Is the Kinect-less Xbox One a Mistake for Microsoft?

News of the $399 Kinect-less Xbox One has gotten mixed reactions. Has Microsoft erred by offering a cheaper system without the Kinect tech?

May 20, 2014 at 12:05PM

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Microsoft (NASDAQ:MSFT) can't seem to catch a break on the gaming front. The company's announcement that it will ship a Kinect-less SKU of its Xbox One console at $399 debuted to mixed reactions. While many cited the move as a bit of strategy that will enable the device to better compete against Sony's (NYSE:SNE) PlayStation 4, others were more critical. That Xbox One now lacked a meaningful point of differentiation, or that Microsoft's broader ambitions for Kinect had been damaged, were common complaints after the new option was announced. Are these criticisms well-founded? Was ditching the Kinect a bad move?

Unbundling Kinect is the right move
By and large, complaints surrounding the introduction of the Kinect-less SKU are ill-conceived. Charges that the Xbox One now lacks something to set it apart from the PlayStation 4, or that developers will no longer build support for the device into their software, ignore market realities in favor of outrage. All available sales data suggests that Kinect simply wasn't doing enough to entice customers to justify its inclusion with every Xbox One. Keeping its latest console tethered to the camera device would have been a surefire way for Microsoft to do away with what chances it has of attaining market leadership. What's more, unpackaging the camera may actually help the future of the device.

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Shortly after the announcement that a Kinect-less SKU would be made available, the head of the studio behind the Zumba Fitness games criticized the move, stating that it would limit the chances of original games being built around the device. While that sounds sensible in theory, it also ignores the benefits that a less expensive Xbox One will have in growing the user base.

The Kinect camera isn't going away. Consumers will have the option to purchase a stand-alone unit, or one of the SKUs that feature the device and a software pack-in for added value. Developers (especially those at Microsoft) simply need to show that the Kinect camera is worth having.

These questions are key to understanding the Kinect situation
Where were the big Kinect-centric games at Xbox One's launch? Ubisoft's critically and commercially disastrous Fighter Within certainly didn't win many converts. Did Zumba Fitness: World Party justify the added $100 hardware expense when consumers compared the One to the PS4? Looking back, what were the standout games for the first Kinect camera that made the tech worth owning? 

Rare Studios, one of Kinect's biggest supporters, recently suffered sizable layoffs due to the underperformance of its Xbox One game Kinect Sports Rivals. The Kinect initiative was already floundering, as developers weren't delivering experiences necessary to justify the device. Keeping the new Kinect packaged with every Xbox One in hopes that the situation improved would have been disastrous for Microsoft's console and done little good for its broader camera initiative.

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Microsoft attempted to work backward, but came up short
Looking at Xbox One's 2014 retail calendar, there are very few games with a substantial Kinect focus. The success of PlayStation 4 has shown that early adopters are primarily seeking a gaming device. Expecting potential Xbox One customers to pay for equipment that isn't substantially supported is a surefire way to drive much of the pool elsewhere. The last Kinect camera sold primarily to a casual audience that was interested in a Wii-like experience. This time around, Microsoft attempted to reach that mainstream audience first, but did so with a console that was more expensive than its main competitor, a decidedly baffling move. The $399 Xbox One gives Microsoft a much better shot at preserving and expanding its gaming business.

This isn't the end of Kinect
The new SKU does not signal the death of Kinect. Instead, it highlights the need for the right software and support if the device is to have a future. Microsoft's last E3 conference was replete with the promise of interactive television. While the new Kinect has proven its usefulness as a media navigator, many of its stated benefits have yet to come to fruition.

Currently, consumers can purchase an Xbox One with Kinect and a game for $499, sometimes less with retailer promotions. Relative to the $399 model, this puts the specific cost of owning a Kinect at somewhere between $40 and $60, which probably isn't a deterrent for anyone with a passing interest in the device. The new SKU should appeal to people with no interest in the camera technology. Admitting that these consumers are not currently the market for Kinect and attempting to convert them later is a much better play than not offering an alternative and hoping people change their minds.

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Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of 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.

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