They considered $299 but went with $499? Whaaa...?
I have a theory about this. Notice that the document was probably put out internally sometime between 2009 and 2010, so this is probably a finalized iteration of what'd of came before a revamp in the form of XBO. They were going to have 360 HW BC and use ARM cores instead of x86 or x86-64, and keep the 360 cores for BC purposes. Also only 4 GB RAM capacity but of DDR4 (the XBO went with older DDR3 that was probably cheaper by a bit, but doubled capacity and probably clocked as fast as they could get it for that spec).
Point blank, I think Microsoft had a SEGA moment, you know the kind. I'm talking GigaDrive > Saturn > Saturn revamp kind. They weren't particularly worried about a somewhat more powerful PS4 back in 2009/2010 because they didn't know yet the comeback Sony'd see on the software front, plus they were riding high off Kinect success and a second burst of life for the 360 because of it. They also assumed the appetite for motion controls would have an appeal for longer than they did. Lastly, as you can see in those documents, a lot of their focus was actually on Apple and Google, less so Sony or Nintendo. I think considering the astroturfing and media influences of MS at this time, we probably have them to think for the "consoles are dying" talk that was circulating around at the time, as it's clear the 720 was not prioritizing traditional gaming and looking to position more against what Apple, Google, Amazon etc. were doing (or might've planned to do), utilizing Kinect motion controls as their secret weapon.
Well we all know how this
actually went...
I think, Microsoft underestimated Sony a little too much and figured they'd just barely limp along to the PS4, being too slow to get their 1P and 2P exclusives in order, that PS3 wouldn't have a turnaround. Well, Uncharted 2, Demon's Souls, Uncharted 3, Beyond: Two Souls, TLOU, GT6 etc. happened meanwhile MS more or less stopped focusing on core gaming experiences after Kinect launched, unless it was another Halo or Forza spinoff. Microsoft got complacent with their 1P, and they probably noticed a lot of 360 owners buying PS3s in the last three years of that generation. They probably also started hearing word about PS4's target specs and that combined with Sony's revitalized 1P & strengthened partnerships with various 3P spooked Microsoft to some level. They couldn't "really" put focus on Amazon, Apple, Google etc. if they still had to contend with Sony.
So, they needed to find some areas to give the 720 a boost in performance to make it look more appealing vs. PS4, cut features they felt wouldn't be necessary (if they found out PS4 wouldn't have BC with PS3, that could've influenced MS to drop the PowerPC cores from 720 for 360 HW BC), and try holding onto Kinect v2 as their big value differentiator. That's how 4 GB DDR4 became 8 GB DDR3, that's how ARM & PPC cores and whatever GPU they had in development became an APU with x86-64 cores and GCN. And it's how the 32 MB EDRAM (for 360 BC) became 32 MB ESRAM, among other things. With those changes, they had something that on paper could better compete with the PS4, but still tackle the multimedia ambitions they had with the 720 to deal with Apple & co., and the motion controls to draw the Wii and hopefully mobile audience to the platform. XBO still had its hands in all of these things, but at a cost of ballooning the production budget and pushing the MSRP up by $200.
And then super-unfortunate for MS, the NSA stuff happened AND the Wii U completely bombed a month after release, despite having the Wii brand naming to it and still supporting motion controls. Microsoft probably, internally, now feared that they made a bad bet with Kinect v2 and what they thought would be a value differentiator became an albatross. But they couldn't justify cutting it out of the package because they didn't feel a (now revamped) 720/XBO on its own could justify the likely $399 or even $349 it'd command without the Kinect v2 (and at $349, probably losing a LOT on each unit being sold). They were probably hoping that with the PS4's RAM getting upgraded to 8 GB GDDR5 instead of 4 GB GDDR5, that Sony would've made the price higher than the $399 they expected way back in 2009/2010 or so.
Welp, we know how
that also went...
I'll never forget watching E3 2013; still one of the best trade events and shows of all time. The energy was insane. But yeah, that's my theory on what happened to 720 which led to the XBO and saw a $200 increase in the price along the way. Microsoft basically SEGA Saturn'd themselves with a rushed redesign late into development, based on an earlier concept that was too steeped in the past of what they thought (or wanted) the console market to veer towards, versus the reality (at the time) of where it was headed. And like SEGA with the Saturn, misread the key desires and wants of the hardcore and core gaming demographics (3D gaming in the case of Saturn, big blockbuster AAA story-driven and core gaming experiences in the case of XBO).
What I'm absolutely mystified by, is how Microsoft made many of the SAME mistakes again (in hindsight, though in some cases noticeable even at the time) with Xbox Series several years later...again kind of similar with SEGA and the Dreamcast (tho I'd say Dreamcast fixed a lot more of the Saturn's shortfalls, than Xbox Series did Xbox One's).