No More Kinect Means Big Changes at Microsoft

Computer titan Microsoft announced that it will begin selling its new XBox One console without an accompanying Kinect in June, bringing the console's price tag down by $100. Is this the best move for Microsoft right now?

May 14, 2014 at 10:33PM

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Earlier today, Microsoft (NASDAQ:MSFT) announced that it will be unbundling its Kinect sensor from the Xbox One, effectively lowering the price of an Xbox One from $499 to $399. The effect of this move is two-fold for Microsoft; first, and most obviously, it means the Xbox One will cost the same amount as a Sony (NYSE:SNE) PS4. As of mid-April, Sony had sold more than 7 million PS4s around the world, while the most recent numbers put Xbox One sales at closer to 5 million. Reducing the cost of an Xbox One is a quick and easy measure for Microsoft to try to close that gap, as a lot of consumers chose the cheaper PS4 when the new console generation began.

The less obvious effect of ditching the Kinect is the creation of a rift among Xbox One gamers. Starting in June, when Microsoft plans to begin offering the Kinect-less Xbox One, you'll suddenly have a large group of gamers who bought the Xbox One with the Kinect, and those who didn't. That means game developers will have to decide whether they want to create a game that supports the Kinect and its usage, but most probably won't want to make a game that uses hardware a large portion of their customers won't have. And while you will be able to buy the Kinect as a stand-alone product once it's debundled, why would gamers want to buy something that their games don't need?

So in the short term, this is a good move for Microsoft -- the release of a Kinect-less Xbox One in June coincides with E3, which will have created a lot of excitement among gamers and may add to a boost in sales. But in the longer term, this hurts Microsoft's investment in its Kinect, which, considering the blossoming motion-controlled portion of the gaming market, may be the wrong choice down the line. For now, gamers will just have to wait and see, while investors should keep an eye on sales figures in June to find out if people really want an Xbox One without a Kinect. 

Mark Reeth has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A and C shares), and Netflix and owns shares of Apple, Google (A and C shares), Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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