Microsoft has announced a new digital-only SKU of its Xbox One console, due to launch on May 7. The device is identical to the existing Xbox One S, bar the absence of a disc drive, and a lowered RRP of $249/£199. The unit comes preinstalled with three first-party titles, Sea of Thieves, Forza Horizon 3, and Minecraft.
IHS Markit data shows that off the 2018 world console games content and services market of $32 billion, 58% was derived from digital content and services.
IHS Markit forecasts that Microsoft will sell through 7.7 million Xbox One’s across all product tiers in 2019.
Why is Microsoft releasing a digital-only Xbox One S?
Microsoft’s move is a low-cost product experiment that allows it to collect valuable intelligence on the performance and usage of a digital-only console. IHS Markit data shows that a majority of spending on console games and services now takes place digitally. Xbox One S All-Digital Edition’s release will also provide insight into retailer strategies around digital-only games products and will allow Microsoft to more fully test consumer sentiment towards this type of product.
This information will help inform its next-generation console product strategy. The release of Xbox One S All-Digital Edition makes it far more likely that the next-gen Xbox console will also have a digital-only SKU at, or relatively shortly after, launch. However, IHS Markit believes that like the Xbox One S, the next-gen Xbox will have both a disc-based version and a digital-only SKU.
What impact will a cheaper digital-only Xbox One S have on overall Xbox One sales?
A lower price point for the digital-only Xbox One S will add another pricing tier to the Xbox One line-up of devices and broaden the appeal of the platform to a degree, but it is not guaranteed that this late adopter is the type of user that wants to own a console that can only play digital games.
Xbox One S All-Digital Edition also aligns with Microsoft’s broader strategic aim to build its digital services business and strengthen its Xbox Game Pass adoption rate. Xbox Game Pass and Xbox Live will be the bedrock of Microsoft’s push into cloud gaming services.
A cheaper price point for the digital-only Xbox One S will have a positive impact on overall Xbox One sales in 2019 and 2020. Its release will not significantly reverse any market share trends already exhibited in the market, but it will lead to an upgrade on overall sales. It is likely that as well as broadening the addressable audience at the lower price point, some buyers who are in the market for the existing Xbox One S will rethink and buy in at the lower price point. As such, not all Xbox One S All-Digital Edition sales will be incremental to the overall platform unit sales.
IHS Markit data shows that of the 2018 world console games content and services market of $32 billion, 58% was derived from digital content and services. IHS Markit forecasts that Microsoft will sell through 7.7 million Xbox One consoles across all product tiers in 2019.