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Watch Out for Microsoft's Army of 40 Million

http://www.fool.com/investing/general/2012/01/10/watch-out-for-microsofts-army-of-40-million.aspx

Rick Aristotle Munarriz
January 10, 2012

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