Is Microsoft Making a $499 Mistake?

We now have a price and a release month for Microsoft's Xbox One.

On the eve of E3, the software giant let gamers know that the next-generation console will be available come November at a $499 price point.

We knew that it wasn't going to be cheap given the impressive specs that Microsoft unveiled last month, but since Sony followed up last night by pricing its upcoming PS4 at just $399 it's going to create some unwelcome comparisons.

Sure, there's more to a console than pricing.

Nintendo thought it would get a jump on the competition by rolling out the Wii U starting at just $299 this past holiday season.

It flopped. Nintendo had to scale back its initial unit sales projections, and the future for Nintendo's ambitious dual-screen system doesn't seem so bright as E3 aims to get die-hard gamers excited about upcoming games and gear.

There's nothing worse than a slow start when years separate console generations, and now Nintendo's paying the price. Electronic Arts wowed the gaming community by announcing 11 upcoming games last night. They'll be made for the Xbox One. They'll be made for the PS4. There were no announced titles for the Wii U.

The flop this past November has left Nintendo at the mercy of its in-house games, which thankfully is the Japanese gaming pioneer's strong suit. What happens if the Xbox One is a flop this November? How long will EA keep putting out Xbox One games if no one buys into the system?

Failure doesn't seem feasible, especially since the Xbox 360 has been this country's best selling system. However, the PS2 was the hot console until Sony's PS3 hit the market for $100 more than the Xbox 360 and a lot more than the original Wii. Could Microsoft price itself out of market leadership?

There is already some degree of backlash for Microsoft's connectivity requirement to register new games. Gamers who like to trade in their old games for credit on new purchases also aren't happy that Microsoft will leave it up to individual publishers if they want to block the resale of their titles.

The Xbox One also won't organically play Xbox 360 discs, but the same backward compatibility issue is hitting Sony.

Despite all of the Xbox One buzz, sticker shock at the iPad-like price and the platform's restrictive ways may hold it back. It isn't easy for young gamers to save up $500 for a system, especially at a time when the country's youth is opting for smartphone wireless plans in lieu of car payments and other big- ticket items.

After more than three years of declining sales, the video game industry can't afford to miss this holiday shopping season. Microsoft is taking a gutsy move in hitting the market as the most expensive console -- and perhaps substantially more expensive if Nintendo desperately moves to slash prices later this year -- and it may not have enough time to get it right if it fails to catch on this year.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Nintendo and owns shares of 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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