5. After receiving a bloody nose at E3 Microsoft will do some serious back-pedalling on DRM and sharing games and will take the fight back to Sony, but longer term its preparing for all out war against Apple.

Microsoft might be neck and neck with Sony in the console wars in terms of worldwide install base, but the corporate giant’s recent ‘reveal’ on 21 May did little to assure gamers and the games press that the company is moving in the right direction by attempting to force-feed its core user base a mix of TV based features and functionality that they might just not want. After what should have been a triumphant press conference, building on the mega success of the Xbox 360 and Xbox Live, the company itself was branded “arrogant” and “directionless” and the new console itself “a jumped-up cable box that merely plays games as an afterthought.” [1] OUCH!

Both Sony and Microsoft are understandably looking nervously over their shoulders at Apple (see above), but whereas Sony has gone back to doing what it does best (creating great hardware, courting developers and building some very nice IP – see PSOne and PS2), Microsoft seems to have gone galloping off in the other direction by creating a console that feels less like a competitor to Sony’s heavily games-focused PS4 and more like a pre-emptive shot at a hypothetical future version of the Apple TV.

Numerous new and exclusive launch titles, including eight based on new IP, with the usual EA Sports titles, Call of Duty re-vamp and Forza 5 is an impressive roster, but it’s gonna be a hard sell convincing cash-strapped twenty-something gamers already disillusioned with the technically inept Kinect, often impenetrable menu systems of Xbox Live and expensive ‘Gold’ online membership that they should part with the best part of 500 quid to play games on a console that connects to their TV via their cable box (which is located downstairs in their parents’ living room) and doesn’t let them use second-hand games or even play games unless they’re connected to the internet.

OK, the Xbox ONE will play Netflix, but so does just about any Smartphone, tablet, laptop, Xbox360, PS3 etc. – and who wants to start waving their hands in the air swatting imaginary flies to ‘interact’ with TV ads whilst watching ‘Banshee’ or ‘The Big Bang Theory’?

Whilst Microsoft’s strategy to ‘dominate the living room’ might have had some credible commercial credence a few years ago, one could argue that the real battle has now already moved on to the battle for the ‘second screen’ (interestingly, an area in which Nintendo could capitalize if it moves quickly). So who exactly is the £500 Xbox ONE targeted at? For the 40 million or so kids [2] already struggling to play games via Kinect in their bedrooms it might seem odd for the company to launch a new console that comes with a compulsory new Kinect 2 camera (pushing the entry level cost up considerably) that can stream content from providers to whom their parents already pay a subscription fee entirely independent of Microsoft’s ecosystem and works perfectly well without being connected to an Xbox ONE is not aimed specifically at them (gamers).

It would be foolish to write off the Xbox ONE based on one misguided media launch [5] and predictably Microsoft scrambled to make amends at E3 by championing an impressive software line-up that included a new Halo running at 60 fps, a re-vamped Minecraft, Dead Rising 3 and Snake (formerly a Sony stalwart) returning in a sparkling new Metal Gear Solid. However, the company managed to continuously fall over its own feet and make matters worse for itself thanks to some contentious comments made by key representatives regarding internet connectivity requirements [6] and contrived efforts to court indie developers [7]. This, coupled with the on-going confusion regarding the actual policy on used games, DRM [10] and the realisation that the system requires Kinect to be ‘always on’ unfortunately left the firm’s gaming credentials in tatters, prompting former Microsoft exec, Bullfrog and Lionhead founder Peter Molyneux to describe his former employer’s Xbox ONE showing at E3 to be “very unprofessionally done” [8].

So where does Microsoft go now? Predictably, its now all about games “which will push the boundaries of realism” and are “so lifelike, you’ll swear they’re real” – no really! [9] – which roughly translated means that we can expect the firm to switch the PR and marketing focus firmly back onto what their core gamer customers always wanted to hear: new games, exclusive games and exclusive content. In fact, expect a stronger than before push on exclusive launch content (FIFA 14 and COD will have some exclusive DLC on Xbox ONE for launch), enhanced Smartglass functionality, a cleaner, faster Xbox Live experience, an improved controller and central to the whole new experience, a new, re-vamped Kinect that actually works in ‘normal’ houses as well as Seattle mansions. It’s crucial to Microsoft’s strategy that they quickly build a multi-million install base to appease developers and consumers alike – so appealing to the core gamer/early adopter masses is crucial, but with an RRP of $100 more than the PS4, this might prove to be the tipping point.

