Ranting in my armchair: The 360 Price Cut & Why the Arcade wins
For all the conspiracy theories about the 360 European price cut, I think it's pretty simple and straight forward.
Microsoft kept the price high over Xmas because they thought the PS3 wasn't going to be a significant threat and the $50 cut in October would be enough. They subsequently sold a load of consoles and software, reaping in profit from the "inflated price", but they misjudged Sony's willingness to take a loss to get back into the game, and (as usual) misjudged Europe.
So the ramifications are that while they have to play a catch up in Europe, they've loaded their warchest and accelerated the cost reduction of 360. Unfortunately with the untimely demise of HD-DVD and the stock shortage (which I believe is probably due more to clearing old stock and stock piling for the price cut than actual shortages) it's created a slight negative perception of the 360's future. Truth is the 360 is where I think Microsoft wants it. Microsoft probably hoped to hit 20million over Xmas, but are still quite happy especially with the sterling software sales.
Which brings us to now. Traditionally, in any given year, the market has been dead until March. This year has been exceptional in that being barely out of February, we've already seen 3-4 A-AA titles. From here out things don't get any quieter, in fact I have no idea how publishers plan on releasing the number of games that have been scheduled for this year. With GTA4 around the corner, Microsoft have waited till now to maximise the impact of the price cut. I also expect the drop in the dollar has made he €80 Arcade cut possible.
This is also where there Arcade/Core strategy finally comes to light and makes sense. At R2000 the 360 no longer competes with the PS3 but becomes an alternative for anyone considering a PS2 or looking to upgrade one. We're not even talking the Wii here. Remember that Sony uses a 2 console strategy to target different segments of the market. They did it with PSOne and PS2 as well. More importantly consider the fact that more than 50% of all console sales occur at or below $200/£150/R2000 and that PS2 still amounts to the largest install base. Majority of consoles are bought as "game consoles" by parents for kids. Anyone paying attention will also notice Microsoft's focus on getting piles of "E" games on the 360, and having the best parental controls. While there's no specific consoles sellers just yet, when comparing the PS3 and 360 catalogue of family games the 360 wins by a landslide.
And there in lies the rub. While Sony knee jerked against the technically superior Xbox 1 by building what amounts to a high end PC replacements box, they seemed to forget what makes a console a mass consumer device - the perception of the mass consumer that consoles are simple 'disposable' devices, like DVD players, Hi-Fi's or video machines. That's where the Wii got it so right: People perceive it as a throw away party toy.
The PS3's big problem is now that it's trapped in a corner. The PS3 will never be as affordable to manufacture as the 360. Why? Because you can never get a hard drive for under $40. Add the cost of the cell, wifi and BD components and the PS3 will probably always cost more than $200 to manufacture. That's why there's the Arcade 360, whether you agree with the principle or not, or you think it's "retro", by separating the reducible silicon costs from the fixed HDD costs, the price becomes transparent. The standalone HDD price is still somewhat expensive but comparable to similar external drives, but at the same time the actual unit can be dropped significantly.
So now Sony has a problem. It's money making PS2 business is being eroded by the Wii in the "Blue Ocean" space and now the 360 in the more traditional space. For all the sales pitch of the PS3 being a "home entertainment hub", that's where the sales pitch is going to have to stay, because it's not going to be able to compete as a "toy", and may never reach a mass market price.
As an aside, want another upside to the separate harddrive? While no mention has been made by Microsoft, just looking at flash RAM prices. I suspect we could see new Memory cards out in the near future, to the order of 4Gb or 8Gb, enough to hold HD movies and any game content deemed "too large" for harddriveless Arcades. The advantage once again is that flash is a lot cheaper than drives, pocket money cheap.
So my last prediction? The "Xbox Next" won't have a hard drive either, but will probably ship with ~32Gb+ Flash RAM.
In future I'll try and to be more clear with you. Let me re-phrase my statement.