Xbox 360, the Kinect and the Future of Microsoft Gaming

The Xbox video gaming console developed and sold by Microsoft (NASDAQ: MSFT) is perhaps one of the world’s most successful and least profitable products created in recent memory. Millions of Xbox consoles have been sold, from the original through Microsoft’s latest release, the Xbox One, although the past year has proven to be somewhat trying for this product. Some industry commentators see the inability of the Xbox to outsell Sony’s PlayStation 4 in March and April of this year, despite a reduced Xbox One price tag and bundling the console purchase with popular game titles, as a sign that Microsoft is quickly ceding ground to Sony in video gaming. The company only recently was able to address issues with Xbox Live, the Xbox’s incredibly popular online content service, that Xbox One users had been experiencing. A new update to the console coming in November will enable users to upload images for custom backgrounds as well as share gameplay clips with others through Twitter.

As we approach the 2014 holiday season and Black Friday, we thought that it would be a good time to take a look at some of the most popular consumer technologies around right now. In 2009, the video game industry generated $9.9 billion in revenue. About two-thirds of all American households play video games and gamers averaged about 8 hours of video gameplay each week, according to the Entertainment Software Rating Board (ESRB). Interestingly, debates over violence in video games will likely be influenced by recent findings that an increase in violent video games may actually be responsible for a decrease in real-life violence among youths; these findings have been published by researchers from Villanova University, Rutgers University and Stetson University.

The industry has also been marked in recent years by a shift towards offering entertainment and lifestyle programs that go well beyond first-person shooters or strategy games. Augmented reality gaming is available through the use of cameras or other sensors that can detect player movement and many consoles are capable of delivering streaming music, health & fitness and other programming. Microsoft’s Xbox, and the generations of consoles which followed, may not have conquered the market for the software giant based in Redmond, WA, but they have eked out a significant place for the company in the video game industry. In today’s brief history of the Xbox, we take a look at how and why this technology developed in the first place and what helped it to achieve success in a high tech field that was already dominated by other major technology firms.



The Birth of the Xbox and Microsoft Gaming

By the end of the 1990s, the video game industry had largely stabilized around a couple of big names on the market. The old stalwart was Nintendo, perhaps the most successful company in the first generation of video gaming consoles. That company had lost some significant ground to Sony by that point, however, which would come out with the PlayStation 2 in the first few months of the 21st century; That console would go on to be perhaps the most popular of the first decade of this century. Sega’s Dreamcast was a far cry from consoles made by other manufacturers in terms of sales, but the product allowed it to remain a contender in this field.

Computer gaming had been a research & development area of focus for Microsoft in the past. By 1995, the company employed about 150 video game developers and had earned some success with niche titles like Microsoft Flight Simulator. Microsoft had an interest in developing set-top boxes for the home living room that offered more entertainment and less office productivity functions, but it hadn’t developed anything that could compete with other top manufacturers at that time.

Microsoft did think that the Windows 95 operating system being developed by the company would support the next generation of PC-based gaming, however, and began the development of DirectX. This collection of application programming interfaces (APIs), designed for handling multimedia and game programming, was created to allow video game developers a friendly for building games for Windows systems.

DirectX was successful enough with game developers that Microsoft began having high-level executive meetings to determine how to capitalize on the API platform. A small team of developers spearheaded plans to build the DirectX Box: Seamus Blackley, Kevin Bacchus, Otto Berkes and Ted Hase. Ed Fries, the head of Microsoft Game Studios, was another major name in the early days of the Xbox. The developers strove to build a console which offered the processing power of a PC, which was twice as fast as what Sony’s PlayStation 2 offered. Originally, the development team did not feel that “Xbox” would be a good name for the product but its performance with focus groups changed their minds.

A Microsoft video gaming console would be the first American console released commercially since the Atari Jaguar was obliterated by Sony and Sega after its 1995 release. Bill Gates announced the coming of a Microsoft console at the Game Developers Conference of March 2000. The advanced computing hardware, which would include a 64 megabytes of random-access memory (RAM) as well as a 64MB graphics card from nVidia, as well as the online play and hard drive storage capabilities got the video gaming world interested in this product quickly.

We were able to find some patents owned by Microsoft that protected its early developments in video gaming. The company ended up procuring the rights to a trio of patents protecting video gaming technologies assigned initially to Stephen G. Perlman. U.S. Patent No. 5558339, entitled Network Architecture to Support Recording and Playback of Real-Time Video Games, was issued to Perlman in September 1996. It protected methods for connecting video game consoles for multiplayer gaming across remote consoles. U.S. Patent No. 5956485, titled Network Architecture to Support Real-Time Video Games, was issued in September 1999 and protects other methods of connecting remote players for real-time gameplay. A similar technology is discussed in U.S. Patent No. 5586257, entitled Network Architecture to Support Multiple Site Real-Time Video Games, issued in December 1996. All three patents eventually became the property of Microsoft and have some obvious implications in its online gaming developments


Building Success for Microsoft’s Xbox: A Brightly Glowing Halo

Microsoft certainly had hardware and software development capabilities that allowed it to create a console that could challenge Sony’s product. The bigger issue was being able to unseat PlayStation as the console offering the most popular games. The Xbox’s hardware capabilities allowed game developers to conceive of games with improved graphics and physics engines, but Sony was offering the most popular gaming titles.

To attract consumers to the Xbox, the console needed to run popular games. Microsoft scored a huge win with its release of Halo: Combat Evolved, a first-person shooter game which drove sales for the first iteration of the Xbox. Microsoft secured the rights to this game by purchasing Bungie Studios for $30 million, an acquisition which infuriated Steve Jobs, who was interested in releasing Halo on Mac platforms. It’s Xbox exclusivity and incredible popularity among video gamers helped spur sales of about one million Xbox units in the United States within three weeks of the console’s November 15, 2001 release.

The Xbox originally cost $299 in retail stores, although that price was slashed to $199 in response to lagging worldwide sales. The expensive computing hardware that each Xbox contained made this a costly proposition and the company stopped making money selling the consoles, which cost $425 each to construct. Over the course of four years, Microsoft actually lost $4 billion selling the Xbox.

Microsoft and Xbox took another major and innovative leap forward on its first birthday with the release of Xbox Live. This was an online content downloading and multiplayer gaming service developed by Microsoft to take advantage of the broadband Ethernet capabilities of the Xbox hardware. Live allowed Xbox owners to download new games, additional content for games they already owned or compete against other video game players, greatly enriching the experience of using the Microsoft console. In the first week of Xbox Live’s existence as a service, more than 150,000 people subscribed.



Xbox 360, the Kinect and the Future of Microsoft Gaming

Although the video game development business built by Microsoft was highly profitable, with a bevy of popular titles like Star Wars: Knights of the Old Republic and Tom Clancy’s Splinter Cell, sales of the console were greatly outpaced by the PlayStation 2. In the end, Microsoft ended up selling a total of 24 million Xbox units, paling in comparison with the greater than 155 million sales enjoyed by Sony’s PlayStation 2. In the battle for supremacy in the next generation of video games, however, Microsoft had eked out a small but defensible minority position.

Microsoft intended on taking advantage of that position by bringing the first seventh-generation video game console to the consumer market. The Xbox 360 was the first of these, released to American and Canadian consumers on November 22, 2005. It’s early release helped it pull even with the PlayStation 3 in terms of seventh-generation console sales, with about 80 million units of each having been sold; the Nintendo Wii’s 100.3 million sales made it the eventual winner for this round of consoles.

Although its one-year headstart gave Microsoft’s Xbox 360 an advantage in permeating the market without any true competition, some serious hardware issues experienced by users was a sign that the console may have been rushed out to market too quickly. Gamers would soon become familiar with the “Red Ring of Death,” or the red light error signal circling the Xbox 360’s power button which indicated that a fatal hardware error had occurred. The problem grew so widespread that Microsoft ended up extending the warranty on the Xbox 360 to three years. Microsoft came out with multiple models of the Xbox 360, including Elite and Super Arcade, but many of these issues were solved in the the Xbox 360 Slim model that arrived in 2011.

The Xbox 360 expanded on the Live gaming service offered by Microsoft by offering a Gold subscription which allowed users access to streaming media apps like Netflix, greatly increasing the home entertainment options available through this console. The Live service itself became more diversified, with downloadable content available through the Xbox Live Marketplace and full games available through the Xbox Live Arcade. See Xbox Patents: Online Gaming via Microsoft’s Xbox LIVE Network. Microsoft also developed Xbox Smartglass apps to enable smartphones or tablets to control the Xbox 360.

