• by Steve Smith , Staff Writer @popeyesm, November 5, 2010

As the Microsoft Kinect full-body controller for Xbox comes to market this week, the kids from Redmond are beside themselves with high expectations. The company had been projecting a very optimistic sales target of three million units sold in the final quarter. But based on pre-orders and retailer orders, they raised the forecast to 5 million. At $150 just for the add on sensors/camera unit that translates body motion into on-screen interactivity, that is asking for a lot of consumer spending focused on one toy. It means that Microsoft is expecting one of the most staggering video game industry sales successes ever.

Whether Kinect really does connect with consumers is anyone's guess at this point. But the launch of a radically new peripheral does call attention to what has become a real serious player in the living room. The Xbox 360 is installed in 30 million U.S. homes. That is playing with power ... if all of the levers are turned on. As Forrester analyst James McQuivey points out in an interview at Beet.TV from the Streaming Media West show, the level of Xbox penetration in the U.S. should give cable companies pause. Microsoft could be "the dominant player in the TV business overnight" he argues." The technology is in there to make this into a set top box, he says.

The impact of video gaming consoles on the TV has always been complex and multi-faceted. Even without hooks to Web or on-demand programming the console always posed a threat to basic TV mindshare. Along with the VHS and DVD that evolved concurrently, the game console fundamentally compromised the lock that TV programming had on TV mindshare. These machines turned the TV into a multi-purpose monitor. And when the game console is on, the cable or satellite box is not. In many households the game machine is attached to the main TV, and so prime time competes directly with Halo or Madden.

As an entrée for Web content, I think Microsoft has played a modest but effective game of less is more on this connected device. Unlike the PS3 and Wii, the Xbox 360 never had a general Web browser. Every piece of content, whether gaming, video shows or downloadable movies and TV content was contained effectively within the Xbox interface. There was never a promise to bring the Web to the console. Console based Web browsers generally sucked anyway.

Instead, Microsoft programmed video for the console, with news updates, tips and even reports pointing out what was new on the console. Sony has these programs too, but the instant-on streaming experience was always better on the Xbox so that it encouraged quick grabs of such video programming.

Microsoft was also way ahead of the game when it came to integrating ad partners into the Xbox dashboard. It is impossible to traverse the tile-based interface without catching an animated sponsor toile for an auto company or theatrical release. There have been some very effective micro-site experiences built into the Xbox. Sony and Nintendo have not even come close in this regard. For all the years of hoopla about the promise of in-game advertising, the real game here is being played on the console interface. Like a portal home page, it is the pass-through point for every gamer. By any measure this real estate must be hitting millions of viewers a month, far more than any single niche cable provider grabs.

With a very strong Netflix experience already in place, a good VOD business cooking and a commitment to leveraging this as an ad platform, Microsoft's Xbox may be in a better position than any other digital media player including Google to own the living room.