After years of little noteworthy innovation from Microsoft (Nasdaq: MSFT), has the company finally created a game-changer that actually excites consumers? Its Kinect controller, a sophisticated camera that lets players control onscreen characters simply by moving their bodies, seems to be a huge hit.

When details of the Kinect, Microsoft's answer to Nintendo's Wii and Sony's (NYSE: SNE) PlayStation Move, started to come out, many were rightly skeptical,. The gaming industry had been terrible for the past couple of years, and notoriously innovation-challenged Microsoft was taking a big chance on a relatively new technology. 

Microsoft created even higher expectations by tabbing sales estimates at 5 million during the device's first two months on the market. However, these estimates proved to be too low. The total sales for November and December came in at more than 8 million units.

I think many Kinect skeptics failed to see is that the company never intended to release this product as simple gaming add-on for its Xbox. When the Apple (Nasdaq: AAPL) iPhone was first released, pundits viewed it as a really cool new mobile phone, but we now use it for much more than that. Apple's dynamic phone changed the entire industry with its incredible interface and application platform. While I think it's too early to anoint Kinect as the next technology game-changer, I don't think it is out of the realm of possibility, either.

A social network
At the Consumer Electronics Show in Las Vegas on Wednesday, Microsoft CEO Steve Ballmer said: "Your Xbox is becoming the hub of your living room. It is your gaming system. It is your movies. It is your TV experience." While Kinect now allows users to control their Netflix (Nasdaq: NFLX) or Hulu by simply waving their hands, Microsoft has more in mind than just pleasing couch potatoes.

I've already discussed Microsoft's vision of the device as a central home command center of sorts, but Ballmer also talked about the social-networking possibilities that the Xbox and Kinect present. He introduced what the company is calling Avatar Kinect at the conference on Wednesday.

This a virtual chat environment captures the user's facial expressions, body movements, and sound, which it maps onto a cartoon avatar. Microsoft released a demo of users chatting in a room together, in a somewhat creepy but ultimately amazing display of the capabilities this technology presents. Imagine your friends or family all over the world, virtually sitting together in a room where every motion, sound, and expression are captured as if everyone were actually in one place. Google (Nasdaq: GOOG) attempted a similar idea with its website Google Lively. However, the technology was immensely inferior, and the avatars were not actually controlled by user actions; the site shut down soon after its introduction.

Microsoft has also partnered with ESPN to allow users to watch games through its Xbox. This will allow users to connect with friends and fantasy-league competitors, not only to talk smack, but also place bets, create a sports community, and drink some beers among friends. This will perhaps attract some users who otherwise wouldn't be interested in gaming devices.

Aside from the social aspect, there is obviously a ton of money to be made from avatar and second-life applications, as the recent $635,000 sale of virtual property in Planet Calypso attests.

More practical uses
Even more important, though, is the innovation being fostered not by Microsoft, but by its community of Kinect users and tinkerers. A radiologist and a scientist at the University of Bern in Switzerland were able to hack a Kinect so they could use gestures to manipulate a medical picture archiving and communication system known as PACS. Historically, specialists would need to use their hands in order to manipulate data from PACS, which was problematic because of possible contamination in operating rooms. The scientists have created software that works with Kinect to understand their voices and movements, making the process safer and more efficient.

This is just the tip of the iceberg in terms of the innovation possible from the technology that Microsoft has put in consumers' hands. A quick Internet search of Kinect hacks shows just how much opportunity this technology, still in its primitive stages, could provide. Certainly, Kinect should give a boost to the gaming industry and companies like GameStop (NYSE: GME) and Electronic Arts (Nasdaq: ERTS), but Kinect has already proven that it's much more than a game. How much more? We'll just have to wait and see what Microsoft and its users have in store.

Andrew Bond has no positions in the companies listed above. Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple, Netflix, and Nintendo are Motley Fool Stock Advisor picks. The Fool has written puts on Apple. Motley Fool Optionshas recommended writing covered calls on GameStop. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, GameStop, Google, and 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.