I find this interesting. People think that because the specs aren't the exact same or higher than the PS4's that it can't possibly be worth $500? Just what the heck do people really believe is going on here? Specs alone don't justify a price tag. Let's see what the hell the console is about, let's see what it can do, let's see what the games look like. Specs alone don't determine value. They never have. I'm as excited about the PS4 as anybody, but I don't somehow see it, at least certainly not based on specs alone, as somehow being more deserving of a potential $500 price tag. I understand that better specs get people more excited, but let's not lose our heads here. We don't know nearly enough about the next Xbox to suggest it wouldn't be worth $500. And if it turns out to possibly include a version of, or even a full blown Windows 8.1 aka Blue OS, then that would further increase its value in my eyes. The fact that it would also be a full on next gen console as well on top of this fact, with the strong games lineup it's expected to have, would make for one unbelievable value.
I don't know about anyone else, and I'm sure it has its fair share of hate, but I actually like Windows 8 a lot. Not perfect, but Blue looks like it's addressing some of the primary issues I wanted to see addressed.
Of course they're not the sole determination in value, but here we have a case where the next Xbox will have roughly the same CPU power as the PS4, but almost exactly 2/3rd's the GPU power and less than half the memory throughput -- that's a huge difference compared to the near parity that exists between the 360 & PS3. Given that the PC-equivalent components for the system are all on the market already and cheap (or soon to be on the market and cheap), it's hard to imagine that the actual computing hardware could cost them more than $200. This isn't idle speculation -- the most similar GPU to the next Xbox retails for $130, and thus almost certainly costs under $100 to produce, and that's with GDDR5 memory on board, which is significantly more expensive than the DDR3 Durango will use. The Jaguar CPU will be much cheaper yet.
Even if the new Kinect units are initially quite costly, it's hard to see how Microsoft would let the BOM get above $300-350. It's certainly possible that Microsoft thinks they can abandon the razor blade economic model at the very start of this generation, but it's very risky. Unless there's some killer feature packed in with Durango, it's not the type of product that non-gamers will be buying in lieu of an iPad during the holidays. And the early adopters -- core gamers -- are going to notice and care about the difference in graphics vs. PS4. The people who drop $500 to be the first to have hardware want to show off the technical prowess of the system.
There's got to be something more to Durango if Microsoft thinks they can price at the same level as the PS4. You can command price points well beyond your tech specs if you have other factors in your favor, like Apple's brand name, reputation/build quality, and ecosystem that let them price iPad's above competitors. In the Microsoft vs. Sony battle, though, Microsoft has no massive advantage.
Microsoft was extremely competitive this generation because they were first to market, always cheaper up front vs. Sony, and maintained a major user experience and online experience advantage for most of the generation that all combined to make the 360 the default development platform for most games. They can't fall behind significantly in the install base race if they want to remain a competitive gaming ecosystem, and they can't price a glorified set-top box w/ a camera at 5x the price of an Apple TV to capture non-gamers.
Edit: Also, there's still something to be said for the razor blade model -- early adopters have massive software and accessory attach rates. Gaining a significantly larger share of those consumers pays back the lower initial price charged many times over. With the specs Durango is going to have (barring a major change from current dev kits), I really expected $299 -- low enough to win large market share vs. a more powerful PS4, which Sony had been rumored to be expected to price at $399 (which seems reasonable).
