Conflicting Goals

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With the price for the system finally nailed down, the last major piece of the jigsaw in place, it's reasonable to pose the question - what is Kinect designed to do for Microsoft? It's a question made all the more important by the fact that the company itself doesn't seem to be entirely sure.

The line it most often rolls out is that Kinect will extend the lifespan of the Xbox 360 hardware, envisioning the combination of Kinect and the Xbox 360 S as essentially "Xbox 360.5" while the console's apparatchiks eagerly take up the chant of "five more years". On the other hand, its showing at E3 and various other events and statements suggest that it's all about market expansion, taking the battle for the hearts and minds of downstream gamers right into Nintendo's heartland.

Those are not necessarily conflicting objectives, of course, but it's crucial to understand that they're not actually the same objective either. Refreshing and expanding upon the console's capabilities could satisfy existing customers for a few more years without launching a new platform, without necessarily widening the demographic appeal of the system. Equally, it could widen the appeal to new audiences, but leave existing owners unimpressed and still keen for a platform upgrade within a normal timespan.

Up until this week, it looked for all the world like Microsoft's hope was that Kinect would expand the appeal of the Xbox 360, allowing it to continue strong hardware sales by breaking into new demographic groups. Appealing to core gamers - the vast bulk of the console's existing installed base - wasn't off the radar entirely but was certainly a significantly lower priority.

Those priorities made sense, for the most part. If Kinect could really convert some of Nintendo's audience over to the Microsoft camp (that, in itself, is a much bigger "if" than either Microsoft or Sony care to admit when flogging their respective motion control setups), then the console's sales would get a boost. Core gamers would, for the most part, remain glued to their controllers, but there would be plenty of games made for them as well.

The challenge to PR and marketing would be to avoid Nintendo's pitfall of appearing to pander to a new, casual audience at the expense of "long-suffering" fans, but Microsoft - with franchises like Halo, Gears of War and Forza Motorsport in its stable - would be far better positioned than the traditionally family-friendly Nintendo to see off those kinds of accusations.

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.

After the expensive land-grab of the original Xbox, strong voices calling for monetisation of the 360 installed base emerged, while others called for market expansion to remain the priority, recognising that the console's position is far from cemented (having been outmanoeuvred in the downstream space by Nintendo and still facing a clear threat from Sony in the upstream space). The Xbox 360 S is something of a victory for the latter camp, finally integrating previously expensive components like the WiFi adapter into the system.

Kinect, however, feels like a product designed by the latter grouping - aimed squarely at market expansion - but with a price tag slapped on it by the former, with a clear eye on monetisation. As a result it finds itself in a no-man's land, not terribly interesting to the kind of people who already own an Xbox 360 and are willing to invest further in the platform, but far too expensive for newcomers to the system. Some seriously good marketing and PR could still give it a decent Christmas, but it will have to be genuinely eye-opening stuff to overcome the challenges created by the price point.

Supporters of Kinect will point out that Sony's Move hardware, too, quickly ramps up in price when you start adding additional controllers - and they're quite right. This, however, is not a zero-sum game. Both systems could be successful. More relevantly, both could be utter failures - the existence of a significant market for either technology has yet to be proven. An error on Microsoft's part cannot be excused by pointing out a similar error on Sony's part.

Indeed, it's entirely likely that early 2011 will see price cuts for both Move and Kinect - and herein lies yet another marketing challenge laid down by the platform holders for their communications teams. If Kinect, and indeed Move, have a tough Christmas, and then cut prices sharply in the New Year, how will the companies involved prevent the stench of failure from surrounding that price point?

Priced £50 cheaper, Kinect would start to make sense - an add-on that enhanced the appeal of the Xbox 360 at a price point which didn't massively inflate the cost of entry to the platform. As it stands, Microsoft has balanced the success of its much-hyped system on a knife edge. Thankfully, there's no question about Microsoft's ability to afford an expensive failure - but after over a year of hype, a flop for Kinect would pose serious and troubling questions about the firm's entire strategy in the console market.