What a Standalone $150 Xbox One Kinect Means for Microsoft

Microsoft (NASDAQ: MSFT  ) recently announced that it will sell the Xbox One's Kinect motion sensor as a stand-alone device for $149 starting Oct. 7. It will include a copy of Dance Central Spotlight, a new game in the Dance Central series. The device should not be confused with Kinect for Windows, the PC version which was released in July for $199.

Source: Microsoft.

However, the math behind selling the stand-alone Kinect doesn't add up. In May, Microsoft unbundled it from the Xbox One to reduce the console's price by $100. The move was needed to match the price of Sony's (NYSE: SNE  ) $399 PS4, which has sold 10 million units compared to Microsoft's 5 million Xbox Ones.

Therefore, a stand-alone Kinect should logically cost $100, or even less considering an IHS teardown claims that the Kinect only costs $75 to manufacture. Instead, Microsoft seems to be forcing gamers to buy Dance Central Spotlight for an extra $50.

In addition to that flawed logic, launching the stand-alone Kinect seems like a desperate attempt to keep the device relevant. But when we look beyond Microsoft's flawed strategy, we can discover a few unexpected ways that the unloved motion sensor could make an unexpected comeback.

Why the Kinect failed
The original Kinect, like Sony's PlayStation Move, was launched in response to the popularity of Nintendo's (NASDAQOTH: NTDOY  ) original Wii. The Wii had won over nongamers across the world with solid motion controls and simple games.

But unlike the Wiimote and Move, the Kinect didn't require a controller -- cameras synchronized the player's body to an in-game avatar. The first generation Kinect enjoyed moderate success with the Xbox 360, since there were enough games -- like Kinect Sports, The Gunstringer, Kinect Disneyland Adventures, and Kinectimals -- to keep casual gamers interested.

Kinect Disneyland Adventures. Source: Disney

When the Xbox One launched, however, Microsoft failed to support the peripheral with solid games. The launch title Fighter Within brutally exposed the limitations of the Kinect, while Just Dance 2014, Xbox Fitness, and Zumba Fitness failed to excite gamers. The one game worth waiting for -- Rare's Kinect Sports Rivals -- didn't arrive until six months later, and only sold 200,000 copies.

Yet that's not to say that the Kinect is completely doomed. If Microsoft wants to save the Kinect, it should merge the Windows and Xbox One versions together -- something that hackers already accomplished in July with a custom cable. Microsoft should then lower the price of both to around $100.

If Microsoft can accomplish that, it can position the Kinect to grow beyond console gaming into other industries, like healthcare and retail.

Opportunities in telehealth
The Kinect has already been used in the healthcare industry for telehealth (remote medical care) and physical therapy applications. Avanade, a joint venture of Microsoft and Accenture (NYSE: ACN  ) , previously used the Kinect's motion-tracking capabilities, video chat, and Microsoft's HealthVault cloud-based personal health record system to help patients remotely visit doctors. Researchers at MIT also demonstrated that the second generation Kinect can detect a person's heart rate by monitoring minor changes in the colors of the skin.

Avanade's Kinect-powered telehealth system. Source: Avanade

Researchers have also demonstrated the potential of Kinect to guide blind people through buildings with audio cues. A start-up called Sense.ly has developed a virtual nurse which understands speech and gestures via Kinect, and Kaiser Permanente is testing a Kinect game to test children for autism.

According to IHS, worldwide revenue from telehealth devices and services is expected to soar from $440.6 million in 2013 to $4.5 billion in 2018 -- which means if Microsoft can aggressively market the Kinect to patients, doctors, and hospitals, it could become an indispensable tool for remote physical consultations.

Enticing possibilities for retailers
In addition to healthcare, brick-and-mortar retailers can use the Kinect as interactive displays. Microsoft has clearly considered the possibilities before, since it previously released PR videos demonstrating how the Kinect could be used in a ski shop, toy store, and clothing store.

Yet only a handful of retailers have brought those concept videos to life so far. A Lego Store in Chicago used the Kinect to turn passerby into Lego characters. Macy's (NYSE: M  ) flagship store in New York used it to turn people into liquid gold to promote Jay Z's men's fragrance, Gold. Nordstrom (NYSE: JWN  ) used the Kinect to allow customers to "write in light" on store windows in Seattle, while Topshop allowed customers at its Moscow store to try on clothes virtually with the Kinect.

These are great concepts that could generate more foot traffic for retailers, and keep customers in stores longer. Since the Kinect doesn't have any meaningful competition in the depth sensor field (its only notable competitor is Asus' Xtion), sales could skyrocket if major retailers like Gap or Michael Kors start installing them in brick-and-mortar locations.

A Foolish final word
In conclusion, pricing the stand-alone Kinect with a bundled Xbox One game at $149 was a foolish and myopic move.

Microsoft should have taken the opportunity to retool and relaunch the Kinect as a cheaper cross-platform device which could aggressively expand into fertile markets like healthcare and retail. That could help the Kinect become less of a science experiment and more of a practical mainstream device in both industries.

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Read/Post Comments (11) | Recommend This Article (1)

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 August 31, 2014, at 3:01 PM, JJ82 wrote:

    Once again the question is not asked...why is it the Kinect increased the price of the One by $100, yet its being sold on its own for $150?!?

    Perhaps MSFT did NOT drop the price of the One for the full cost of the Kinect...

  • Report this Comment On August 31, 2014, at 3:18 PM, mb5625083591 wrote:

    I disagree that $ 150 is unreasonable. Your article doesn't go into any technical details. Don't you think there would be some additional circuitry needed to hook a standalone Kinect into a HDTV vs., hooking it into an XBox? Circuitry that might be onboard the XBox already? Maybe that's why the XBox can be discounted $ 100 without the Kinect, but a standalone Kinect is $150.

    If wishes were horses, beggars would ride, and also you'd get your $ 50 Kinect and $100 Google glasses....unfortunately, wishes aren't horses.....

  • Report this Comment On August 31, 2014, at 3:27 PM, stifler6099 wrote:

    Leo Sun ( if thats your real name) You always pay more when you dont buy things in a bundle. ALWAYS so idk why you think it should be 100 bucks or less they are punishing everyone who decided not to get the Kinect when they bought their x box one by charging them an extra 50 bucks. Guess what you can go to the grocery store right now and you can find buy 10 for $10 or one at regular price $1.59 now are you crying to the store manager saying that buying one should only cost one dollar? No you are not.

  • Report this Comment On August 31, 2014, at 3:42 PM, mb5625083591 wrote:

    Microsoft just "might" be aware of the potential for the Kinect to be used in the future in the medical profession and others, along with virtual reality and 3D. Along the way they just "might" make an operating system for all PC platforms --- notebook, desktop, XBox, Tablet, Phone, Server.

  • Report this Comment On August 31, 2014, at 4:10 PM, maxtoo wrote:

    Microsoft is probably trying to recoup the money they expected to earn from the Xbox One with the $150 price tag. But I doubt it will be a big seller. It may get cheaper with time (Xmas).

    Also one has to question everything Microsoft has been doing in the last 2 plus years. A flawed strategy if you ask me.

  • Report this Comment On August 31, 2014, at 5:19 PM, chilero wrote:

    Everything is cheaper in a bundle. Mystery solved.

    The other applications for Kinect are likely using the Kinect for Windows SDK. The Kinect for Windows is over $200.

  • Report this Comment On August 31, 2014, at 5:33 PM, Oddfull462 wrote:

    The way I see it Microsoft has made too many mistakes to recover from. I won a Xbox One with Kinect on Ebay for $430. I am happy with that purchase, but the Kinect should have never been resurrected. Also, trying to sell it apart from the gaming system for $150 is just insane.

  • Report this Comment On August 31, 2014, at 7:06 PM, deekovb5 wrote:

    While I'm never surprised to see the motley fool take a needlessly anti Microsoft stance, there's a decided lack of foresight in this article.

    For starters, you always pay less when something is bundled, vs separate. Always. So of course the Kinect was going to cost more than $100 - and when you figure they're also throwing in a game its actually a surprisingly good deal.

    Also, the original Kinect was $150 standalone and is the fastest selling consumer device in history, so its not like there's no precedent for it selling at that price.

  • Report this Comment On August 31, 2014, at 7:06 PM, netnow66 wrote:

    Microsoft forced early adopters of the Xbox One to buy the Kinect claiming the two could not be sold separately. So, now they magically separate the two and want to charge people $150 for the Kinect. What a bunch of rip off artists.

  • Report this Comment On August 31, 2014, at 11:23 PM, TMFSunLion wrote:

    @mb5625083591: The standalone Kinect IS for the Xbox One, it doesn't work separately, it's the same peripheral.

    As for the notion that "everything is cheaper when bundled", it doesn't take into account the $75 manufacturing cost of the Kinect. Microsoft CAN afford to sell it for cheaper if it wants the device to matter to gamers or other industries at all.

  • Report this Comment On September 01, 2014, at 10:46 PM, awang0718 wrote:

    "Also, the original Kinect was $150 standalone and is the fastest selling consumer device in history, so its not like there's no precedent for it selling at that price. "

    Really? Kinect is the fastest selling consumer device in history??

    Either way, Kinect 2.0 is dead, if not dying. The one game that had the most potential to drive consumer interest in the Kinect 2.0 (Kinect Sports Rivals) bombed, as stated in this article. It's over. It doesn't matter whether Microsoft bundles the Kinect at $150 or $100, few normal consumers will be compelled to buy one.

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