Monday, November 22, 2010

A Very Palpable Hit

We poke fun at many companies in these virtual pages, but there is one in particular that we tend to poke fun at more often than most. It is a company that has been immensely successful in its field and in a financial sense, and has certainly added more value to the human condition than any hedge fund or virtual column such as this.

Unfortunately, that value-add has been derived mainly from a now-fading monopoly that has also imparted so much frustration on its choice-hampered customers that the poking of fun is easy.

We speak of Microsoft, whose rigid devotion to its Windows operating system has resulted over the years in such a mind-boggling array of feature-rich, user-unfriendly product families that we wouldn’t be surprised to find that there exists, somewhere in a far-off Staples, several copies of “Microsoft Vista Home User Release (Version 2.1) Model-Train Enthusiast Edition™” gathering dust.

Our general contention has been this: so complete is Microsoft’s reliance on its Windows monopoly that whenever it ventured outside the confines of that monopoly, it brought the same feature-rich, user-unfriendly approach to everything it touched, yielding one dud after another.

For the genesis of this Windows-obsessed, customer-indifferent mindset, we pointed no further than CEO Steve Ballmer, who famously enjoined his children from using iPods made by Apple and search engines created by Google, thereby running the company more like a Big Three car company from the 1960s rather than a technology company in the 2000s.

How else to explain “Bob” (look it up, kids), the WebTV debacle (look that one up, too), the “Kin” black hole, not to mention a tablet PC operating system that will likely be dead on arrival in a market pioneered by Apple’s slick iPad and soon to be invaded by products using Google’s Droid OS, which has already taken the smart-phone market by storm.

Nevertheless, the title of this virtual column is “Not Making This Up,” and longtime readers know that we are more partial to facts of a case—whatever that case may be—than to the sentiment of the moment.

(Indeed, this is why we do not brook any Yahoo-Message-Board-style of crass, mindlessly lazy and grammatically incorrect comments to make their way into these pages—to the frequent astonishment of those same message-board-trained elements who cry foul when we do not publish inarticulate, sloppy, strident messages, no matter which side of the issue they come down on. We do not apologize for that: in free-market economies, bad money drives out good money; and in free discourse, sloppy commentary drowns out the helpful.)

And given the facts in this particular case, it would be a disservice to let pass without comment something that is happening under our very noses. What is happening is this: Microsoft has a hit product on its hands.

The hit product is “Kinect,” the Wii-style add-on to the X-Box video game player that doesn’t require physical controls.

Released around the same time as the much-hyped Windows Phone 7 for smart-phones, Kinect flew under the Windows Phone 7 radar until recently, when, in addition to the generally friendly press coverage of the thing, we began hearing distinct rumblings about the Kinect—that it had sold out in two days at a local Best Buy despite the lack of a fully-functioning demo, for example—and went to investigate.

It was a quiet weekday afternoon at a non-descript strip-mall where we came across an otherwise empty electronics store in which the three customers were a father watching his two young children, who were standing in an octagonal pen, facing a large screen, hooked up to a Kinect.

Uncertain at first, the children began participating in the soccer game playing on the screen. They learned quickly—as kids do—how to control the movements of the players with their feet and body movements. Soon the boy was playing goalie and his sister forward. They shed their overcoats and settled in, mesmerized.

A brief talk with the store manager—yes, Kinect is flying out the door; yes, the technology is fantastic; yes, it’s easy to set up; yes, it’s taking share from the Wii (and, in fact, some customers are trading in their Wii to buy Kinect)—prompted follow-up calls elsewhere to determine whether what we were seeing with our own eyes was being replicated elsewhere.

And it is.

Now, we do not write this column to encourage readers to think highly of Microsoft as an investment. After all, no amount of Kinect sales—whether hardware or software or both—will make more than a meaningful impact on Microsoft overall.

But facts are stubborn things, as John Adams once said. And in the Kinect, as Shakespeare once wrote, Microsoft has scored “A hit, a very palpable hit.”

Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.


Anonymous said...

In perhaps more proof that such a thing has occurred there's a few stories about what others are doing with the kinect. See links for Oliver Kreylos' efforts.

Of course mister softee's efforts to restrict the hacking actions may yet snatch defeat from the jaws of victory...

Dirk Hohndel said...

What is interesting to me is how this promising product made it past the very organization that seems to be set up to kill interesting ideas.

It doesn't use the Windows visuals and user interaction model, not even Windows technology; it doesn't tie in to the Office franchise or anything else that seems to be held sacred at Microsoft.

So how come this wasn't killed long before it hit the shelves? I think the fact that this was released in parallel to the Windows Phone OS Series 7 Customer Product Launch may not be a coincidence after all - by flying under the radar maybe this project had a chance to even make it to market. And quick success ("flying off the shelves") might save it from being killed.

What can Microsoft business groups learn from that? If you want to do an innovative product, try to hide in the shadow of another launch - and try to stay away from all the core technologies that Microsoft is so good at flogging.

I can't wait to see what else will be released by Microsoft in the same week that Win7SP1 comes out...

The Pants Down Explainer said...

If Kinect is a hit, then so is X-Box?

jucojames said...

I think Fred Hickey does a pretty good job of covering the rather crowded "hate Microsoft" cadre that Jeff has been a card carrying member of. I think it is fair to also describe Windows 7 as a hit in the enterprise market, as well as their efforts in the cloud computing space. With double digit earnings growth, a yield close to the 10 year treasury and selling for a low double digit multiple and a fortress balance sheet, it appears the Jeff's of the world are more than priced into the stock.