Microsoft (Nasdaq: MSFT ) had a tiger by the tail a year ago and didn't know it. The company that helped bring Windows to the masses had rolled out its latest accessory with great fanfare, but it took a few independent tinkerers with some unexpected ideas to see the device's potential. Now, Microsoft's finally realizing just how big that device could be: Its Kinect Accelerator start-up program could create the next big thing in computing.
Let's get down to business
Kinect Accelerator will be jointly operated by Microsoft and venture-capital firm/start-up accelerator TechStars. Here's a short list of what both companies bring to the table for promising entrepreneurs and developers:
||Microsoft provides office space through its BizSpark subsidiary.
||Many mentors in the Kinect Accelerator program work at Microsoft, and they will guide, work with, and train start-ups throughout the three-month program.
||TechStars establishes the mentor roster, and many TechStars-sourced mentors may continue working with the best new companies past the end of the start-up program.
||Kinect software development kits for Xbox 360 and Windows, as well as a full suite of Microsoft development tools.
||Guidance and technological support, aimed at creating a broad-based Kinect industry.
||Fairly standard private-equity support, with a bit more hands-on guidance.
||6% common stock.
Source: Microsoft BizSpark.
"Now, wait just a minute!" you might cry. Microsoft has no equity stake? TechStars gets all the equity portion granted from these deals? Well, what's in it for Microsoft?
Microsoft's motivation, from its earliest days, has been to get its products into as many hands as possible. Leveraging the Kinect in new and interesting ways will always benefit Microsoft, whether it's used to create 3-D objects to print or to manipulate interactive projections on any surface. There's also no clause that says Microsoft can't invest at a later date. At the very least, the company may come across some brilliant engineers for its research roster.
Microsoft's commitment to innovation continues to impress me, so I've made a bullish CAPScall in the company's favor after watching its developments with interest for some time. There are plenty of other companies that could take advantage of widespread Kinect adoption, so let's take a look at some potential winners in a more Kinect-ed world.
Get in the game
Major game publishers could be the first big beneficiaries of Kinect tweaks. Think of the millions of players in Activision Blizzard's (Nasdaq: ATVI ) Modern Warfare series, or Electronic Arts' (Nasdaq: ERTS ) competing Battlefield shoot-'em-ups. If popular action games could be viably controlled through Kinect-based sensors, it might open up the field to a new breed of gamers, much the same way that Zynga helped popularize casual gaming with its simplistic Facebook time wasters.
Additionally, an obvious extension of Kinect battles is Kinect-optimized peripherals, like Activision's plastic Guitar Hero guitars, but with a different sort of functionality. Better Kinect action games are sorely needed -- a highly anticipated Kinect Star Wars game was recently delayed until next year after its E3 demo was dubbed a "train wreck."
Print the world
Rapid prototyping and small-scale manufacturing could also take a big leap forward. I've previously written on the Kinect's benefit to 3-D printers, as Microsoft has put its own research muscle behind convenient Kinect-supported 3-D scanning technology. 3D Systems (NYSE: DDD ) and Stratasys (Nasdaq: SSYS ) should keep a close eye on what comes out of the Kinect Accelerator program, and might even want to buy into a bright 3-D printing idea.
Closer Kinect integration might, however, pose a big challenge to these two companies. 3-D printing hobbyists have created self-replicating open-source super-cool 3-D printers (whew, that's a lot of hyphens) -- a fancy way of saying that anyone with the knowledge can build one, and with enough cleverness, anyone can make a better version by printing it with the version they started with. 3D Systems and Stratasys need to maintain every edge in quality and functionality if they don't want to get swept away by an army of cloned printer-bots. Their response to Kinect applications may go a long way toward determining their future in the consumer market.
Hands-off health care
Medical applications are so important to Microsoft that its top three "Kinect Effect" case studies are all health care-based. I'm intrigued by the surgical example: Hands-free software makes perfect sense when you need a clean operating environment. Motley Fool Stock Advisor success story Quality Systems (Nasdaq: QSII ) , for one, might want to use the Kinect's functionality to expand its hospital-centric software options. It would face stiff competition from Allscripts (Nasdaq: MDRX ) , which merged its way into hospital software last year, as well as from major enterprise software providers. The first to implement an accurate gesture-based system could lock in a competitive advantage for some time.
Foolish final thoughts
Promoting commercial applications for the Kinect might be the first step toward immersive computing, where your interactions with the world around you guide hardware and software in wild science fiction-y ways. Now that Microsoft's woken up to the device's commercial potential, will other companies sit by and wait for a TechStars-backed start-up to show them the way? Probably not. Who knows? You might soon control everything with the wave of a hand.
Add these companies to your Watchlist to get all the latest news on their progress, gesture-based or otherwise. If you're interested in discovering another company that could see huge gains from having computers everywhere, take a look at this free report on the next trillion-dollar computing revolution.