Tech Microsoft's new Xbox costs $500, but that could be a good thing

  • Published:
24/7 Live - Subscribe to the Pulse Newsletter!

You might think it's crazy that Microsoft is once again introducing a new game console with a $500 price tag.

But it's just possible the company is being crazy like a fox.

Microsoft is pretty certain there's a good market for its new Xbox One X game machine despite its high price point. More importantly, the company is pretty excited about who's most likely to buy the new device.

The kinds of customers who will be attracted to the Xbox One X tend to be the best game customers of all, Phil Spencer, the head of Microsoft's Xbox operations, said in a recent interview with Business Insider.

The new Xbox One X console from Microsoft is capable of powering 4K gaming. It costs $500 and launches on November 7. play

The new Xbox One X console from Microsoft is capable of powering 4K gaming. It costs $500 and launches on November 7.

(Microsoft)

"The thing that we should all realize is that that customer buys a lot of games," Spencer said. "That customer plays a lot of games."

That's a pretty strong argument for why huge companies like Microsoft and Sony are bothering to create more powerful, more expensive iterations of their consoles, even if those consoles serve only a small minority of console buyers.

At first blush, Microsoft offering another $500 console seems absurd. The Xbox One launched in 2013 with a $500 price tag, one of the main reasons it lags so far behind Sony's PlayStation 4 in adoption. The PS4 debuted at $400 and has seen double the number of sales as the Xbox One.

null play

null

(Microsoft)

Spencer understands this problem and perception, and he's not unrealistic about how sales of the new console will compare with the Xbox One S, the new base-model Xbox One that costs $250.

"We're gonna sell more Xbox One S consoles next year than we will Xbox One X," he said.

But as Spencer indicates, there's a method to Microsoft's apparent madness.

The company's betting there's a ready audience of folks ready to buy what the Xbox One X offers. This is a console capable of outputting games in 4K resolution — the next step after HD. There definitely are people who have a 4K TV and are itching for a game console that can take advantage of it.

"Metro: Exodus" is an especially stunning game coming to the Xbox One X. play

"Metro: Exodus" is an especially stunning game coming to the Xbox One X.

(4A Games)

Here's how Spencer described the target audience for the new console:

"You've got a person who really wants a premium experience.

"You ask who is that person today? I'm gonna bet a large percentage of those people have a current-generation console already. So in that world, I have to show them an experience that's demonstrably better. And that's where we started with Xbox One X.

"We get some interest from PC people who have been playing 4K games on their PCs now for a while, and say, 'OK here's a console that can play a true 4K game with a controller sitting on my couch.' And I think a lot of the other people have a current-generation console and are looking for a premium experience and something that really looks different."

While Microsoft is offering gamers a premium experience, it isn't charging them a premium to get it, despite the Xbox One X's relatively high price. The company won't be making any money from selling Xbox One X consoles. That's because the components required to power the level of graphical fidelity the box offers are expensive. Indeed, the Xbox One X looks like a bargain compared with what you'd have to pay for a PC with similar capabilities.

"Forza Motorsport 7" play

"Forza Motorsport 7"

(Microsoft)

But that's not unusual. Video-game consoles typically aren't what make money in the video-game business — it's the games, accessories, and services that do. Microsoft most likely makes far more money from Xbox Live Gold subscriptions, for instance, than from Xbox One hardware sales.

And what makes the Xbox One X so interesting for Microsoft is that the kind of folks who buy "premium" consoles like it and the PlayStation 4 Pro are the kind of folks who tend to buy not only more games than the average customer, but more accessories and services too.

Sony has paved the way for a pricier, more powerful console with its PlayStation 4 Pro. The company says Pro purchases now make up about 20% of all PlayStation 4 sales. Spencer expects similar adoption for the Xbox One X.

From where he's sitting, though, that wouldn't be a problem.