Xbox 360 consoles for just $99! What’s the catch?

Microsoft seems to be testing a pricing strategy that has proved to be extremely successful with smartphone sales worldwide. The tech giant has launched the new pricing strategy on Monday to boost sales of its Xbox 360 consoles.

Microsoft is now offering 4GB Xbox 360 consoles bundled with Kinect voice-and-gesture sensing controllers, all for just $99, in certain Microsoft stores in the US. As usual, there is a catch.

Buyers of this console are required to sign a 2 year subscription to the Xbox Live Gold online service for games, music, films and play. There is a fixed monthly subscription fee of $15, which brings the total cost of buying such an Xbox 360 to $460 over this period.

If you take up this offer and pay upfront the total amount for the console, Kinect, and the Live membership, you may either break even, or end up saving around $40. Not bad, really.

This pricing strategy of subsidizing hardware and deriving a profit in the long run has worked very well for telecom companies over the years. Consumers are enticed to purchase the smartphones by offering huge discounts but end up paying almost the original amount in mandatory service subscriptions and contracts.

Last month, Microsoft had announced in its quarterly earnings report that total sales of its Xbox consoles had softened.

The Xbox and its Kinect accessory had been tremendously successful and had significantly increased Microsoft’s total revenue. However, the revenue generated by Microsoft’s Entertainment and Devices Division had dropped 16% to $1.6 billion in the last quarter.