Xbox Kinect Innovation Analysis

This innovation, originally developed by Microsoft under the codename of Project Natal, was finally released under the Kinect name on November 4, 2010 and entered the Guinness World Record Book by being the fastest-selling customer electronics device . Even though it was initially designed for video games, it now applies to real-world uses. Kinect is a motion-sensing system based around a depth camera that enables the user to control and to interact intuitively, and especially without any in-between controller, by using an interface with speech and gesture recognition. We then become the controller.

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Kinect was a combination of creativity and successful implementation of ideas into a marketable concept. Indeed, it all started when Don Mattrick got hired by Microsoft to manage the Xbox segment. He challenged the whole team to bring gaming to a whole new level by getting rid of controllers . Kinect is a pure commercial product innovation (opposed to process, marketing and organisational innovation). It raised major strategic dilemmas to Microsoft because innovations are more complex than just inventions, as they necessitate the stage where the product needs to be taken to the market place.

For example, this requires steps like designing the business model, choosing the right time to enter the market, protecting the innovation… We can say that Kinect is now in the transitional phase of the product innovation. It puts the competitive emphasis on product variation with for example the adaptable software to Windows in 2012 or also includes one stable/dominant design. Source: (Figure by Utterback & Abernathy 1975) Kinect could be categorized, under Henderson and Clark’s typology (1990), as a radical innovation.

Indeed, relatively similar technology existed through the PlayStation Move and Wii Remote but they both required using a controller. With Kinect, core components (integrating RGB and 3D depth cameras) were changed compared to previous devices for video gaming, as well as the architecture/linkages (different mechanisms/software’s for input), which makes it a totally new motion-sensing technology in the gaming industry. Kinect therefore confirmed the theory stating that “a radical innovation results in a product that is so superior that existing products are rendered non-competitive” (Innovaders, 2011).

Source: (Figure by Henderson & Clark 1990) Kinect can also clearly be defined as a disruptive technology. It is a disruptive innovation in the way that it interrupts the way things were done previously. In other words, Kinect totally replaced the existing system of controllers. But more than just technology itself is the impact of such disruption. Indeed, the technology did not impact the video game industry only, but also has affected other industries that implemented it. Microsoft came up with a completely revolutionary technology enabling the video games users to play without using any controller.

They created a technological discontinuity towards their competitors that could be associated to some disruptive effects. To illustrate these concepts of radical and disruptive innovation and to explain how Kinect displaced previous technologies, we could also use the technology S-Curve model. Source: (Figure by Smith 2012) ? SOURCES OF INNOVATION We can obviously say the sources of innovation for Microsoft’s motion-sensing device come from two different origins, on one side there is some “science” and on the other side we can find the development of the users’ needs.

Even though some may consider it has a part of imitation from previous technologies already available on the market, Kinect is totally new in the way it does not require any controller any longer. In addition, the development of this device was clearly not invented by chance or failure. From the sources of innovation we can therefore understand that this innovation came from both a Technology Push and a Market Pull approaches. On one side, it was some sort of knowledge push as they created opportunities by pushing the limits of science forward, and not involving market research.

In this process, the invention is driven first by the Research & Development department then once the technology is ready, it is sent to Production and Marketing that are the final steps of the process. This path does not take into consideration the users’ needs. On the other side, it can be viewed as having taken a Market Pull approach at it was also initially designed to answer a latent need of the users to be able to play video games with no controller in their hands. The process is then the opposite of the Technology Push approach.

The market expressed a need which was first analysed by the Marketing department which reported to the Research & Development department that started working towards filling this need. Some would even consider it as a “User Innovation”. Indeed, while the intended users are mostly kids, young people and all video games players, the lead users are programmers, hackers and maybe some robotic developers. And Microsoft definitely took advantage of the different types of users to promote and improve the Kinect product.

Community communication, brand/company image, expansion of target markets, and development/diversification of applications for product extension are all good examples of how Microsoft benefits from those users. Source: (Figure by Martin 1994)? OPEN INNOVATION OR NOT? This was also shortly discussed in the previous page under the “user innovation” concept. Even though Microsoft did not want to open its Kinect innovation at first, they finally did. As they realized opening Kinect to the public would enable them to benefit from very large sources of creativity outside the firm, they decided to open it. And since then, they never stopped.

It all started from videos that “amateurs” were constantly uploading on the Internet showing how the Kinect technology could be exploited to add features to robots, and Microsoft totally supported these initiatives. Some very interesting details can be read from this article about robotics development thanks to Kinect’s technology: http://www. wired. com/magazine/2011/06/mf_kinect/all/1 The biggest part of their open innovation strategy is now based on innovation contests. A famous example was the Kinect contest sponsored by Matt Cutts, Google engineer, when he offered $1,000 to whoever would come up with the coolest open source for Kinect .

