Microsoft pivots, abandoning vision of 100% Kinect rate for Xbox One

Last spring, I headed over the Microsoft campus to watch  the unveiling of the Xbox One. It was a heady time for the company, having emerged victorious from the last console cycle, in part due to a fairly strong mid-cycle revamp centered around the release of its motion-sensing remote in Kinect.

But as even Microsoft  would admit, gaming with the Kinect on the 360 was always a bit of an awkward straggling of two worlds, both for the company and the industry, where a majority of the installed base would never buy the add-on. This forced game developers who optimized their games for the motion interface to accept the fact they were only developing for a subset of the total installed base, while consumers who bought new games had to make a choice about whether they wanted a game developed primarily for the new interface or for the first incarnation, Kinect-less 360.

Not so with the Xbox One. As they unveiled the new console that day, Microsoft made clear we were entering a new world, one in which all new Xbox consoles would ship with the interface. No longer would developers or gamers have to make a choice, but instead could happily live in a world where they could fully embrace the motion-sensing interface for both gaming as well as interaction with the device.

Until…today.

Reality Bites

More than half a year into the new generation of Xbox One, reality has set in for the company, which is this: By pricing their box a full $100 more than the PS4, they’ve been relegated to second place in the console race, during the all-important first two year market window at the end of which a console maker can enjoy (or be victim to) the perception of the market about who is the winner and who is the loser.

Sure, a cycle last seven years in today’s world of billion-dollar console development runs, but after a few years perceptions will harden and so will game studios development budgets. If you emerge victorious after the first few years, or at least remain relevant enough, you can enjoy a virtuous cycle where, relative to other consoles,more games are made for a platform, which will beget more console sales as you ride down the price curve.  On the other hand, if you lose out on the perception race, you can find yourself in Nintendo’s shoes, where developers are questioning whether to spend tens of millions of dollars to make a game for a console with a much smaller installed base.

The Pivot

So recognizing reality for what it is, Microsoft made a choice, which was to depart from the grand vision of 100% Kinect-rate (apologies) in the new generation and try to make themselves more competitive with a lower-priced box.  I’m all for reality-based decision making, so I think it’s probably a smart move, though I think I would prefer the company releasing a Xbox One with Kinect for a lower price point.

In the end, it remains to be seen if this move will spark enough demand to catch up the PS4.  I think Sony’s console is already seen by many gamers as more of a gamer’s console, which is a good place to be this early in the cycle.

Relevant Analyst
Wolf

Michael Wolf

Chief Analyst NextMarket Insights

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