Xbox One boss talks price drop, says E3 will be all about games

Microsoft previously promised that May would be a big month for Xbox news, and they certainly were not joking around. In case you missed it, Microsoft announced today that a new version of the Xbox One will launch June 9 for $399--the same price of Sony's industry-leading PlayStation 4. It was a surprise announcement, and it wasn't the only news Microsoft revealed today. We also learned that Games with Gold is coming to Xbox One in June and that entertainment apps like Netflix and HBO Go will no longer require an Xbox Live Gold subscription. In short, it was a big day for Microsoft.

We caught up with Microsoft chief marketing & strategy officer Yusuf Mehdi and chatted about all the major news Microsoft had to share today regarding the future of the Xbox platform. Before I could start asking questions, Mehdi told me that Microsoft decided to make these announcements today, ahead of E3, so that Microsoft's showing there could be all about games. "We are really excited about bringing what we hope will be a display of games that will tee up an incredible second holiday for Xbox One," he said.

Going back to the beginning, when do you think was the turning point when you decided you needed to offer a new, Kinect-free Xbox One unit?

Yusuf Mehdi: "There's a couple different data points we looked at. The first one is, we really deeply believe in this vision of Kinect as a core component of providing a next-generation game console. And as we've gotten into the launch and we've seen the usage; the usage has been incredible, we've had over a billion Xbox Kinect voice commands, the average Xbox One user does 120 commands a month; and so a few months into the system, we realized the Kinect really is a big hit. People are loving it. Developers are loving it. And so that gave us confidence that we've established the bar. I think the second thing is we've heard from customers, again, over the last couple of months, that there's a set of customers out there, Xbox One fans, the 80+ million who have not yet moved to an Xbox One [saying] 'Hey, I'd like more choice and more affordability to get there' And for many people, $399 is a very attractive price point."

You've previously spoken about the Xbox One and Kinect being inseparable, but now that they are separated, is this no longer true?

YM: "For us, we believe to have the premium, complete experience, you want to have Kinect and I think the things that you get--the biometric sign-in, voice control, the ability to say 'Xbox, go to Titanfall'--we think those really define the experience of [Xbox One]. That said, the Xbox One value proposition of an all-in-one games and entertainment device which is completely differentiated from anyone else--the ability to do two things at once, do instant switch, input one [for TV]--that all remains in the new $399 option. So we feel like we've got the right balance."

"For many people, $399 is a very attractive price point" -- Mehdi

What kind of feedback are you expecting from developers and people who are making apps, because before they were guaranteed that every unit would have a camera, and that's no longer going to be the case.

YM: "We made this decision in conjunction with our development partners, so we have strong relationships with all the major game publishers and we've been talking to them before launch, through launch, and now. We're all in the same space. We all want a next-generation console that really does define a new form of gameplay and entertainment; we also want the largest base of users that make that an attractive platform for developers. Because that lets us bring more games. And in that balance, I think we both arrived at 'this is the right decision at this time.'"

So you don't think [removing Kinect] is going to fragment the audience in any kind of potential negative way?

YM: "No, I don't. Certainly some gamers are Kinect-focused, say Kinect Sports Rivals, Dance Central*. So obviously, those games do want a Kinect on every box. But any of the other games, they work just fine with or without a Kinect, and they have experiences that allow them to be better if your Kinect is there and functioning, but work fine standalone."

*Ed. Note: Harmonix has not announced a new Dance Central game for Xbox One. We're following up with Microsoft and Harmonix about this.

Are you going to offer any kind of ambassador program or anything like that for people who paid $500 for a system right out of the gate...or is that kind of the risk you run if you're an early adopter?

YM: "Part of what we're trying to do is really deliver value for those early purchasers, and that's part of what we're doing with some of the Games with Gold value offer that we've brought. One of the things that we did is we're bring an extra [free] game to Xbox 360. So we're always trying to reward our best fans with more services."

I was also reading the Xbox Wire post that 80 percent of Xbox One owners actively use Kinect, so this move appears to be appeasing to the 20 percent. Do you think you're in danger of becoming too beholden to your fans and not staying with your original vision?

YM: "One thing I disagree on...this isn't in response to the 20 percent. What this is responding to is more choice to customers who maybe can't afford to come out and get an Xbox One all at once, but they want to get there right away. So this is a way to say 'I can get one for $399 and then later, when I'm able, I can then go out and purchase a Kinect accessory.'"

Going into the holiday, we're now going to have two major boxes that are presumably going to be at the same price point. What kind of battle do you think this sets up now that things are different than they were last year?

YM: "We really like the value proposition and choice we're bringing to gamers, because we think it's differentiated in the following ways: 1) we're providing a more complete games+entertainment experience [than the competition]. We're the only device that can be an input 1, that can do live live TV, that can snap and do two things at once. We can do all that with our $399 offering. The second thing is it's going to be all about the games. So who's got the best games lineup? We really loved our competitive position with the first holiday, which I think most would say we had a stronger games lineup [than the competition].

I'm really excited about E3; cautiously optimistic that we'll have the value proposition that is also a very strong, if not the strongest, games lineup for the second holiday. And then finally, the thing that has also differentiated Xbox One has been Xbox Live Gold, and that great multiplayer experience that we're going to continue to invest in; some of it's with the new announcements we're making today, and some of it with the continued best-in-class Smartmatch experience. Those are the things that we think will stack up, so we love that comparison."