One War originally appeared on Fool.com.

Leo Sun owns shares of Apple. The Motley Fool recommends Activision Blizzard, Amazon.com, and Apple. The Motley Fool owns shares of Activision Blizzard, Amazon.com, Apple, GameStop, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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27 Comments

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maloce254

"A pre-owned PS3 sells for $200 to $230 at GameStop . However, GameStop only pays $100 for a 500GB PS3 system. Therefore, all Microsoft is really doing is offering the same trade-in deal as GameStop, but using it as a publicity stunt to desperately boost its conversion rate of PS3 gamers"

WTF Gamestop is the hack author going to? I got 70 dollars for mine. So if MS is giving 100 dollars for ANY PS3, then no, it isn't the same deal, is it? What a shitty website with a writer who can't think for himself.

February 11 2014 at 3:16 PM Report abuse rate up rate down Reply
Austin Morsels Carr

Ryan Hatch, Sony has made at minimum 1.95 billion dollars while microsoft has only made 1.68 billion dollars..... so i would say that sony is doing better business wise...

February 11 2014 at 12:40 AM Report abuse rate up rate down Reply
1 reply to Austin Morsels Carr's comment
CaseyKY

Is that why they're abandoning most of their other projects and letting go over 5000 workers? Yes, their upfront money has been better, but it's not because of console sales alone. They finally grew up and found out that pay for play makes a better online gaming experience.

February 11 2014 at 2:24 PM Report abuse rate up rate down Reply
Ryan Hatch

Sony is estimated to be making a gross profit of around 42$ per console sold and M$ is making a gross profit of around 112$ per console sold! do the math and tell me who is making better profit margins? I don't own either console by the way just like the numbers and I would say M$ is smarter in the way they are doing business.

February 10 2014 at 6:47 PM Report abuse rate up rate down Reply
Kris Stevenson

Ken Palmer you're an idiot lol. Another xbot having to justify his $500 TiVo box on the internet lmao. Microshaft's "ditch your ps3" campaign is clearly a move of desperation and everyone knows it.
:)

February 09 2014 at 2:04 PM Report abuse rate up rate down Reply
1 reply to Kris Stevenson's comment
CaseyKY

Microsoft & Desperate. Yeah, that sounds about right.
They're nearing 1.5 billion and profits, yet they're scared senseless.
Never mind that marquee game coming up called Titanfall. That doesn't hold a light to PS4's games, right? Come on... They're both good products and Microsoft decided to flex some marketing muscle. Continue with your fanboy life.

February 11 2014 at 2:27 PM Report abuse rate up rate down Reply
Ken Palmer

It would seem that the writer is a bit biased against Microsoft but doesnt mind owing its stock and making profit. I own a Xbox One and to answer the question of " Why would you spend that kind of money on that console? I answer because I can. And is it really a console war when Sony is basically having a giant garage sale to make ends meet? Sony should be concerned that its main competitor if it truly wanted could open the checkbook and dump Sonys net worth into Xbox Ones future development. They are looking at a 10 year life span for the console, do we have to hear about sales every week for 10 years? I will take the overall media and game experience of the Xbox over the singled out hard core gamer of Playstation. If developers play favorites this early in the console " war " they may regret that in the long run before they wait and see how both companies choose to expand on these products. Both systems offer alot and the best part is as a consumer we have a choicevto get either one or both as a matter of fact. Just seems like to much focus on weekly numbers and not just playing and enjoying some games.

February 09 2014 at 9:42 AM Report abuse -1 rate up rate down Reply
3 replies to Ken Palmer's comment
donacrz

I agree with the article. The reason why the XBO is failing (2nd place is failing) is because MSFT made the console a nickel-and-diming operation.

- The PS4 include a rechargeable battery for the controller, whereas MSFT give you AA batteries AND if you want a rechargeable battery, there's an additional $25 cost for the Microsoft Charge and Play Kit.
- The PS4 has a universal audio port (for Apple, Pioneer, Beats, Sennheiser, etc.) headphones. The XBO has a proprietary audio port, licensed for a fee by MSFT.
- The PS4 has an upgradable HDD without voiding the warranty (supports SSDs). The XBO does not allow to upgrade its hard drive, and any attempts void the warranty. I guess MSFT expect people to upgrade the drive by purchasing a whole new console in the future.
- The PS4 does not have a paywall for Netflix, Hulu+, and free-to-play games on the Playstation Network. The XBO requires a subscription to XBox Live for ANY online activity.

All these points are on top of the $100 difference between the XBO and the PS4. The Kinect is too unreliable to be worth $100.

Honestly, I cannot even reason why anyone would buy an XBO instead of a PS4. I guess most initial buyers of XBOs assumed that the XBO would provide a similar experience to the Xbox 360, and this is not the case.

In the end, the XBO is a so-so media hub and a so-so gaming console.

February 08 2014 at 5:22 PM Report abuse rate up rate down Reply
Austin Pales

I agree with your Titanfall section. Microsoft is hyping up all the exclusive games they have and so far none have done well. Ryse was a beautiful looking game but the games combat gets old quick. Although I haven't played DR3, a few friends of mine say they no longer play it because it also gets boring very quickly. Titanfall will suffer the same fate as the two games I've mentioned. There will be a ton of user reviews upset about no single player campaign. Running and jumping on buildings? I could care less about that because it's been done before. Anyway I believe this game has nothing special to bring to the game world

February 08 2014 at 2:49 PM Report abuse rate up rate down Reply
1 reply to Austin Pales's comment
donacrz

Here's the kicker, the XBox 360 version is rumored to be nearly identical as the XBO version, which is why MSFT probably pushed for a delay of the 360 version.

Why would anyone spend $560 for a new video game with minimal difference than the $60 version? (for X360 owners)

February 08 2014 at 5:24 PM Report abuse rate up rate down Reply
alchemistx24x7

Or is it really brilliant marketing an stratergy by MS which the answer is yes...Its why MS is the 3rd most powerful company in the world compared to Sony who in the past few days had to basically sell half there company jus to stay afloat...brilliant move by MS...Also like to mention XBX1 has only launched in 13 countries while Sony has launched in 50+ countries and the sale figures between both consoles is not much if i were Sony i would be scratching my head to figure this out with a 40+ country advantage the sales # are that close..

February 08 2014 at 2:23 PM Report abuse -4 rate up rate down Reply
3 replies to alchemistx24x7's comment
BrianC6234

No way would I trade in my PS3. It's dumb to do that right now. The PS4 and Xbone both don't have enough games. You want to keep your old console so you can play the new games on it too. Besides, getting $100 just makes the Xbone the same price as the PS4. Not good enough.

February 08 2014 at 12:59 PM Report abuse +1 rate up rate down Reply
Wilfredo Dominguez

i guess wanting to help gamers that cant afford the full 500 is a bad thing now....

February 08 2014 at 12:19 PM Report abuse -2 rate up rate down Reply
2 replies to Wilfredo Dominguez's comment
BrianC6234

If you need that help you shouldn't buy a new console right now.

February 08 2014 at 1:00 PM Report abuse rate up rate down Reply
donacrz

Haha...you think MSFT wants to help you? Ok.

February 08 2014 at 5:26 PM Report abuse +1 rate up rate down Reply