Just one day after being publicly scolded by a major third-party partner, Microsoft lowered the price of its Xbox console system in Europe, the U.K. and Australia Thursday by nearly 40 percent.

Effective April 26, the Xbox will fall from 479 ($426) to 299 ($266) in Europe. (Great Britain prices fall to $288, while the Xbox will sell for $211 in Australia.) Consumers who paid the original price will receive two free games and an additional controller as compensation.

That's a good start, but it's just the first in a series of moves Microsoft needs to perform if it wants to halt the Xbox's recent retail stagnation.

A recent report from Deutsche Banc Alex. Brown estimated Microsoft sold just 300,000 units in North America in the first three months of the year. Compare that to roughly 1.5 million in the last six weeks of 2001. Japan has all-but-ignored the Xbox, with estimated sales of only 180,000. And, mainly because of the astronomical prices, sales in Europe were "disappointing."

It's not too late for Microsoft to regain momentum, though. Today's move was a good start. Here are a few more things that might make the Xbox hot again:

With today's announcement, the U.S. now boasts the highest worldwide price for an Xbox. It's time to change that. Bringing the price down to $199 - or even $250 - would make people a little more willing to give the system a shot. When THQ CEO Brian Farrell publicly urged Microsoft to cut prices Tuesday, he was talking about the European market. He might want to extend that to include North America, as well.

"Halo" has shot down the competition

Sony – and perhaps even Nintendo – are expected to announce significant price cuts for their consoles at next month's Electronic Entertainment Expo. Microsoft declined to comment when asked about its own U.S. pricing plans.

Assuming the competition does reduce prices, Microsoft (MSFT: Research, Estimates) may not have any choice. The Xbox is already on the high side of what consumers are willing to spend for a console ($299). And remember, Microsoft, the real money in the console world is in software sales anyway. Speaking of which...

If you've bought an Xbox, there's a pretty good chance you own a copy of "Halo: Combat Evolved," too. Microsoft has already sold over 1 million copies in North America and the game's still red-hot. It should be. It takes full advantage of the Xbox's graphical capabilities, offers frenetic action and a strong storyline. Odds are you own a few other titles, as well, but you probably don't play them very much.

"BloodWake"... "Cel Damage"... "Azurik"... "Nightcaster"... The Xbox playing field is littered with dull, quickly forgotten titles. Some good efforts (such as "Oddworld: Munch's Oddysee") didn't click with gamers. But mostly, Microsoft hasn't been able to produce quality original games. Instead, it's amassing a huge library of third-party titles that are available on every other system as well.

For the Xbox to succeed, it needs to beef up its library – and fast. If the system fails to wow the industry with solid, exclusive games at E3, Microsoft could be looking at a catastrophic failure in the console world.

Actually, the Xbox does have one big surprise in its bag of tricks: A game based on the film "The Matrix."

Last May, Microsoft lent beleaguered Interplay Entertainment (IPLY: Research, Estimates) $5 million to help develop and ensure Xbox exclusivity in the months following the launch of the upcoming "Matrix" movie sequel. The money also secured additional features for the Xbox release of the game, including additional characters, online exclusivity among consoles and more.

Now, Shiny Entertainment (the developer of that game) is on the block. (Interplay has announced it is in the advanced stages of negotiations to sell Shiny to an unnamed buyer – possibly, in fact, Microsoft.) Since third-party developers gain more by building games for each system (letting them target a wider audience), Microsoft's going to have to rely more and more on internal teams. Shiny would be a perfect fit.

Coming soon to the Xbox: A "Matrix" game

The company's track record is sporadic, but the Matrix game is an ace in the hole - and could be the launching point for some other wonderful titles.

One of the Xbox's big draws was its online capability. With its Ethernet port, the system was all set to take advantage of the high-speed digital revolution.

Oh wait, that revolution still hasn't happened...

And Microsoft still hasn't announced a viable game plan to launch its online component. We'll hear one at E3, but the company's wasting a wonderful opportunity here.

No console has established itself in the online world yet. All three will be talking about their plans in a month. Nintendo will demo "Phantasy Star Online." Sony will bring its addictive "Everquest" line to the PlayStation 2. And Microsoft will show off ... well, "Halo" again – since the game was built with online play in mind.

Clever, hardcore gamers have already figured out how to enable the online elements of "Halo" and have raved about it. This was – and still is – a perfect opportunity for Bill Gates and crew to steal their opponents' thunder.

The hell with a big E3 announcement we all know is coming. If you want to surprise us, Bill, put a regular phone line adaptor on the market and launch the online network next week. If nothing else, it would revive wavering interest in the brand.

Morris is director of content development for CNN/Money. Click here to send him an email.