What a Standalone $150 Xbox One Kinect Means for Microsoft

Microsoft is now selling the Xbox One Kinect as a standalone device for around $150. Here’s why it was the wrong play.

Aug 31, 2014 at 2:13PM

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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Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Accenture. 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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