Once again, the Halo series was a huge boon for the Xbox, and the Xbox 360’s Halo 2 was an incredible success. In the 24 hours after its release in November 2004, 2.4 million units of Halo 2 were sold, generating $125 million in sales, which broke the record for most profitable entertainment release that had been held by Pirates of the Caribbean: Dead Man’s Chest.

Perhaps the most significant achievement of the Xbox 360 in the context of the seventh generation of video gaming consoles was the development of the Kinect. The first public discussion of the possibilities of camera-based control of games by Bill Gates occurred in May 2007 at the D5 conference in Carlsbad, CA. Rumors swirled that Microsoft was developing a motion controller to rival what was available for the Nintendo Wii.

What Project Natal, the code name for the Microsoft Kinect’s development project, was building was something entirely different: a sensor bar that could detect player movement and sound without a separate controller. The Kindle was released in North America on November 4th, 2010, bundled with the Xbox 360 but also available separately for $150. The device uses a VGA camera along with motion and audio sensors to detect player movement and sounds.

By January 1st, 2011, Microsoft CEO Steve Ballmer reported that the company had sold 3 million more than the company predicted. These sales set “a Guinness World Record for the fastest-selling consumer device ever,” selling 8 million units in the first 60 days after its release. Kinect revolutionized personal entertainment with its ability to fully recognize and adapt a human’s form and gestures into video game and other entertainment experiences. Perhaps the only downside to the technology was that gameplay with multiple players communicating with the Kinect required a lot of space, making the technology hard to accept in areas of the world where living spaces are tight. Thus, Japanese consumers, an important sector of video game consumers who were much more tied to Sony and never truly accepted the Xbox, had little use for the Kinect.

But Kinect has a lot more potential than just with video games. In fact, the Intellectual Property Owners Educational Foundation recognized the inventor of Kinect, Alex Kipman, as the 2012 National Inventor of the Year. Indeed, here is what the NY Times has said about some of the potential future uses for Kinect:

Combined with a powerful microchip and software, these capabilities could be put to uses unrelated to the Xbox. Like: enabling a small drone to “see” its surroundings and avoid obstacles; rigging up a 3-D scanner to create small reproductions of most any object (or person); directing the music of a computerized orchestra with conductor like gestures; remotely controlling a robot to brush a cat’s fur. It has been used to make animation, to add striking visual effects to videos, to create an “interactive theme park” in South Korea and to control a P.C. by the movement of your hands.

But even this laundry list of possible uses for the Kinect technology seems inadequate to capture the potential magnitude of the innovation. Kinect causes the XBox to respond to how you move, but it also uses advanced entertainment technology to respond to the sound of your voice. Thus, in years to come Kinect could revolutionize how people interact with a variety of machines and pieces of equipment, giving unprecedented control over the implementation of technology from afar. While the Times mentions remote control of a robot to brush a cat’s fur, that same technology could be used to control robots remotely do engage in all kind of activities that would be hazardous to humans.

Kipman is the first named inventor on four Microsoft patents, two of which deal with technology used to track movements within a video game platform. U.S. Patent No. 7,974,443 titled Visual target tracking using model fitting and exemplar relates to a method of tracking a target that includes receiving an observed depth image of the target from a source and analyzing the observed depth image with a prior-trained collection of known poses to find an exemplar pose that represents an observed pose of the target. Additionally, U.S. Patent No. 8,009,022 titled Systems and methods for immersive interaction with virtual objects relates to a system to present the user a 3-D virtual environment. In the invention articulated in the ‘022 patent, as the user moves through his physical space, he is captured by the depth camera. Data from that depth camera is parsed to correlate a user position with a position in the virtual environment. Where the user position or movement causes the user to touch the virtual object, that is determined, and corresponding haptic feedback is provided to the user.




The Xbox hasn’t conquered the market, isn’t showing signs of doing so, not at least directly. Nevertheless, the Xbox franchise has spawned a profitable game development business for Microsoft. The Xbox and the innovations it incorporates are revolutionary and it’s impact on gaming and entertainment in the home is undeniable. The potential future uses for Kinect outside of the video game industry are exciting and extraordinarily promising, perhaps particularly the various robot implementations that could lead to things like remote surgeries.

Game developers weren’t sure that they wanted to program games for a PC in the living room, but though the console may not run Windows, the demanding hardware capabilities of the Xbox and its following iterations raised the standards for video gaming consoles across the board. Multiplayer online gaming on a console, downloadable additional content for games and the use of apps for streaming entertainment content are all Microsoft innovations that have since been incorporated into the consoles of other companies. Microsoft may not have made a buck with its first Xbox, but they have made a shattering impact in this field which has secured for themselves a new position in home entertainment technology which might be theirs for years to come.


