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Analyst Raises Kinect Holiday Sales Estimates To 4M
by Leigh Alexander [PC, Console/PC]
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August 12, 2010
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Although the game industry is clearly excited about the potential in upcoming fall launches of motion controls, many analysts and publishers have measured their enthusiasm.
As with any brand-new initiative, the addressable audience and potential install base remains to be seen -- but one analyst sees reason to believe Microsoft may make a bigger Kinect launch push than initially expected.
"Based on updated channel checks, we believe that production quantities of Microsoft’s Kinect motion sensor could exceed our original expectations -- suggesting to us potentially more aggressive launch plans for the device," says Lazard Capital Markets analyst Colin Sebastian.
The analyst sees Kinect production approaching about 2 million units per month, and he believes Microsoft's Xbox 360 shipments to retailers will favor the Kinect bundle over the standalone console. These initiatives could lead to more Kinect units sold than he initially predicted, says Sebastian.
"We are increasing our Kinect unit sales expectations for [the holiday quarter] to 4 million worldwide, up from 3 million units previously," he says. Wedbush analyst Michael Pachter predicts a range of 2-4 million initial units for the device.
But although Sebastian thinks bundle sales will drive Kinect's early install base, Pachter's estimates seem to target existing "early adopter"-type Xbox 360 users -- about 5 to 10 percent of the Xbox 360's overall current install base -- while suggesting most current console owners will take a wait-and-see approach.
Sebastian and Pachter seem to agree, however, that Kinect's confirmed launch price of $149 may be a little high, an assertion that forms part of Sebastian's prediction that bundles will be a strong driver of Kinect sales. "While launching at $149 as a stand-alone device, we believe the better value is the Xbox 360 bundle for $299," Sebastian says.
Kinect's price point endured much discussion and speculation ahead of its formal confirmation. For his part, Pachter has suggested for some time that consumers would resist a price point over $99 for the device, while EEDAR's Jesse Divnich said the price was "appropriate." Says Sebastian today: "We continue to believe that $99 would be a 'sweet spot' for Kinect, and production quantities suggest that Microsoft may be leaving open the possibility for price promotions on Kinect next year."
The likelihood of price promotions depends on the success of the initial launch, and Sebastian says Microsoft will run "a significant advertising blitz" ahead of the November 4 U.S. launch. "We believe that Microsoft is preparing a significant marketing and advertising campaign for Kinect, coinciding with the device launch."
"Games using the Kinect sensor will initially include fitness, dance, sports and kart racing, suggesting that Microsoft is targeting a casual (Wii) audience," adds Sebastian. That's at least a solid strategy for industry growth, he says, but notes that the casual games sector may be less resistant than it once was to the same market weaknesses that currently challenge core games -- some of which do continue to sell well.
"While Microsoft may have other applications planned for Kinect beyond games, we assume the bulk of production near-term is planned for the Xbox 360. Over time, we also anticipate that motion sensors will show up in connected TVs, living room PCs, set-top boxes and other consumer devices."
He also believes that market response to Sony's PlayStation Move counterpart, which arrives slightly earlier on September 19, will be telling -- and though it will arrive "lacking some of the retail 'buzz' versus Kinect," it may provide a bellwether for demand for next-gen motion control.
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Why in specific should they? To get a Wii Sports clone for US$300, when a Wii with 2 games comes for US$200? In 2006, the people got hooked by the idea of playing Wii Sports, it was the software, that sold the hardware and here I don't have seen anything revolutionary for Kinect.
Lets wait and see, 4 million is an awful lot. Even more, when you look at MS own holiday lineup, which includes heavy hitters as Fable III and Halo Breach. I think many people will have to make a choice, what to buy for their 360 this holiday.
Most people buying Fable III and Halo Reach for their existing consoles won't be buying Kinect. The 4 million estimate seems to be based mostly on new 360 gamers buying the Kinect bundle, with a smattering of tech nerds/early adopters who already own a 360 buying it because it's the "must-have" thing.
Yes, I see what you mean, during the holiday season 2009, MS sold 2.5 million units in the US and I think it is a pretty safe guess, they sold the same ammount in the rest of the world. Lets see how many people are willing to pay the extra US$100 for a Kinect bundle. I personally think, it won't be that much people, but it is possible, you are right. But on the other side, I think there still isn't a Kinect bundle for a 360 with harddsik announced, or am I wrong?
I wonder at that.
Targeting the same consumer group as someone else doesn't seem like a solid strategy to me. It feels more like offering a Zune to potential iPod customers.