By focusing on Kinect and making it a requirement that it’s always on ‘out of the box’ might actually be the company’s biggest mistake – but only if it sees Sony and not Apple as the closest rival to its ambitions in the digital entertainment space. DRM, restrictions on ‘used’ and sharing games are all software issues which can presumably be fixed relatively quickly and easily with a new system update if (and probably when) Microsoft decides to backtrack and has a change of heart. On the other hand, the Kinect 2 camera is a rather expensive piece of compulsory purchase hardware that not only adds a further $100 onto the entry-level price point, but might just be better at changing TV channels and pausing DVDs than it is for playing FIFA 14, making it at best an expensive gimmick for gamers. Sure, the original hardware sold well enough, but do people actually use it to play games?

Microsoft is taking a big risk in positioning Kinect 2 as so integral to their product, content and marketing strategies, with the company clearly betting big that gamers will want to buy and use Kinect 2 as part of their regular gaming regime – but maybe this provides some crucial insight into the company’s long term strategy. Right now, you won’t be able to buy the new Xbox ONE console without a Kinect 2 (yet) – so the firm clearly sees it as a key differentiator – their ‘secret weapon’ even, but ask any gamer (and I know quite a few) whether they a) actually like Kinect and b) regularly use it and I’m not sure the answer will be what Microsoft – and especially the Microsoft marketing department wants to hear. Most of my ‘gamer’ friends (admittedly those without kids) have packed it away long ago – or traded it in. Critically however, those that do still use Kinect have young(ish)families and use it to play games together in the living room. They also use their 360 console to watch DVDs, access streaming movie services like Netflix and browse photos – activities the Kinect can handle with relative ease. And they didn’t rush out and buy a 360 when it was launched, they waited until the price came down and the range of games was more ‘Universal’ focused than ‘Mature’.

Publisher support for Kinect since its launch back in November 2010 has always been strong, with Microsoft managing to cajole most third-party publishers (notably Ubisoft, SEGA, Konami and Capcom) into supporting what was to all intents and purposes a new platform. Back in 2011, around a third of Xbox 360 releases in the US required or supported Kinect [13] – although that might have had as much to do with Microsoft’s deep pockets as it was publishers looking to maximize their ‘family friendly’ licensing deals across other platforms following the decline in Nintendo’s fortunes as a serious player in the console space.

However, for those games that ‘support’ rather than ‘require’ Kinect, the overall result has been rather lazy, with the voice activation feature often being integrated as a ‘nice to have’ rather than a valued enhancement to the actual game play experience. Notably, two of the world’s biggest and most prolific publishers, Electronic Arts and Activision have paid nothing more than lip service to Kinect, with arguably Microsoft’s own Kinect titles: Kinect Sports and Kinect Sports – Season 2 moving the needle more than most.

As anyone who has played ‘Star Wars Kinect’ will testify: the current Kinect is just about OK for some ‘kid friendly’ sports games and the odd dancing or fighting game (Ubisoft’s ‘Marvel Avengers: Battle For Earth’ being a case in point), but most of the time all the majority of Xbox 360 gamers wanna do is just sit down and play a ‘real’ game using the excellent controller. So even if the new Kinect does represent a stellar leap in performance, convincing core gamers that this is the case might prove more challenging than Microsoft originally anticipated. But is Microsoft really targeting ‘core’ gamers with Kinect, or is this expensive piece of hardware in the box to allow the firm to target a much wider, more mass-market audience further down the line?

One of the key take outs from E3 was how few of the stellar ‘exclusives’ on show in LA appeared to utilize the enhanced Kinect 2 camera to push the next level of immersion and innovation that the new hardware was allegedly capable of delivering [12] – and that, more than anything else should be enough of a hint that in betting so heavily on Kinect 2, Microsoft is increasingly evolving its strategy beyond the ‘core’ gamer. Obviously, it’s early days and right now, support from Kinect 2 isn’t mandatory [4], but according to Microsoft’s Phil Harrison, the firm is keen for developers to “to really maximize the creative and technical possibilities” and by creating an artificially large install-base for Kinect 2 by making it a ‘compulsory purchase’, Microsoft is doing all it can to give developers the confidence to support the new capabilities of an HD motion tracking camera – whether they actually do so and how quickly is another matter. What’s important to Microsoft’s wider strategy is that families can SKYPE each other on Christmas Day and birthdays.

