Will Microsoft's Xbox One Price Cut Kill the Console or Save It?

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Microsoft (MSFT) is tired of letting Sony (SNE) pad its lead in competition among the latest generation of gaming consoles, so the Xbox parent is going on the offensive. Microsoft will release a cheaper Xbox One on June 9, the day before diehard gamers converge at the annual E3 conference.

Slashing the system's price by $100 to $399 will match what Sony is commanding for its PlayStation 4, but Xbox fans will have to do without the motion-based Kinect controller to get the lower price. That's a big sacrifice given how Microsoft has promoted its camera-based controller to players and developers, but it was the easiest way to cut the price just seven months into the console's life cycle.

Microsoft doesn't have much choice. The Xbox 360 dominated the Wii and PS3 in the previous generation of consoles, but Sony's leading the way now.

One is the Loneliest Number

Sony claims to have sold 7 million PS4s to consumers since they hit the market in November. Microsoft rolled out the Xbox One a week later, and says it has sold 5 million of the consoles to retailers. There's a big a difference between the sell-through figure that Sony is using and Microsoft's number, which includes systems that may still be on retailers' shelves. Sony's real lead is likely significantly greater than 2 million units.

This is clearly Sony's generation. Nintendo (NTDOY) put out the Wii U a year earlier, and it was still the PS4 that became the first next-gen platform to crack through the mark of 7 million systems sold.

The PS4 isn't winning just because it's cheaper. The Wii U costs less -- and that was even before a price cut of its own last summer. Sony and Microsoft both have powerful machines, but the Xbox upset too many gamers last year when it began talking about requiring constant connectivity or reportedly pondering copy protection that would disallow secondhand games from playing.

Microsoft backed away from many of its initial restrictive features before the November launch, but the sentiment during last year's E3 conference was that the PS4 would outsell the Xbox One. It did, and now Microsoft needs to find a way to get its mojo back.

Kinect the Dots

Microsoft announced a couple of new initiatives last week aimed at winning back gamers. Among them, it will now allow any Xbox One owner to access entertainment apps including the popular video streaming applications. Xbox One rolled out requiring buyers to pay extra for Xbox Gold Live to access Netflix, Hulu and other entertainment hubs. The move was long overdue, even if the majority of Xbox One owners are likely Xbox Gold Live members already.

%VIRTUAL-article-sponsoredlinks%The biggest change in Microsoft's attack strategy is putting out a $399 Xbox without Kinect. That's a big deal since the Kinect controller was a key marketing point when Microsoft was trying to position its console as the ultimate living room centerpiece. Kinect allows owners to use hand gestures or spoken commands to interact with the system.

More importantly, developers who have put out Xbox One games, as well as those still working on titles, have all been coding under the assumption that every Xbox One will come with a Kinect. That won't be true anymore. Making matters worse, Kinect as a standalone purchase for those buying the cheaper consoles won't hit the market until the fall.

The Price of Competition

Consumers typically win in a price war, but that may not be the case here if developers turn more of their attention to the more popular PS4 platform and buyers of the $399 systems realize that they are paying a lot of money for an incomplete experience.

Yes, Sony's camera-based controller is also an add-on accessory. PS4 owners pay an extra $60 for the camera. However, it was never included in the basic system, and software developers have always known that.

Microsoft needed to get cheaper. It upset too many diehard gamers ahead of the system's release to succeed as the more expensive console. However, if the path to being more economical involves further upsetting players and software publishers, it may not have achieved that goal at all. Sometimes a price cut isn't such a bargain after all.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft.