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Opinion: The problem with Microsoft India’s Amazon-exclusive Xbox deal

Gamers, and indeed those in retail, are still reeling from yesterday’s news – Xbox One, along with all accessories and first-party games, will be sold exclusively at Amazon in India. Starting 1st September, that exclusivity deal will also encompass Xbox 360.

Simply put, Amazon is now the only place you can officially get Xbox in India.

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Gaming at retail will be dominated by PlayStation. It’s the sort of favouritism Sony couldn’t have bought, and Microsoft has handed it to them on a platter.

This is unprecedented for India any way you look at it. Yes, mobile brands have done this as well, but it’s usually the one-off product launch that takes this online-only retailer-exclusive route rather than an entire brand going exclusive with one online retailer. Xiaomi is the exception here, but this is a brand that sells its products online only in all markets.

So to have all Xbox products sold only through Amazon is incredibly bold of Microsoft, and it could make or break the Xbox brand in India. Here’s why.

Physical retail is still important for hardware sales

This isn’t just unique to India. People like getting their hands on a game console before buying it. You’d want to get a feel for the controller, try out the voice commands, and see how the games look in a way that a trailer or Let’s Play cannot accurately convey. If anything, without consumer expos similar to PAX, Comic Con, Gamescom and TGS in India, we need this experience at retail even more.

We need to try before we buy, and while Microsoft insists that it will work with Amazon to conduct “fan engagement and campaigns”, the fact remains that you cannot then walk into a nearby store and pick up the console. Impulse purchases go out of the window. Also, retailers like Ezone and Croma, where the gaming section extends only to consoles and accessories, will now offer less variety, which brings me to my next point…

Microsoft is letting Sony have physical retail all to itself

With no Xbox product in sight, gaming at all retail stores, from specialists like Game4u and Games The Shop, to large-format chains like Croma and Landmark, will be dominated by PlayStation. It’s the sort of favouritism Sony couldn’t have bought, and Microsoft has handed it to them on a platter. That begs the question – what’s stopping these retailers from actively pushing PlayStation products and attempting to convert walk-in consumers inquiring about Xbox? After all, a console buyer is also potentially a repeat customer for higher-margin accessories and games.

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The Xbox deal is a strong statement of intent from Amazon. It also bodes well for gaming in India that a major international player like Amazon is investing so heavily in gaming.

Distributor and retailer backlash

A couple of game distributors, which represent some of the biggest third-party game publishers, told us on the condition of anonymity that the Xbox exclusivity deal with Amazon will lead to them bringing a significantly lower quantity of Xbox games to India, and that’s a problem. Microsoft, for its part, has maintained that the Amazon deal is the ideal way for it to grow the gaming market in India.

But would a retailer be interested in stocking third-party Xbox One and Xbox 360 games if it is denied the console, the accessories and the blockbuster exclusive games? While it wouldn’t be entirely accurate, retailers (especially physical) would be justified in thinking that consumers who buy Xbox consoles and accessories via Amazon would also be inclined to buy games there.

Amazon flexing its muscles

The impact on physical retail aside, this move is definitely a positive one in the context of the growing competition in India’s busy e-commerce space. Of late, Flipkart is the retailer we’ve come to associate with exclusive tie-ups, from Motorola to Xiaomi to even Chetan Bhagat’s books.

But while Flipkart seems to be making all the right moves, this Xbox deal is a strong statement of intent from Amazon, a recent entrant that has already become the fastest growing retailer in this space. It also bodes well for the games industry in India that a major international player like Amazon is investing so heavily in gaming. Having said that…

Where are the savings going?

With Xbox products exclusive to one online retailer, Microsoft has, in one swift blow, wiped out an army of middle men in the form of distributors, sub-distributors and physical retailers, which translates into substantial savings. This is precisely why many brands are going the retailer-exclusive, online-only route of late, but there’s a difference. When Motorola and Xiaomi went online-only with the Moto G and Mi3 respectively, they were able to pass on those savings to consumers with attractive pricing. The Xbox One, on the other hand, is priced Rs 40,000 – the same price as its rival which still operates through traditional distribution and retail channels.

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You can’t shove freebies down a consumer’s throat and tell them it’s a value add. The consumer decides what value is, and there’s no better way to offer value than with a lower price tag.

So clearly, the savings are not being passed on to the consumer. And no, the “Rs 10,000 worth” of value adds Amazon is currently offering isn’t savings. Not everyone wants new speakers, a new backpack, or The Amazing Spider-Man 2 on Blu-ray. You can’t shove freebies down a consumer’s throat and tell them it’s a value add. The consumer decides what value is, and there’s no better way to offer value than with a lower price tag.

So are those savings going towards marketing and consumer awareness efforts? With little over a month to go for the launch of the Xbox One, we have seen no marketing for it whatsoever, so we can only hope there will be a concerted push from Microsoft and Amazon both online and offline, during launch and consistently post-launch.

However, there’s a good chance that any Xbox One marketing endeavours from the duo will play into hands of other interested parties…

An open invitation to the grey market

The Xbox One is priced at around Rs 28,000 in Dubai and that includes five games free. With the Amazon deal, the decision for retailers on whether they should sell grey market stock was made for them by Microsoft itself. Import units is now the only way independent retailers can provide their customers with Xbox One consoles. Even if you slap a Rs 3,000-5,000 premium on that Dubai price, you’d still be getting an Xbox One console for a lot less than the Indian price.

The caveat here is that Microsoft has made it abundantly clear that Xbox One consoles purchased from anywhere other than Amazon India will not receive warranty support. It’ll also be interesting to see if there are any legal measures Microsoft can adopt to curb grey market sales of the Xbox One. So while buying from the grey market will surely be a risk – it always is, it does help that the Xbox One hardware is far more reliable than the Xbox 360 was early in its life cycle. Microsoft would do well to take this grey market threat seriously.

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IVG exists because Xbox exists. We started out in 2006 as a community of Xbox 360 early adopters, so nothing would make me happier than to see Microsoft and Amazon succeed at this unique partnership, despite the fact that it alienates parts of the industry that are vital for its growth. Most experienced gamers and those within the IVG community already know what the Xbox One is all about – what it can do, what it has over the competition, where its weaknesses lie, and the games it has in the pipeline. For them, having the Xbox One exclusive to Amazon isn’t really a game changer, since these are consumers who are already more than comfortable buying online. The challenge for Microsoft here is to make the Xbox One a more attractive alternative to the PS4.

The far bigger challenge, however, lies in convincing those who are currently on the fence about the Xbox One and about console gaming in general, and it will be interesting to see how they go about wooing them over the coming months.

In the interest of full disclosure: Amazon is an advertiser on IVG

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