Microsoft showcased new interactive features for its Kinect for Xbox 360 hardware at E3 this month, including the ability for gamers to speak directly to in-game characters in Electronic Arts' Mass Effect 3 game and the ability to customize virtual weapons through gestures and voice in Ubisoft's Tom Clancy's Ghost Recon: Future Soldier. Families will even be able to visit a virtual theme park from their living room with Kinect Disneyland Adventures.
Today, the game maker showed advertisers at the Cannes Lions International Festival of Creativity how this type of functionality can be used to engage the 10 million-plus global Kinect gamers through interactive commercials. Microsoft will launch NUads (natural user-interfaced ads) in spring 2012, which will allow advertisers to marry interactive commercials with video games and traditional movie and television entertainment content through Kinect for Xbox 360.
Microsoft demonstrated how major brands can engage with the gaming demographic in a way that far exceeds traditional television through a series of hypothetical ads with companies like Adidas, NBC, and Toyota. NUads will allow Kinect owners to use voice commands like "Xbox More" to get more information on a product e-mailed to them, "Xbox Tweet" to share an ad or offer with friends online, and "Xbox Near Me" to have directions to a retailer or product location sent to their mobile phone. The service also currently recognize gestures like a hand wave or a thumbs-up, which allows gamers to vote on anything, including their favorite Domino's pizza topping.
"This moves us a step closer to Xbox with Kinect becoming a television provider," said Michael Pachter, video game analyst, Wedbush Morgan Securities. "I think Microsoft has been moving in this direction since the first schematics were drawn for the original Xbox, but needed a more powerful box, a user interface that allowed for discovery, and a monetization model."
In an age where more consumers -- especially the coveted 18 to 34 year old sweet spot of gamers -- are skipping commercials altogether in favor of DVRs, Netflix and digital distribution (including Xbox Live Video Marketplace); NUads will allow advertisers to embed interactive ads directly into game content. Advertising agencies will be able to add NUads functionality to the same spots that run on television or online.
Unlike a traditional television network, which essentially rolls the dice every fall with new shows that may or may not find an audience; Microsoft has a good idea heading into game releases like Gears of War 3 and Halo 4 how well the title will sell in the U.S. and around the world. Retail pre-orders of games could be used by Microsoft and game publishers to charge for in-game ads.
"In theory, NUads allow Microsoft to monetize content, and likely at a higher rate than traditional passive advertising," said Pachter. "Expect to hear about an enhanced entertainment package (TV and movies) soon."
And on the digital distribution front, where Xbox Live already works closely with advertisers for downloadable content (DLC) and digitally distributed games (Xbox Live Arcade), NUads could be used to further increase the engagement between brands and free gaming content.
Although sales of Kinect for Xbox 360 have been brisk, Microsoft will want to further increase the installed base of this hardware to offer advertisers a larger audience for engagement. This means a price cut, or price cuts, can be expected leading up to the spring 2012 launch of NUads.