It seems to me that a better strategy would be to deliver something more to the same consumer group, or go after a new consumer group.
I imagine many customers in stores around Christmas time hearing that Kinect has a kart game kind of like Mario Kart, and a dancing game, like Just Dance, and a sports game, like WiiSports, and a fitness game, like WiiFit, and then I expect to hear the consumer saying "Well than why don't I just get a Wii?"
I think the value of "known brand" will win out in that scenario most of the time, which favors the Wii. I think MS may look back on this roll out as a missed opportunity to distinguish themselves with software that doesn't feel so "me too."
Old Question: Is this "analysis" intended for us, the general public, or the company stockholders and investors? This feels more like cheerleading than a sober reading of the tea leaves. Personally, I believe that Microsoft's investors are the real target. The company has sunk billions into its Xbox division, partially as a defensive move against Sony (fear that Sony would encroach on Microsoft's computer domain), and largely in anticipation of the convergence of digital media in the living room.
The digital convergence has come, but to everyone's surprise, but it didn't happen around the television - it happened around the cell phone. That is where the real battle lies. Every day Microsoft continues to spend its resources in the video game war, the smartphone war is becoming dominated by Apple and Google. What will this market look like two or three years from now?
Anyway, don't wish to ramble, but I think this is the conflict among Microsoft and their investors. The Kinect comes at a critical time for the company. It absolutely MUST become a smash hit. Microsoft is facing enemies on two fronts: Nintendo's disruptive Wii on one end, Apple and Google's smartphones on the other. This is a very dangerous position.
Microsoft must show its investors that it as, at the very least, stopped Nintendo's disruption by capturing their low-end Expanded Market (the customers we mistakenly call "the casuals). It is bad enough to lose precious time on the smartphone front. If Harvard's theory of disruptive innovation holds true, Nintendo Wii will continue to move upstream and destroy Xbox by assimetric warfare. Remember Nintendo's focus on E3 2010 - low end games for Expanded Audience, bridge games like Donkey Kong and NBA Jam to move upstream, and core titles like Goldneye. Beware Goldeneye. The Wii only needs one breakout hit on FPS to change the game.
Of course, this is all theory. Kinect may become the surprise hit of the holiday season. But I highly doubt that. I don't believe that Microsoft understands Nintendo's Expanded Market, or the values of that market and the new Social Games era. And I don't believe the Kinect hardware is capable of "bridge" titles that can move customers upstream. Again, I could be wrong on that, and I'm looking forward to seeing developers prove me wrong in 2011. For 2010, count me as a pessimist.
I agree with you about the smart phone/computing device. MS has fallen so far behind in that space it's not even funny. As for the Wii, though, I still don't see it competing in the "hardcore" fps space that MS has done so well in. Goldeneye has potential but compared to the fps titles on the HD consoles it really only has nostalgia to offer. COD and Halo have largely erased people's memories of playing Goldeneye split screen in dorm rooms, and I haven't heard anything about how the new Goldeneye innovates.
Not that any of that matters, as the Wii will I'm certain end this console as by far the biggest success. It was profitable almost (if not at) day one and sold gangbusters.
@ DanielThomas MacInnes
:"Let's put this into a proper context. Four million units is what Nintendo sold in December 2009. That broke the all-time record, and was fueled by New Super Mario Bros, the king of Nintendo's killer apps. As a result of the high demand, the Wii was sold out in the early weeks of 2010. Microsoft and our analyst friends would suggest that Kinect is going to reach those kind of sales."
Can you read?
Those 4 million Wii's were sold in just the US NPD alone.
The anlyst is predicting Kinect sales of 4 million WORLDWIDE, as in, and I quote from the article:
"We are increasing our Kinect unit sales expectations for [the holiday quarter] to 4 million worldwide, up from 3 million units previously,"
Get it?
In addition, MCVUK reports from retailers, that Kinect pre-orders have been very robust, and UK retailers are expecting Kinect pre-orders to top 500,000. That is just the UK allone. And that is just preorders alone:
"Kinect pre-orders boom
Microsoft vindicated as innovative controller finds its feet, quashing initial fears over high £129.99 RRP
Despite initial scepticism over its price, Kinect looks set to be a big hit.
Retailers are reporting high pre-order numbers for the device, which will be available in November for £129.99 bundled with Kinect Adventures.
-snip-
Sources says they expect advance orders to topple half a million in the UK by launch.
