Microsoft (NASDAQ: MSFT) is an American software giant that helped usher in the computer age. The company has also branched out into hardware manufacturing, creating devices such as the Zune, the Xbox console line, and the Surface Tablet.
In planning and debuting its upcoming Xbox One video game console, Microsoft has made a number of costly errors. Now, its recent decision to include a headset in every box portends bigger changes for the future.
When Microsoft partially unveiled the Xbox One to the press, the device was touted as a revolutionary piece of consumer electronics that would redefine and dominate the world of gaming. The industry was shifting; anyone could see that, and the Xbox One was the console that would be best suited for success in the changing landscape. It featured expanded online functionality and a requirement that the system connect to the Internet on a daily basis. It would block most used games but allow gamers to share software using a "Family" plan. It featured an improved Kinect camera that had to be plugged in for the device to function. Of course, it is now apparent, if it were not already, that these were terrible ideas.
The company's recent announcement that the Xbox One would not require the Kinect camera to function is just another in a long line of policy reversals surrounding the system. Put simply, Microsoft has continually demonstrated that it has no clear vision for what the product is. The device is certainly nowhere near in line with the strategy that what was concocted in the planning and development stages. Product launches on the scale of an Xbox or a PlayStation take years to hone and execute successfully. As a result of unprecedented consumer backlash, the company has had to rush to get its console in a market-ready state. While gaming is not a huge part of Microsfoft's business, the company clearly wished to make it a bigger one in light of Xbox Live's success.
Candid Camera Problems
Many analysts took the removal of the Kinect requirement as an indication that an Xbox One SKU that did not feature the camera would be released at a later date. Industry reports suggest that pre-order information, in conjunction with online polls and image problems surrounding the console, are causing panic in the Xbox division. In my opinion, the news that every Xbox One will now come with a headset packed in the box is an indication that Microsoft is planning for the release of a Kinect-less console. The company faces strong competition from Sony's (NYSE:SNE) PlayStation 4 this holiday season. The PS4, by comparison, has received much better press and seems to be the preferred choice of gamers by a considerable margin. Sony's system is set to launch at $399 in comparison to the Xbox One's $499, and news has surfaced that the PlayStation 4 pre-orders outnumber those for the new Xbox by 4:1 in the Netherlands. Industry insiders have stated that the figure is similar for North America.
The Xbox One was initially set to ship without a pack-in headset. It didn't need the device, after all; communication could by handled by the powerful microphones in the Kinect. The fact that Kinect is being de-emphasized and a headset included is a clear sign that Microsoft is still struggling to define its product and that it is reacting to some very troubling data. At $100 more expensive than the PS4 and with negative public perception slow to dissipate, Microsoft sees the risk of the Xbox One getting slaughtered at the market and is moving as fast as it can to rectify the situation. As it stands, the Xbox One has provided one of the biggest PR disasters in the history of gaming.
Speaking of disasters, it's worth devoting a little time to Nintendo's (NASDAQOTH:NTDOY) Wii U. Unlike Microsoft and Sony, Nintendo is wholly dependent on its ability to find success in the videogame market. While its 3DS handheld is performing about as well as could be hoped given the rise of mobile and web games, the Wii U is a flop of unprecedented proportions. Approximately nine months after release, sales of Nintendo's newest console are tracking below Sega's ill-fated Dreamcast. Nintendo has stronger franchises than Sega and will likely support their device for a longer period of time, but the writing is on the wall. Look for the Wii U's lifetime sales to wind up somewhere in between the Dreamcast's 10.6 million and the GameCube's 21.74 million.
Sony's gaming division looks to capitalize on substantial advantages heading into the next console cycle. Its console presently enjoys a substantial mindshare lead over the Xbox One and the collapse of Nintendo on the console front means one less substantial competitor. Furthermore, recent news of Sony's partnering with Viacom shows the company understands the importance of services in the coming generation and is positioning itself to reap the benefits of the digital content distribution space.
The reversals regarding Kinect requirements and the pack-in headset indicate that Microsoft is finally finalizing a vision for the Xbox One. The company has the incentive and funds to secure content and jump-start the system, but realizes it may not be enough at this point. I predict that Microsoft will release a Kinect-less Xbox One before June, 2014 that is more in line with what consumers seem to want: the PlayStation 4.
Keith Noonan has no position in any stocks mentioned. 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.