Whether Microsoft can convince the early adopter gamers that Kinect 2 is actually worth the extra money could prove the company’s undoing, but it does give some strong clues as to where and whom the firm thinks is actually going to buy it (and at what price) longer term. Initial responses to Kinect 2 from the press and crucially game developers post E3 have altogether been on the whole quite positive [11], but as Nintendo found to their cost with the 3DS, marketing a product that really does require customers to ‘experience first hand’ to make a positive value judgment that can’t effectively be marketed in a 30 second TV ad spot can prove challenging – an issue which becomes increasingly difficult if the previous product in the range didn’t live up to the expectations and marketing hype that surrounded its launch.

But it’s marketing clout – and dollars that Microsoft has in spades – and don’t forget that it’s been here before. The firm allegedly spent up to $500 million on marketing the original Kinect, helping it shift over 24 million units (more than Nintendo’s Gamecube and the original Xbox console incidentally) and at the same time, successfully managed to prolong the life of its Xbox 360 console beyond the traditional five-year cycle – a move generally welcomed by cash-strapped publishers not yet ready and willing to invest in a new platform. Significantly, Kinect also allowed the firm to move away from the largely male and ‘M’ rated ‘hardcore’ gaming reputation that Xbox 360 had previously thrived on, re-inventing itself as an accessible and ‘family friendly’ platform that appealed to a much younger and wider audience who were beginning to become bored with Nintendo’s Wii. And here’s maybe the biggest clue as to where Microsoft is going as a company and where its true ambitions lie. Of course, the firm wants and needs ‘core’ gamers to buy Xbox ONE, but they’d also quite like those families who bought the ‘Sponge Bob’,  ‘Sesame Street’ and ‘The Price Is Right’ to buy it too – it’s just that the price might not be right at the moment, but significantly it can only ‘come on down’.

In initially focusing on television and telecommunications, Microsoft clearly upset the notoriously fickle ‘core’ gaming community, but look at the timing; the launch event on May 21 was just a few short weeks before the biggest video gaming show of the year, an event at which the firm knew it could hit back quickly to restore confidence in the new console’s gaming capabilities with an unprecedented swathe of exclusives and new IP. OK, there were more rants than usual around DRM and ‘used’ games and some ill-considered comments by the firm’s execs, clearly irked at being forced to play the role of pantomime villain – but this can all be fixed relatively quickly and easily. Outside the games press, the response to Xbox ONE and the new Kinect was overwhelmingly positive. This was a calculated risk by Microsoft, who wished to let the various analysts and business investors know that a) it has ambitions to take on Apple as a leader and innovator in the digital entertainment space and b) that it is more than capable in taking on Sony in the ‘core’ gaming market and winning (again).

Only time will tell if the firm’s shift in strategy was worth the risk. Come next E3 we’ll know a lot more about what Microsoft is doing and where it is going – and by that time, we should know more about Apple’s plans to enter the gaming space too.

[1] http://www.gamesindustry.biz/articles/2013-05-22-after-an-awful-start-xbox-one-must-redeem-itself-at-e3

[2] http://allthingsd.com/20130211/xbox-by-the-numbers-76m-devices-and-theyre-not-all-used-by-dudes/?refcat=news

[3] http://www.neogaf.com/forum/showthread.php?p=61021613

[4] http://www.xbitlabs.com/news/multimedia/display/20130523233048_Kinect_Support_Is_Not_Mandatory_for_Xbox_One_Video_Games_Microsoft.html

[5] http://www.youtube.com/watch?v=UU9Q8kv6lzw

[6] http://techcrunch.com/2013/06/12/youre-not-wrong-microsoft-youre-just-an-asshole/

[7] http://www.theindiedeveloper.com/what-the-xbox-one-means-for-indies/

[8] http://uk.gamespot.com/e3/molyneux-says-xbox-one-showing-at-e3-very-unprofessionally-done-6410140/

[9] http://www.microsoftstore.com/store/msuk/en_GB/html/pbPage.PDP/ThemeID.30273200/productID.282127100

[10]  http://www.gamesindustry.biz/articles/2013-06-14-the-xbox-one-question-why-did-microsoft-do-it

[11] http://gizmodo.com/kinect-2-full-video-walkthrough-the-xbox-sees-you-like-509155673

[12] http://www.gamefaqs.com/boards/691088-xbox-one/66464803 AND http://forums.wpcentral.com/xbox-one/230460-2.htm

[13] http://www.gamasutra.com/view/news/193837/How_Kinects_brute_force_strategy_could_make_Xbox_One_a_success.php