This is a perfect example showing how innovation networks (user and lead users) can bring new ideas and new solutions but also create new opportunities. It also demonstrates how companies start granting big importance to crowdsourcing approaches to bring innovation to a next level and expand the original scope. Microsoft gets amateurs and professionals from all over the world to work indirectly for them on innovative ideas. Source: (Image by Kinect for Windows Team 2012) The figure here under shows some of the open sources of innovation that Microsoft implemented for its Kinect device:

Source: (Figure by Haefliger & Pachidou 2012) ? TIMING OF ENTRY Microsoft has been considered over the last three decades as one of the highly successful innovative company in the world. There are doubts about Microsoft developing a first-mover advantage with this Kinect innovation. Indeed, as already discussed, Microsoft was first to bring such high-level technology to the market which clearly enabled the firm to take a position of pioneer. This mainly helped them build a very strong long-lasting reputation and brand image that can help them keep market shares even after competitors have introduced competing technology.

Moreover Kinect was also used to reinforce Xbox console position and increase buyers switching costs. On the other side, we can identify some very high Research & Development expenses, while later entrants will certainly ascertain and imitate the technology (much cheaper), or also uncertainty about the exact customer expectations and requirements. ?Pace of change Suarez & Lanzolla studied a lot this subject and came up with a model named The Combined Effects of Market and Technological Change (2005) that can help categorizing the situation in which a company can find itself when trying to reach a first-mover advantage.

Those two factors can strongly impact on whether a company will achieve a FMA or not. Following this theory, Kinect would more likely be in the “Technology Leads” scenario. Indeed, the pace of market evolution is relatively slow because the users are not so quickly adapting to new patterns/habits (they have their preferences), while on the other side the pace of technology evolution is obviously fast. Source: (Figure by Suarez & Lanzolla 2005) Furthermore, they analysed the resources required and the likelihood of a first-mover advantage for each one of the four scenarios they developed.

Therefore, as a “Technology Lead”, the company needs deep pockets to maintain a strong R&D and product development department. On the short-term as well as a durable position, FMA is quite unlikely to be achieved. Source: (Figure by Suarez & Lanzolla 2005) ? TECHNOLOGICAL DOMINANCE We will now have a look at technological diffusion and dominance. Those concepts are very important nowadays as they are crucial for a company in order to survive on a highly competitive market, and hoping to reach competitive advantages.

For example, in order to reach technological dominance, a company must have some knowledge superiority, complementary assets as well as credibility, a perfectly adapted strategy (pricing, timing of entry…) and many other key factors. (Suarez, 2003) ? Technology Diffusion Basically, technological diffusion is a concept to explain how an innovation is diffused over time through certain channels and then adopted by the future users. The diffusion S-Curve is a very interesting and clear way to measure the openness to change in terms of behaviour, cognition and attitude.

This curve was attributed the “S” because it follows the shape of a normal distribution (statistics). Source: (Figure by Dent 2012) On the graph, we can clearly see tipping points. A tipping point is generally defined as a critical point/moment where the demand for a product/service suddenly changes; it can be either for explosive growth or radical decline. For Kinect, we know that there was an explosive growth very quickly. Indeed, figures from the market show us that the tipping point for the take-off of the Kinect device was set pretty rapidly.

Some news articles, amongst others, notably describe the innovation as the “fastest-selling consumer electronics device”: “Microsoft has sold more than 10 million Kinect sensor systems since launch on 4 November, and – according to Guinness World Records – is the fastest-selling consumer electronics device on record. Guinness World Records said that Microsoft sold eight million devices between 4 November last year and 3 January at an average rate of 133,333 a day. ” (BBC, 2011) We can say for sure that this innovation and the market are still in the Growth phase and haven’t reached the Maturity yet.

With competitors coming soon on the market with similar technologies we cannot be sure what the future of Kinect will be but Microsoft has also a new version of the Kinect ready in order to remain competitive (Available at: http://www. youtube. com/watch? v=TPIhoe0h2Sw). We can conclude that this innovation is not yet to see the final tipping point in the maturity phase where it will start declining. ?Innovation Adoption Curve Moreover, it seems interesting to apply the innovation diffusion to the Adoption curve based on the normal distribution to have a better understanding of the response/adoptability towards the innovation.

As mentioned right before, they have seen quickly a big proportion of Innovators, Early adopters and probably some of the Early Majority of adopters for Kinect. This explains why Microsoft’s marketing strategy has soon focused on the rest of Early and Late Majority Adopters, probably giving up the Laggards. Source: (Figure by Wilson 2012) Geoffrey A. Moore in his book Crossing the Chasm released in 1991, focused on adoption and diffusion of high technology products.

He believes that Early Adopters and Early Majority groups are much more different than they appear and therefore create a gap in between the two. Following Moore’s point of view the adoption curve for a disruptive innovation would look like this, but Microsoft quite well managed to avoid this gap by targeting different customer segments (i. e. first-time video game players). Source: (Figure by Moore 1991) ?Pace of Diffusion The pace of diffusion of the Kinect device could be explained by several factors from both the supply and the demand side.