Warning & Disclaimer: The pages, articles and comments on do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of

Join the Discussion

12 comments so far.

  • [Avatar for Sharon]
    May 5, 2015 10:39 pm

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  • [Avatar for Darrin]
    March 30, 2015 02:08 am

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  • [Avatar for Gene Quinn]
    Gene Quinn
    December 13, 2014 02:09 pm


    You are a comically funny guy. You want us to admit that with new evidence after the article has published makes what we wrote at the time untrue. LOL. What a joke.

    The article you cite says that Xbox out sold PS4 in November. Of course, November has 30 days and interestingly enough ends on November 30. The article you are criticizing was published BEFORE the end of November, before November sales were in, and it was written days before it was posted. Only the most intellectually dishonest zealot would even pretend to suggest that what we wrote when we wrote it was incorrect. You are the one who was making up facts. You repeatedly said that the fact that Microsoft shipped more units to retailers was proof of more sales, never once admitting that there is a big difference between shipping to retailers and people actually buying. All you have to do is search the Internet and verify that what we wrote was correct, but you continue in your obnoxious ways. Rather than admitting you were wrong, which you clearly were, you want us to apologize. You need to get a grip on reality. Your inability to accept truth and desire to make things up as you go along is unacceptable and gets in the way of thoughtful discussion.

    As for your ridiculous comment about FOX News, perhaps you should actually watch FOX News and verify for yourself that what they say is true and accurate. Your comment is the type of garbage that passes for commentary all too often on the Internet, but isn’t tolerated here on


  • [Avatar for braheem]
    December 13, 2014 10:37 am

    You should go work for fox news, you would fit right in, making stuff up and calling it fact.

  • [Avatar for braheem]
    December 13, 2014 10:35 am

    Wanna admit your wrong now?

  • [Avatar for Gene Quinn]
    Gene Quinn
    December 1, 2014 10:21 am


    Sure, we can wait and see. Just curious why you aren’t intellectually honest enough to admit you were wrong? You obviously were comparing things that are not comparable (i.e., actual sales data versus shipments to retailers who may or may not actually sell), yet you refuse to acknowledge your mistake. Not only that, you now fluff off this article and the actual facts presented to you as nothing more than a fan irrationally supporting one side. Of course, you are the fan who is irrationally supporting one side, not us.

    More is expected of comments on Please keep things intellectually honest and on point or go elsewhere.


  • [Avatar for Braheem]
    November 27, 2014 08:52 am

    I guess we will just wait for the November NPD numbers, since your fanboyism refuses to admit that sony could actually be behind for 1 month. I also like how you keep posting old stuff, but nothing about November.

  • [Avatar for Gene Quinn]
    Gene Quinn
    November 24, 2014 04:27 pm


    If you do a Google search, as you suggested, you will see over and over again that the overwhelming number of sources are reporting what we did, which is that Sony is beating Xbox One, or that Microsoft has been silent with respect to sales.

    Microsoft is getting beaten so badly that they have had to drop the price of the Xbox, and then there is that pesky truth that actually selling a unit is different than shipping a unit to a retailer who may or may not ever sell the unit.


  • [Avatar for Gene Quinn]
    Gene Quinn
    November 24, 2014 04:15 pm


    I guess you can believe whatever you want, but everyone should realize that there is a difference between selling Xbox consoles and shipping them to retailers. The article you cite doesn’t say that Microsoft has sold more, it says they have shipped more more retailers. You might as well be comparing apples and elephants. But let’s not pretend that the article you cite actually supports what you say.


  • [Avatar for braheem]
    November 24, 2014 02:47 pm

    A place called betanews is hardly a good source, ms is saying they have sold more consoles recently and EA also said they were catching up.

  • [Avatar for Gene Quinn]
    Gene Quinn
    November 24, 2014 11:05 am


    You really should take the time to read the information on the hyperlinks provided. If you did you would see that as of November 2014 credible reports showed that Playstation was beating Xbox 2 to 1 as stated in the article. Please see:

    Go ahead and read it.


  • [Avatar for Braheem]
    November 24, 2014 10:07 am

    You should probably do some more research before you post these articles, since in the last month xbox one has been beating the PS4, go ahead just google it.

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