Should Microsoft introduce a disc-less 360?

Microsoft just released its Q2 results, and it’s clear the 360 has gone from being a drag on financials to contributing in a positive way as the company reduces the cost of the console and sees additional demand due to the Kinect.

But since Microsoft has established that the 360 will be around for another 4 to 5 years, it’s clear that its innovation cycle isn’t finished, as it looks to expand its addressable market. While it has talked about doing so by making the 360 more of an entertainment hub, one surefire way to expand the market is by making the 360 available at the $99 price point.

How could Microsoft get there from here? Clearly by continuing on the cost-reduction route, but it also could do something even more radical: Introduce a $99 disc-less Xbox 360.

As I state in my most recent weekly update at GigaOM Pro:

The $99 price point is a psychological barrier that if crossed will push more consumers toward a discretionary purchase. The company sells the low-end 360 S for $199, but it should consider a new “online-only” 360 without the DVD drive that acquires new games and content solely online through Xbox Live.

It seems crazy for a console, where the disk, or physical media, has been a central part of the equation. But Microsoft has long led the console gaming market in online distribution, so why not go radical and just make a low-end device without the disc?

Here’s another reason to consider it: Both Google and Apple TV are bringing their app markets to to the TV screen. How better to compete than by reemphasizing online software distribution with a lower-cost, disc-less box of its own?

What do you think? Should Microsoft consider a disc-less 360?