Microsoft Places Half-Billion Dollar Bet on Kinect

But Early Signs Show Huge Marketing Push Still Can't Stop Nintendo Wii's Super Powers

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NEW YORK (AdAge.com) -- How important is Kinect for Microsoft? How about a half-billion dollars' worth.

That's what the company is expected to spend to market the controller-less gaming device for Xbox, and it will also harness a lot of energy from major brand partners such as Kellogg, Burger King and Pepsi and reap some newfound retail space in Macy's. (Microsoft declined to provide budget specifics.) But even with that load of dough, early signs show that it's going to take a lot of time before it can catch market leader Nintendo Wii. And to do so it might just have to leave Xbox's primarily male, core-gamer audience in the dust.

Going mass market may have been Xbox's only choice to win back its position as leading game console.
Going mass market may have been Xbox's only choice to win back its position as leading game console. Credit: Microsoft Corp.
"In terms of breadth of partners and digital, social and consumer media, this is one of the most comprehensive marketing campaigns in history," said Robert Matthews, general manager-global marketing communications for Xbox. "It's a big bet for us. We're very bullish on Kinect."

Regardless of its mega-push to bring Xbox to the mass market, research firm IDC predicts Nintendo will lead console sales during the holidays. For the fourth quarter, IDC gaming analyst Lewis Ward estimates 8.2 million new consoles will be sold, with Nintendo outselling Kinect's projected 3 million and Sony's new Move motion-gaming device's 1.5 million.

Xbox "is not going to catch Wii in the fourth quarter and it may never catch Wii," said Mr. Ward, who nonetheless said "we are projecting that Kinect uptake will be in the millions, so that's at least a good starting point."

For Microsoft, the silver lining is that Wii's meteoric growth is beginning to slow, but just slightly. Nintendo will be down from more than 50% share of the console market last holiday season to a little more than 40% this year, Mr. Ward said. Microsoft reported that Xbox 360 sales grew 38% in the third quarter and says it outsold competing consoles in the U.S. for the past four months.

With Kinect, Xbox is following the course Nintendo paved with Wii in 2006: Take gaming beyond core players to the mass market -- moms, girls, kids, everyone -- with a console that's easy to play and games PG-enough for the whole family. Wii was the first major console with a motion-based controller, and Kinect, a camera add-on to the Xbox console, is the first to present gaming with no controller at all. Move your body to play -- that's it.

Going mass may have been Xbox's only choice to win back its position as leading game console, and the strategy that's most recently worked for Nintendo. While Xbox led the market prior to the Wii launch, Nintendo has since rocketed ahead with its motion-sensor console. By the end of 2010, IDC predicts Wii will have 34 million consoles played at least once per quarter in the U.S. compared to Xbox 360's 23 million and PS3's 16 million.

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At launch, Kinect features decidedly fluffier games than current Xbox favorites like guns-and-guts series Halo or Call of Duty. In initial TV spots for Kinect, from longtime Xbox agency Agency215, men and women, young and old are on their feet jumping, rolling and dancing in living rooms to play games like Kinectimals and Joy Ride. The website Kinect.me from digital agency AKQA has collected more than 100,000 videos of people playing these games for the first time.

"Look at the launch of Kinect as a relaunch of the Xbox brand," said Mr. Matthews. "It lets us speak to audiences we haven't spoken to before, like families and kids."

But to what extent do those softer, cuddlier games alienate the core audience that already own Xbox? Especially because those core players exercise mainly their thumbs while the Kinect is a highly active experience. Kinect's maximum playing time is also about 30 minutes unless the player is super fit, said Julian Rignall, GamePro's VP-content, a long cry from the long hours core enthusiasts usually spend gaming per week.

"The big question is: Do [gamers] really want to pay $150" for the Kinect add-on, asked Mr. Rignall. "If there are enough hardcore games, it's really a no-brainer. If we continue to see cute games where you roll around with your cuddly tiger, probably not so much."

Considering Kinect is just an extra device to slap on top of Xbox and can be purchased separately, it doesn't appear that Microsoft is too worried about how core gamers will take to it. They've already ponied up for Xbox. When asked if consumers can expect any titles that will appeal to that loyal audience, Microsoft responded in a statement: "We're developing controller-based games for the core and Kinect titles that appeal to everyone."

To get to everyone, Microsoft is launching Kinect with what Mr. Matthews calls an "unprecedented amount of partners," including Kellogg, which will put Kinect on millions of cereal boxes in North America. Burger King will have a Kinect kids' meal and all-family promotions; Pepsi will picture the brand on 400 million bottles and 12-packs. In line with its populist strategy, Kinect will be sold not just in electronics stores but also more female-friendly department store Macy's, which doesn't usually carry Xbox products. Kinect is also turning to first-ever print buys in more female-targeted titles such as Real Simple and InStyle.

Core gamers will also be subject to Kinect's affect on Xbox. There will be all-new Xbox packaging, even for non-Kinect products and in retail displays more people in the photography.

While Nintendo wielded a lot of these tactics to market Wii, Microsoft also has one ace up its sleeve: Xbox Live, an interactive TV-like, subscription-based entertainment and social-networking service. Since it launched in 2002, the service has amassed 25 million subscribers in 26 countries that can download shows and movies, stream Netflix or chat with other gamers through the internet-enabled service.

It's already gaining traction with Xbox users. In the last year, there's been 157% increase in the time spent watching movies and TV on Xbox Live, according to Microsoft. Members spend more than 40 hours per month on average. Live is also hooking new content partners; besides Netflix, ESPN recently launched an app to stream on-demand sports through Xbox.

"People are unaware of the breadth of experiences that Xbox delivers in the living room," said Mr. Matthews. "This campaign will also enable us to share that." TV spots will demonstrate how Kinect lets viewers use voice and gestures to watch movies and ESPN.

But even with Xbox Live, Microsoft will likely have to hunker down for the long haul. "It's going to take time, but by our initial analysis, there is a significant market for Kinect," said IDC's Mr. Ward. "It's going to be in ramp-up period that's going to take several years."

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