So what sort of feature could be dropped from the arcade?

Or do you think the arcade SKU itself should be dropped?

It makes me laugh when people think that the PS3 has "more room to drop the price" than the 360. In reality, though, the PS3 will never be able to reach as low of a price as the 360 because of it's extra tech and more expensive technology. While the 360 may one day reach $99 at the very end of it's life, the PS3 will only be able to be lowered to about $200 at the end of its life due to all this extra technology and more expensive technology they added into it.

The PS3's price originally will drop more, and faster, given it's initial high price tag, but after it hits $300 it will stall for easily two years before another price cut could be afforded and affective. This is because the rate at which things become cheaper can roughly follow Moore's Law and so after 2 years of production the parts should cost roughly half as much. This is true for the PS3 as at launch it cost nearly $800-900 to make and now is roughly $400-450 to make. The 360 started at roughly $475 to make and now costs about $200-225 to make. That means that the 360 will be able to afford another price cut within the coming months if needed, while the PS3's cost of production will not reach $300 for another year, and will not reach $200 production cost for at least another 2-3 years.

And that's if things follow Moore's law exactly which will not be the case.

In reality, the 360 has more room to lower the price or to change the bundles because it still holds the majority of it's sales at the $300 Pro console. This is likely to be lowered to $200-250, and then again to $200 within a year, while the Arcade will lower to $150. Ok, I know I am speaking in absolutes, so I'd just like to clarify that this is what I feel has a very great probability to happen and not necessarily the actual outcome.

Regardless, the main fact I want to come across is that since the PS3 started at such a high price, it will end at a much higher price than the 360. You will never see a mass market priced PS3 at $200 until the day this generation ends and the 360 will almost assuredly maintain a 50% cheaper model until the end of the generation.

Xenon is a CPU that is used in the Xbox 360 game console. The processor, internally codenamed "Waternoose" by IBM[1] and "XCPU" by Microsoft, is based on IBM's PowerPC instruction set architecture, consisting of three independent processor cores on a single die. These cores are slightly modified versions of the PPE in the Cell processor which was designed specifically for the PlayStation 3.[2][3] Each core has two symmetric hardware threads (SMT), for a total of six hardware threads available to games. Each individual core also includes 32 KiB of L1 instruction cache and 32 KiB of L1 data cache.

The processors are labelled "XCPU" on the packaging and are manufactured by Chartered. Chartered reduced the fabrication process in 2007 to 65 nm, thus reducing manufacturing costs for Microsoft.

The name "Xenon" was repurposed from the code name for the Xbox 360 in early development.



IP ownership strategy with the chips could dramatically cut Microsoft's costs on the original Xbox. Microsoft had lost an estimated $3.7 billion over four years, or roughly a whopping $168 per box.

The problem with dropping the arcade, and putting a better model in at that price point is that when parents are buying a console for their children, they would be more likely to buy an arcade at say 149 than a pro at 199. So adding features to the arcade wouldn't necessarily be effective in combatting a ps3 price drop.

Oh and one more thing, I would argue that decreasing the price of the 360, especially in markets where it already exceeds the PS3 by a good margin, will increase the perceived value, not decrease it. The average Joe will go to a store, see 2 consoles with nearly all the same games. Both consoles he finds out can play HD and one is 50% cheaper. To that person the perceived value is going to be greater on the 360 because it can do nearly every function for half the price! Plus add on the unique features of Netflix streaming, Live with its unique features, achievements, and the greater chance that you will be able to play with your friends or that more of your friends will own this console, and the value goes up even more.

Sure you can argue that "they will need to pay for LIVE and to buy a wireless adapter so it isn't cheaper", but I would then counter argue that since only about 18 million Xbox 360 users even use the Silver/Gold level service, it is obviously not an absolute selling point (12 million 360 users not online). Also, to add on to that, wireless is not necessary, and most situations will not require it. But, in the event the average Joe pays for Xbox Live for full price, he still will get the occasional free XBLA game, and the chance to win prizes and points from all the MS promotions or Xbox Live PrimeTime.