There was some really great news for the Xbox group in Microsoft's just-announced quarterly results. The company sold more than 8 million units of its new controller-free Kinect peripheral that lets users control the Xbox simply by moving their bodies.
That fueled a revenue increase of more than 50% for Microsoft's entertainment and devices division, by far the best year-over-year improvement by any Microsoft division this time around. How this happened is a combination of persistence and a bit of a lucky break.
Let's talk about Microsoft's persistence first. This was a market where Microsoft had no presence, no brand affinity, and a strong competitor in the Sony PlayStation when XBox was launched in 2001. It was a complete departure for a company that thrived on its third-party hardware and software developers.
Although the software was derived from Windows, the platform itself was closed like most other game consoles and the hardware was manufactured for Microsoft. It took seven years and a $2 billion investment before the Xbox turned a consistent profit. Once it got that foothold, though, it's been a consistent and growing money maker.
The lucky break is that Microsoft got their hands on Kinect at all. Cultofmac.com reported that the creators of Kinect actually shopped the idea to Apple first, thinking it would be a natural fit for their innovative products and interfaces.
But another thing that Apple is known for is its secrecy, and that seems to have been its undoing as far as Kinect was concerned. According to the Kinect inventors, Apple insisted on lengthy legal documents and non-disclosure agreements before talking at all. So the inventors gave up on Apple and shopped the technology elsewhere, and Microsoft shipped what Apple spurned.
Microsoft hasn't historically been a company to find success through outside ideas. Looking at the list of acquisitions from the past decade, there aren't many that appear in Microsoft's current product offerings in recognizable form. Most of the ones you might be able to recognize have been failures.
Consider the 2007 acquisition of Jellyfish.com, which relaunched as Windows Live Cashback in 2008, changed its name to Bing Cashback in 2009, and was shut down in 2010. Or look at Microsoft's 2008 buyout of Danger, maker of the Sidekick phone, for $500 million. More than two years later Microsoft finally released the Danger-inspired Kin phone, which lasted all of 48 days before they abruptly pulled the plug.
With that kind of history dogging the company, let's give Microsoft's Xbox group the credit they deserve. Sure, they saw the potential in Kinect when Apple's rejection dropped it in their lap. More importantly, they were able to do something that seems rare with Microsoft: take an outside idea and turn it into a successful shipping product.
Perhaps it was easier for Microsoft to see Kinect applications for the Xbox than for Apple to see a use within its current product lines; by that measure the idea ended up exactly where it should have been all along.
How does Microsoft do less Kin and more Kinect? If the Kinect is a model, then the lesson might be to emphasize building successful products over crafting a master company strategy. Kinect had the advantage of needing no "input" from the other business units at Microsoft.
If it had been a product with the potential to affect any of the cash cows such as Windows or Office, no doubt the leaders of those groups would have felt the need to delay or distort the product to ensure that their sub-empires were adequately protected. These were the kind of tactics that have impaired Microsoft's ability to deliver an online version of Office for almost a decade.
Make no mistake, engineering a master company strategy is more expensive and prone to failure than crafting a single product success. Take Microsoft's Online division. As Business Insider points out, Microsoft has invested/lost more than $2.5 billion in its online operations in just the past year, and more than $7 billion since the division last saw a meager profit in 2005. That's mind-blowingly deeper than the hole Xbox dug before it started to turn a profit.
The big difference between Xbox and online is that, despite its massive investment, Microsoft doesn't seem to have any clear path to online profitability in the foreseeable future. Whether profit is possible or not, they seem to think they'll find success by going toe-to-toe with Google on just about every type of service: search, chat, email, maps, webmaster tools, advertising, documents, and mobile devices, plus corresponding developer APIs for all of the above.
Microsoft is swinging for the fences with this strategy; very little of it can succeed unless all of it succeeds because it is so interrelated and interdependent. Yet none of the individual products or services seem that exciting or innovative.
I doubt that Microsoft will abandon its boil-the-ocean strategy any time soon, but it would have an easier job with its reputation by getting a few more high-profile wins that don't depend on the success of a complex strategy.
Perhaps they could take advantage of Kinect's cool factor in PowerPoint by using it to control a presentation using Kinect-style gestures while onstage. Maybe they could make something like Word Lens a standard feature on all Windows Phones. These are things that users want, are incredibly sexy to demonstrate, give Microsoft positive buzz, and increase demand for the entire stack of Microsoft services.
Finally, Microsoft shouldn't forget that consumer successes can be turned into enterprise business successes if they're played right. Sure, enterprise businesses are conservative, and aren't willing to throw out their technologies every year to get the latest thing.
Yet Apple has been able to get many businesses to use iPhones and iPads for example; every time that happens it moves one more user further out of Microsoft's sphere of influence. If Microsoft can focus on making a few successful products and ignore their complex strategy for a moment, they might be able to make some progress.