Microsoft has had some embarrassing setbacks lately across its product range. Based on poor sales, the company has had to reduce prices on a variety of its premier offerings.
Late last year, Microsoft started a fire sale on its Zune line of portable media players. Granted, that was in part due to a new model coming out, but you don't see prices on successful products like iPods cut that dramatically at the end of the product life cycle (a sure sign Microsoft overestimated demand on its first-generation device).
Earlier this month, Microsoft's premier product line, the Windows Vista operating system, had prices reduced by as much as 25% to help spur flagging sales (corporate sales of Vista have been far short of what Microsoft expected). Even Microsoft has been critical of Vista.
And just today, Microsoft announced that prices for the Xbox 360 would be slashed in Europe to undercut the Nintendo Wii. Competing with the steamroller that is the Wii has to be tough...doubly so if your product is more expensive and similarly (now) lacks the capability to play HD media.
It makes you wonder why Redmond is going after Yahoo!, at a cost of almost $45 billion, when so many of its core products seem to be doing so poorly.
I'm not a console expert, and I'm not currently a Microsoft fan-boy... but I don't see the fact that a European Xbox 360 price cut necessarily indicates the same failure as Zune or Vista. While the 2005 teardown analysis, the BOM (bill-of-materials for those who never worked in development) for an Xbox360 was over $500 things are cheaper now. There's other money to be made in software and other marketplace purchases.
Anyway, the Xbox 360 has wiggle room. If some Xbox marketing folk think the problem is a cheap Wii, then I say go for it. Competition often makes things better for consumers.
For example, it might spur Nintendo to improve things faster. More good titles? High-def?