Rumor: Microsoft to announce $99 Xbox 360

Microsoft is rumored to be working on a $99 Xbox 360 for gamers who commit to a two-year Xbox Live Gold subscription.

If true, it will be the first time that a major game console has attempted the idea of offering a hardware subsidy in exchange for a service contract.

This is the same business model that mobile retailers use when selling smartphones – the list price on the most powerful Android phone might be more than $700, but Verizon is willing to sell it to you for $200 if you promise to pay for service for two years.

The rationale, of course, is that over those two years, Verizon will more than make up for the $500 it lost on that smartphone sale.

For something like an Xbox 360, though, there are millions of people who live perfectly content lives without having an Xbox Live service subscription, so this strategy is a bit different.

Microsoft has tried vehemently to create the strongest and most robust online network, but it has always been tough to be competitive when it charges users $15/month to be able to play games online – something that every other hardware platform does for free.

In the world of American consumerism, that sub-$100 price point is golden, and if Microsoft can actually get customers to leave a store with a new Xbox 360 by only paying $99 plus tax, it would no doubt result in an explosion of user growth.

With that explosion, though, Microsoft would be ill advised to make any sort of announcements about the console’s successor. The last thing people who sign up for a two-year contract want to hear is that the thing they just bought is about to become irrelevant.