Grainger Games’ sales director Phil Moore told MCV: “The feedback we’ve had so far from our customers is that they feel the price is appropriate to the product
“We have taken a large number of deposits for Kinect already and it is set to become our biggest pre-order to date. This tells us the device’s appeal has not been affected by the price point.”
http://www.mcvuk.com/news/40209/Kinect-pre-orders-boom
If the UK alone is on target for 500,000 Kinect pre-orders, I don't see why Kinect sales worldwide shouldn't easily top 4 million by the end of December. Going by online retailer preorders, I would say US Kinect preorders have been stronger than those of the UK.
" judging by their track record I expect a fiasco involving the hardware units breaking down, followed by lawsuits, replacements, shortages and short term exceptional losses."
Wrong on every count.
Kinect should be profitable from the get go, given the pretty high price, and I don't expect any shortages, given that they are making 2 million Kinects a month, accordng to this article.
"Why in specific should they? To get a Wii Sports clone for US$300, when a Wii with 2 games comes for US$200? "
One thing Kinect is definitely NOT, is a Wii Sports clone. The 360/Kinect is HD for starters, while the Wii is not.
The Wii/Wiimote doesn't do voice recognition or face recognition like Kinect does, and the AI, graphics etc are much better on the 360/Kinect than on the Wii.
About the price, when you have two players, Kinect you don't need to go buy extra controllers with Kinect. With the Wii you'd have to get two extra controllers when you have two players. Kinect works out as a cost effective solution for a HD machine.
"@ Merc Hoffner
" judging by their track record I expect a fiasco involving the hardware units breaking down, followed by lawsuits, replacements, shortages and short term exceptional losses."
Wrong on every count."
Yes, very nice.
http://www.engadget.com/2005/03/21/14-million-xbox-power-cord-recall-a-vain-atte
mpt/
http://www.joystiq.com/2005/12/28/xbox-360-costs-715-to-make/
http://www.gamepolitics.com/2008/10/17/red-ring-death-fiasco-brings-class-action
-lawsuit-against-microsoft
http://www.informationweek.com/news/software/showArticle.jhtml?articleID=2010022
67
http://money.cnn.com/2005/10/07/commentary/game_over/column_gaming/index.htm
http://en.wikipedia.org/wiki/Xbox_360_launch
Can't find it, but the original Xbox suffered from disc scratching problems, particularly in Japan, as did the 360.
Kinect's got an RGB camera, an actuator, the world's first consumer time of flight sensor, IR filters (or IR doping on the sensor), an ultra high power IR LED and associated components, a high end timing control circuit and ultra high speed buffer, casing and mounting, cooling, cabling, additional circuitry (and whatever remaining DSPs), a microphone array, external transformer, packaging, licensing, retailers' cuts (high on a large size peripheral), distribution, etc. Taking into account the reticence on the $150 price, the low end RGB camera, the downgrading of the TOF sensor and the much publicised removal of a significant processor, and it's clear to see the cost pressures on this device have been difficult for Microsoft. Even if they pull a profit (I reckon small at best), it'll be paying for significant hardware R&D costs, the super complex software and SDK development costs and technology (and company) acquisitions in the short term.
They may very well be taking huge orders for Kinect, but Microsoft's hardware production track record shows a history of overestimation of internal capability, leading to rushed production and quality oversight. And Kinect ain't a regular piece of hardware. http://www.dailytech.com/Microsoft+Insider+Xbox+360+Team+Knowingly+Launched+Faul
ty+Hardware/article10434.htm
They could use their mistakes as a lesson for the future, but the old examples say they won't.
"One thing Kinect is definitely NOT, is a Wii Sports clone. The 360/Kinect is HD for starters, while the Wii is not.
The Wii/Wiimote doesn't do voice recognition or face recognition like Kinect does, and the AI, graphics etc are much better on the 360/Kinect than on the Wii.
About the price, when you have two players, Kinect you don't need to go buy extra controllers with Kinect. With the Wii you'd have to get two extra controllers when you have two players. Kinect works out as a cost effective solution for a HD machine. "
Fact remains software sells hardware.
EDIT: And you are right, Kinect is not a "Wii Sports" clone, I forgot, that MS isn't bundling the device the "Wii Sports" clone "Kinect Sports". Instead they bundle the device with the "Wii Sports" clone "Kinect Adventures".
Ummm..about your links, none of them has anything to do with Kinect.
And..the 360 has been very reliable since Jasper. The new Falcons are super reliable.
@ Merc Hoffner
"Taking into account the reticence on the $150 price, the low end RGB camera, the downgrading of the TOF sensor and the much publicised removal of a significant processor, and it's clear to see the cost pressures on this device have been difficult for Microsoft. Even if they pull a profit (I reckon small at best), it'll be paying for significant hardware R&D costs,"
More like Microsoft priced Kinect at $150 in order to make sure the Kinect launches at a good profit right from the get go.
R & D costs?
Kinect R & D costs will be amortised over many, many long years. Kinect will still be part of the next XBOX, no?"
"They may very well be taking huge orders for Kinect, but Microsoft's hardware production track record shows a history of overestimation of internal capability, leading to rushed production and quality oversight. "
You have it the other way round. The 360 hasn't had any major shortages for years. Even the 360 "Slim" launched with very little shortges, despite a doubling of 360 sales in June. Meanwhile, the PS3 experienced shortges after the PS3 "Slim" was introduced last year, and those shortages didn't end till last month. You don't need me to tell you how long Wii shortages went on for.
If Microsoft are more interested in pulling a huge per-unit profit than building out this burgeoning user base with a more acceptable retail price, then virtually everyone would consider that a massive strategic error, and a complete reversal of their MO. Of course maybe they think they can sell huge numbers of consoles at this price - they could just be super confident - I certainly wouldn't put it past them. But given the mixed response at E3 2010 (vs 2009), if it were me (and most armchair analysts), I'd price it cheaper if I had the ability.
You're right over paying off the costs, but Microsoft is certainly interested in getting these dragging costs under control and out the way. The higher ups have been eyeing EDD over for a while now (Bach and Allard - bye bye) and want consistent profitability. They pulled a profit over the year, but they're still regularly posting quarterly losses, and the costs for Kinect aren't even nearly over; - SDK development, partner investment, marketing and hardware iteration are still huge and ongoing.
On shortages, yeah, they haven't had problems for years - MS like to pull the other trick - in winter 2006 they stuffed the market in order to make their re-re-readjusted goal of 10 million by 2007. But in 2005, when they actually launched, the numbers were painfully constrained, everywhere in the world except Japan. I remember they weren't able to get 3 million units out (which summer/fall 2005 some analysts were projecting as the launch shipment) until May time 2006. They can and have sorted out their hardware problems over time, sure. But in the launch period they've generally done a rush-job. As for slim, well it bloody well better be well engineered and mass manufacturable - it's what, 4th? 5th iteration technology? 230 million transistors on a die is piss easy now, but in 2005 it pushed the limits of error acceptability. And as far as I understand it (much better than Patcher) aspects of Kinect are on the bleeding edge.
E3 is possibly the worst barometer out there. The Wii never had a great "E3 Showing" until this years, yet it continuosly flew off the shelves. The gaming press dubbed the PS3 as the console generation winner after its E3 debut and it is still limping along to this day.
http://www.youtube.com/watch?v=1zkwTwpOb3Y
Following E3 2006 serving no-one but Nintendo, the industry attempted to subvert the show and 'rebalance' it to 'better represent the industry and its efforts'. After distorted shows in 2007 and 2008, E3 came back restored in 2009. Nevertheless, negativity surrounding the Wii at shows in 2007-present did accurately portray the industry's hatred of the console. I can't imagine the muted reports for Kinect as having no effect. Moreover, the ambivalence to Kinect certainly hasn't been confined to a single trade show. The industry may have been wrongly negative about the Wii, but it certainly had a zeitgeist around it, and it could be my coloured view, but Kinect hasn't created that passionate positivity... yet.
@ Camilo R
MS recalled 14 million out of 24 million Xbox power unit cables due to a fire hazard 3 years in. That's 58%, and one of the worst product recalls I've ever heard of. Just a year and a half ago they temporarily broke a huge portion of their own Zune players due to a leap year bug. They have an excellent track record for Mice and Keyboards. I am not reassured. And products like Kin lower my belief that they can actually formulate a coherent technology roadmap.
The PS3 hasn't exactly been limping this past year. It's actually doing quite well in the US, and extremely well outside the US.
@ the article
None of this takes into account how the Kinect will fare once people actually use it. Plenty of people I know still think it can handle 4 people, can recognize subtle finger movements, etc... many of the myths that early buzz created but have since been debunked (mostly due to cutbacks in the technology, such as no dedicated processor).
Regardless of initial sales, it could very well bomb big if the technology isn't where people expect it to be, if it's laggy, or they don't produce software that people actually want.