On the supply-side we can find for example the relative advantage (degree of improvement) compared to previous technologies, the level of complexity and the compatibility of the device with other goods (Xbox, PC) from the product offering, the communication channels… And on the demand-side we have factors like the “observability” and experimentation (tested by users before being available on the market), the awareness of the market about the availability and information on the device, the price, the customers’ preferences (innovativeness)…

STANDARDS BATTLES AND DESIGN DOMINANCE ?Dominant Design We could all agree that Kinect has been selected as dominant design for the sensing-motion technology, as competitors (Sony) are trying to improve the efficiency rather than to develop alternative designs. It therefore led Microsoft to increasing returns. As a consequence, the wider the technology is adopted, the more we can see the development of complementary assets to operate with this particular technology. This is totally true for Kinect.

As a matter of fact, they truly exploit the two main sources of increasing returns namely learning effects and network externalities. ?Learning effects Theory stating that, the more a technology is adopted/used the more it is likely to become more efficient and be further developed, can definitely apply to Kinect. Clearly, Microsoft is globally known for its learning effects but this is once again confirmed by their Kinect technology. They spend time and money refining the technology and they are just about to release a second version of the device as Sony is releasing its sensing-motion device too.

Microsoft also follows the learning curve principle with Kinect where they manage to decrease costs as well as increase performance between two different versions. ?Network Effect/Externalities Also called positive consumption externalities, they represent the advantage provided from a larger number of users of a same product. In other terms, the broader a good is adopted, the better the value of this good will be and this is due to several factors that will create a self-reinforcing cycle (M. A. Schilling, 2008).

First, we have the installed base which measures the actual spread of the innovation in terms of users; in the Kinect case representing the number of Kinect and Xbox consoles all around the world. This is a crucial point because the installed base will strongly influence the customer’s decision to buy either the Xbox + Kinect or any competitor’s console. But we also have the impact of complementary goods; here being the availability of video games and other devices or services (for example online gaming). Source: (Figure by Schilling 2008) ?Technological Lock-In

Consequently we can conclude that Microsoft has been able to lock in through this self-reinforcing cycle in this technology and therefore impose it as the dominant design, allowing the company to reach near-monopoly returns on the short term. This also confirms that Microsoft has been able to perform a technological leapfrogging towards its competitors. ? BUSINESS MODEL & VALUE CHAIN ?Customer Value Proposition As previously explained, Kinect enabled the video games industry to be able to play without any controller in hand through speech and gesture recognition.

This innovation has therefore been able to answer and fill latent needs of video game players. Moreover, it clearly strengthens the positioning of Xbox by adding this device to its functionalities arsenal. ?External Value Chain & Ecosystem Microsoft developed a strong ecosystem consisting of distributors, customers, competitors, complementors… They strongly affect each other. It is a networked market as players and developers are both part of their video games network. ?Business Model and Strategy

Microsoft had put in a place a very strong Business Model, taking everything into account in order to promote its innovation in the most optimal way. We could even say that Kinect developed the very particular business strategy called Blue Ocean Strategy. They typically created a new market by bringing a product that the market did not even expect, enabling customers to play in a way they could not with previous technologies, but even more than that, they did it at a very low price so in a few words they managed to deliver a Value Innovation by both increasing value (= differentiation) and reducing costs (= cost leadership).

Source: (Figure by Blue Ocean Strategy 2013) ? PROTECTING INNOVATION We will here analyse how Microsoft protected its innovation. We will look at the tools used to protect its Intellectual Property. First, let’s remember what the different tools available are (WIPO, 2013): ?Copyrights ?Patents ?Industrial Designs ?Trademarks ?Geographical Indications ?Trade Secrets ?Patents Kinect is only protected through patents as the device and technology itself is the only aspect of the device that Microsoft is worried that might be copied.

Here we should even point out that we are talking about utility patents, as opposed to design patents. In order to apply for a patent, the invention needs to fit three requirements; novel, useful and not obvious. It generally expires after 20 years after the patent was filled, and at that point becomes available to the public. The problem is that global protection does not exist and therefore Microsoft had to target specific countries where they would protect the invention, involving filling and maintenance fees.

Regarding the number of patents Microsoft has filled for the Kinect device it is incredibly impressive: “In fact, Kinect packs such ground-breaking technological punch that Microsoft has filed nearly 600 patents to protect intellectual property related to the device” (Microsoft, 2011). But, this is nothing new, Microsoft has pretty much always been one of the top innovative companies in the world. The ranking (Table 1 in appendix) of the Top 50 US Patent Assignees in 2012 ranks Microsoft as number 6.

Microsoft holds the main patents since 2010 under the titles “Visual Target Tracking” and “Gesture Keyboarding”. (See Appendix) (Also available at: http://patentscope. wipo. int/search/en/detail. jsf? docId=US43807362&recNum=2&office=&queryString=gesture+keyboarding&prevFilter=&sortOption=Relevance&maxRec=24489) It seems also interesting to mention they were using a technology previously developed by an Israeli company and holding the patent for it since 2006 under the “Method and System for Object Reconstruction” title (See Appendix) (Also available at: