The Power of Pricing... Kinect Style

News is coming out from E3 that Microsoft has introduced a new name for Project Natal: Kinect. (A cross between kinetic and connect... better than "Wii" I suppose.) Amid all the sound and fury (a performance by Cirque du Soleil as part of the intro!) Microsoft somehow avoided mentioning a price point. This has been leaking around the internet, though, and it sure looks to be $149... but there will also be a somewhat better version for $189. No word yet on bundle deals with new Xbox 360s (though a new Xbox 360 Slim is also rumored), but the pricing may be better when included in a hardware bundle.

So Microsoft has essentially chosen not to try and grab a significant part of the installed base; at $150 you'd have to be pretty convinced on the value in order to buy Kinect instead of 3 games of your own choosing. Developers are going to be hesitant to spend money adding Kinect support if the installed base isn't significant. And to develop a Kinect-only title would be highly risky if the installed base is small... yet it's precisely that (a Kinect-only title) that would drive sales of Kinect hardware (assuming you had a really compelling title).

It all adds up, in my mind, to Kinect being a non-factor in overall industry terms. It's likely that Move will fall into the same category, though Sony may not charge as much for it. Motion control hardware may be a bit of a fad this year, but by next year no one will care.

Pricing is important, which is why free-to-play is making such a huge impact on the gaming business. Too bad Microsoft couldn't figure that out. Or, more likely, they thought about pricing Kinect at $49 and losing money on every one in order to drive broad penetration of the installed base... and decided that the Kinect technology wouldn't drive additional software sales enough to make up for the money they'd lose on every one. Which, I think, is probably the right call.

More E3 Musings

The press releases are starting to spread like a massive oil spill from E3, though fortunately in this case no wildlife is threatened. Still, there's the sticky ooze to contend with... in this case, a sludge of desperate hyperbole trying to build up the traditional game industry's prospects. Much of the attention and hope for the future is focused on two hardware trends: Motion controllers and 3D displays. Many in the game industry seem to be expecting these things to cause a surge of new interest and sales in game consoles and games, putting the industry back on a solid sales growth trend. Sure, and if pigs had wings maybe bacon could fly onto your plate, but I wouldn't expect it.

Here's some evidence that, industry hopes to the contrary, the customers aren't exactly itching to spend money on motion controllers. This study shows there's less than 10% of Playstation and Xbox customers intending to purchase either Move or Natal, respectively. Not exactly a massive sales surge. What would it take for these things to be successful? Well, they'd have to be priced comparable to a game ($49 or $59), and include with that price a hotly anticipated game (or a sequel to a best-selling series) that takes full advantage of the new hardware. And then they'd have to market the hell out of it. With all that, you could maybe get 60% penetration of the existing base... and perhaps you'd want to start packing that thing in with the console in time for the Christmas market, so you would know you'd have 100% of future sales with the new controllers. Then you'd better have a lot of help and encouragement and some funding for new games that use your new hardware, and make it compelling for new customers to buy your hardware. Then perhaps you'd get some significant sales increases due to your new hardware. You think it's very unlikely that this will all happen? I agree.

And it's even worse for the 3D display idea. Either customers are going to have to drop $2000 or more on a new 3D-capable TV, and $100 for each pair of glasses, or get a new 3DS which doesn't require glasses. And aside from the ability to more easily generate nausea in gamers, how exactly is this going to improve the gameplay? How well will the 3DS work in a range of ambient lighting conditions, and even if you do get a good 3D effect, how again does it improve gameplay? Those answers aren't obvious.

Maybe E3 will show clearly how these new hardware technologies will transform the industry and put traditional game sales back into a solid growth pattern, instead of trending downward like this year and last year. Meanwhile, business model innovation has been posting amazing growth in the gaming industry: Free-to-play, social gaming, mobile gaming, virtual sales, DLC... and soon Google TV and Apple TV. Much of that sales growth is proven, and the wiser publishers are jumping into it. Look for announcements in those areas if you want to identify companies poised for growth. Companies that ignore those areas in favor of shiny new hardware are the ones taking the huge risks.