Microsoft finds products trump business models

With its smash hit Kinect, Microsoft found itself with a conundrum: it was such a great sensing device that researchers and hobbyists wanted to buy it even without buying an Xbox 360.

Normally a smash hit is not a problem. But gIven the Kinect had the same razor & razor blade model as the Xbox, people buying it without buying Xbox games meant that the MS was not making the margins they hoped for.

For a while, Microsoft was fighting the hackers. I argued they shouldn’t fight, they should switch:

Microsoft is missing a significant market opportunity by not being open to third-party enhancement of the Kinect hardware. Although the volume will not be as big as for a hit game — as predicted by Karim [Lakhani] and his research — third-parties will identify markets and solutions that Microsoft never anticipated.

Sure enough, Microsoft has seen the light. On Monday, Microsoft announced it will release a noncommercial SDK for the Kinect in the spring:

While Microsoft plans to release a commercial version at a later date, this SDK will be a starter kit to make it simpler for the academic research and enthusiast communities to create rich natural user interfaces using Kinect technology. The SDK will give users access to deep Kinect system information such as audio, system application-programming interfaces, and direct control of the Kinect sensor.

The timing is right for Microsoft to continue to deepen its ties to industry. With Nokia pulling back from university research alliances — and Apple, Nintendo and Sony abdicating the fight — the Kinect win is a rare example of success at a time of decline for its core businesses and its chronic failure to win share for cellphones.

Wired observes:

Microsoft was particularly impressed by the University of Washington’s research into telerobotic surgery. Researchers at the university hooked up a Kinect to a PHANTOM Omni Haptic, a stylus-based device that gives resistance feedback to the user, to build 3D models that the user can actually feel.

So hand it to Microsoft to (as I suggest) work on building a platform around the successful Kinect technology, rather than protect its otherwise conventional razor (console) and razor blade (game) business model.