"Microsoft is putting almost all its eggs into the Kinect as a way to appeal to the 'casual' consumer and expand its user base," DFC notes. "Of course, Microsoft has been trying to do this for some time, and in that regard, the Kinect can be seen as the latest in a long line of products intended to make Microsoft a mass market entertainment company. Unfortunately, based on what we have seen, DFC continues to feel that Microsoft is going to struggle to expand beyond its core audience."
Though largely dismissive of Kinect's apparent technical limitations, such as recent reports that the device only recognizes two "active" players at a time, DFC believes that Microsoft is simply unable to create a new, mass-market entertainment device.
"In its business software, Microsoft has been successful in analyzing what works for users of other products and incrementally incorporating those features into Microsoft products," DFC said in its report. "The problem is developing hit entertainment products simply does not follow that model." The report went on to note that while Kinect might have an impact on the fitness genre, its overall impact on the hardware market will be "negligible."
"The Xbox 360 has some good years left, but the platform is clearly on the downside of its lifecycle," the report concluded. "The longer term issue facing the console manufacturers is that the business model of launching a new hardware system every five years simply no longer works. It is expensive to develop powerful new hardware, especially when the practice has been to sell it below cost. Those costs are harder to justify when the prevailing consumer trend has been to less-involved gaming experiences that do not require high-end graphics."
That said, DFC believes that the Xbox 360, along with the Nintendo Wii, will continue to see a slowdown in 2010 and 2011, while the PlayStation 3 continues to gain momentum.