It's getting cheaper to make your Xbox more interactive.

Microsoft (Nasdaq: MSFT) is slashing the price of its camera-based controller. The $149.99 gaming sensor is getting a $40 haircut.

It's easy to speculate about the timing of the price cut. Industry sales have been sluggish for three years, but Microsoft's Xbox 360 has been the top dog in a shrinking pie. Given Mr. Softy's aggressive initial pricing on its upcoming Windows 8 operating system, it's safe to say that the software giant is willing to sacrifice near-term margins for the sake market share.

It also may feel like we're in the middle of summer, but it's never too early to start jockeying for position ahead of the important holiday shopping season.

However, there's something else. 

Nintendo (NASDAQOTH: NTDOY.PK) is hosting a big media event in New York in three weeks. It's a safe bet that the struggling Japanese gaming pioneer is going to announce its release data and pricing for Wii U.

Nintendo has been active in showcasing the next generation console with its bar-raising touchscreen controller. The company has already said that it will be out later this year, giving it at least a year -- and possibly two -- of a head start against Microsoft and Sony (NYSE: SNE).

There may not be too many people saying that they'd rather save $40 now on a Kinect than spend what should be about $300 for the Wii U, but the last thing that Microsoft wants to be is perceived as a pricey gaming alternative to Nintendo's daring system.

Cynics will argue that it's too late. Outside of diehard gamers, casual players have moved on to the cheap time-slurping diversions that can be had on tablets and smartphones. Zynga's (Nasdaq: ZNGA) stock may have taken a beating, but the social gaming leader is drawing more than 300 million active monthly players. Where do you think they came from? What do you think they would be doing if they weren't player free, or nearly free, apps?

Thankfully for Microsoft, it has enough money to make its own luck. It doesn't need to make a profit on what are now $109.99 Kinect sensors. Will it be enough to keep the Xbox on top, when Wii U woos early adopters? Will it be enough to bring casual and social gamers back into the realm of console gaming? Like everything else, Microsoft has no choice but to let it all play out.

There's also now a premium research report on Microsoft that's available. The report also includes a year's worth of updates, so check it out now.

The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.