Conflicting Goals

The endgame here, should things turn out most favourably for Microsoft, would be that an "Xbox 3" would launch within a reasonable timescale, but Kinect's appeal would continue to drive Xbox 360 sales in the downstream market for several years. This is exactly the kind of arrangement Sony has enjoyed with its consoles, with the top end of the market moving to new hardware but an immensely profitable long tail continuing to thrive on the old platform.

In the wake of the confirmation of Kinect's retail pricing, however, things make a bit less sense. For this strategy to succeed, Kinect needed to appeal to the downstream market - people considering a Wii purchase next Christmas, who could now get a bit more bang for their buck with an Xbox and Kinect pack, or those whose taste for gaming has been whetted by the Wii, the DS or perhaps even Facebook or the iPhone, and who are now interested in trying a new and widely well-regarded platform.

Needless to say, at £129, Kinect is not exactly priced for that market. That's an early adopter price - a price which would entice upstream gamers keen to add the latest gadget to their console, but not one which will drive platform sales to any significant degree. For all that Microsoft would argue that the Xbox 360 is a superior piece of hardware to the Wii - and nobody is disagreeing with that, although I'd add the caveat that the value of hardware is largely defined by the value of its software to each individual consumer - the reality is that downstream consumers will find the concept of buying into an ecosystem whose motion control peripheral costs as much as some consoles do fairly unattractive.

That's not, in itself, a mistake on Microsoft's part. There's nothing wrong with launching a product at a price point aimed at existing consumers and early adopters; companies do this all the time. There was a clear choice to be made here - Microsoft could try to use Kinect to monetise its existing installed base, or it could try to use it to expand the market and drive platform sales. These two things are, for the most part, conflicting objectives - there's some overlap, but to be in with a shot at success, the company needs to pick a lane and stick with it.

Instead, like a terrible driver, Microsoft is weaving all over the road. The price point is a clear stab at monetisation. The E3 demonstrations suggested market expansion. More importantly, the "free" game being packed in with it is aimed squarely at the downstream end of the market, and the company's own executives are vague about when more hardcore games will turn up sporting Kinect functionality.

This, I suspect, is a symptom of Microsoft's internal corporate structure. The company is famously competitive and factional internally, with tales of its office politics and intrigues being legendary within the technology industries. It's simultaneously a great strength for the firm, and a massive weakness. In this instance, it seems that two opposed camps have struggled over the direction for Kinect - and indeed over the Xbox 360 in general.