Watch Out for Microsoft's Army of 40 Million

Microsoft (Nasdaq: MSFT  ) has the country's youths right where it wants them.

Critics may have walked away generally unimpressed by the software giant's final keynote address at the Consumer Electronics Show last night, but Microsoft did have some impressive stats to offer when it comes to its booming Xbox franchise.

  • There have now been 66 million Xbox 360s sold since the console's debut in 2005.
  • Sure, a lot of those systems have succumbed to the ill-fated "three rings of death" or are collecting cobwebs in the attic, but between both generations of Microsoft's video game system, there are now a whopping 40 million Xbox Live users.
  • Since its rollout ahead of the 2010 holiday shopping season, Microsoft has sold 18 million motion-based Kinect controllers. The platform will make its PC debut on Feb. 1.

It's true that 40 million Xbox Live users may not seem all that great compared to some of the bigger numbers out there. We're talking about just 5% of Facebook's 800 million users. Give Apple (Nasdaq: AAPL  ) just two quarters these days, and it will sell more iPhones than Microsoft's gamer headcount.

However, when you approach Xbox Live as the television-tethered entertainment service that it is, the number is pretty darn impressive.

After all, we're talking about nearly double the more than 20 million global streaming customers at Netflix (Nasdaq: NFLX  ) -- and that's no shot at the video giant. Netflix CEO Reed Hastings actually sits on Microsoft's board of directors. The country's largest cable provider or satellite television company only has a little more than half as many video customers as Microsoft.

There's power there, and Microsoft's youth-skewing demographics make this a lucrative audience for marketers and content creators.

No halo effect after Halo
It's true that Microsoft has misplayed its newfound market leadership in gaming. The Xbox's success couldn't save the Zune at a time when Apple's iPod was the media player gadgetry of choice. Mr. Softy remains a distant player in mobile. The sale of Windows-powered PCs have been flattish over the past year.

It's not too late to get it right. It's Microsoft's grasp on 40 million gamers that made it a no-brainer for several pay television providers to team up with Microsoft last month to stream content for Xbox Live subscribers. Ignore this hungry crowd of Mountain Dew sippers, and they'll reach for the scissors and cut the cord if you're not playing their game.

Then we get to next month's move to introduce Kinect for PCs.

This isn't a slam dunk. The device will hit the market at $249 next month, double the price of the console-based Kinect controller. There will be special academic pricing at $149 for students and teachers, but not until later this year. In other words, pay up, early adopters.

Microsoft may outsmart Apple
Apple innovates. Microsoft copies. We know all of the old knocks. However, let's begin to look ahead at what a Kinect-connected Windows computing experience will be like later this year.

Kinect may have been initially introduced as a gaming and fitness device, but nobody stands up when they're at a computer (well, unless they're at an Apple Store -- boom). Folks also aren't several feet away from their PC monitors the way they are from their TVs while gaming, so it's not as if folks will be buying Kinect on their computers for full-bodied interaction.

However, Kinect's ability to respond to gestures and voice commands is a game changer. If you think that Siri on the iPhone 4S would be a neat addition to Macs, Microsoft will already be one step ahead with a PC that recognizes both spoken commands and physical gestures. Bring in the tablet-friendly Windows 8 later this year -- and the inevitable touchscreen laptops and monitors that will play nice with the new operating system -- and you'll see that Microsoft flicked its high beams at Apple from behind, switched lanes, and passed up the Cupertino clunker.

Sure, there are a gazillion other areas where Microsoft is lacking, but it's not Apple raising the bar on how we interact with computers this year.

It feels good to be the underdog
Microsoft may be playing from behind when it comes to the "good enough" computing revolutions led by the booming sales of smartphones and tablets. Apple's iOS is the undisputed champ when it comes to tablets. Google's (Nasdaq: GOOG  ) Android is running away with the smartphone market for the masses.

Google and Apple seem to have Microsoft just where they want it, but here's where Microsoft can turn the tables.

No, we're nowhere near the point where Kinect is feasible for handheld gadgetry. However, by raising the bar in computing as Microsoft will as 2012 plays itself out, Microsoft as an operating system provider will be the one on the cutting edge.

Nokia (NYSE: NOK  ) is in the process of flooding the market with Microsoft Phone 7 smartphones. Yes, Microsoft is paying Nokia handsomely to be a mercenary here, but the point is that the product will be prolific and in abundance.

Even Microsoft bashers -- and I have been one of the biggest offenders over the past few years -- will turn their heads when Windows 8 tablets hit the market, giving the niche more practical and traditional functionality beyond the media streaming, surfing, and playing that make up the typical tablet-using experience today.

Microsoft has quietly made itself cool to an audience of 40 million gamers. What's possible now that Mr. Softy is aiming even higher?

After years of bashing Microsoft, I'm changing my tune. I entered a bullish CAPScall on Microsoft in Motley Fool CAPS this morning, reversing my earlier bearish pick. It's not going to be smooth sailing, though. If you haven't read about the two words that's giving Bill Gates and Steve Ballmer fits, it's a free report, so you as may well check it out now.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Netflix. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, Microsoft, and Netflix. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy..


Read/Post Comments (3) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 10, 2012, at 12:47 PM, jdmeck wrote:

    All new Mac computers and such released this year will have Siri built in, so how is Microsoft passing Apple?

  • Report this Comment On January 10, 2012, at 10:06 PM, don1941t wrote:

    @jdmeck - um ... Every PC in the world can now have voice control, facial recognition and hands-free gesture support?

    @theFool- Three rings of death? Google ... er... Bing "Red Ring of Death" or RROD. The tiniest bit of fact checking please.

  • Report this Comment On January 11, 2012, at 1:51 PM, DJDynamicNC wrote:

    I'm really intrigued by Windows 8 and by the new direction Microsoft is taking. I'm looking forward to the next year, and I'm bullish on the shares. And I think using Nokia as a mercenary is exactly what Microsoft needs to do (and it can afford to do so).

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1755485, ~/Articles/ArticleHandler.aspx, 11/23/2014 8:45:12 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement