Microsoft: Back from the brink

Eclipsed by Apple and unable to make its mark online, Microsoft has seen better days. Don Mattrick thinks its new Kinect platform could make the software giant a player again.

Don Mattrick, president, Interactive Entertainment, Microsoft (Photo: Lee Towndrow)

For most of 2010, Microsoft has been in the headlines for the wrong reasons. It’s been eclipsed by Apple as the world’s largest tech company, and has yet to prove it can be a player in the exploding tablet computer marketplace, or online. Meanwhile, its Zune music platform is all but forgotten, and its Kin smartphone was killed after just six weeks on sale.

In late October, however, the company posted quarterly revenues that left analysts astonished. And while a healthy chunk of that money flowed from the company’s traditional strengths — new versions of its Windows operating system and its Office productivity suite — the surprise performer was the company’s entertainment and devices division, driven by huge sales of the Xbox 360 gaming platform. Heading into the holiday season, the company has even higher hopes for its entertainment side, thanks to the launch of its new Kinect platform. Delivering on the promise made by so many sci-fi films, Kinect eliminates the need for a handheld controller, letting users control their Xbox and play its games using voice commands and the natural gestures of their bodies.

Don Mattrick is Kinect’s proud father. Now president of Microsoft’s Interactive Entertainment group, he essentially invented the Canadian video game industry when, as a 17-year-old, he and a partner created Evolution, the first commercial game ever developed in this country. His Distinctive Studios was acquired by Electronic Arts in 1991, and Mattrick became head of EA Canada, then of the gaming giant’s Worldwide Studios. But after an early retirement from EA, Mattrick was lured to Microsoft in 2007 — in part by the potential to realize his long-held creative ambition of designing a new way to interact with computers. While Mattrick’s earned praise for his role in quadrupling Xbox’s user base and transforming Microsoft’s interactive division from a money pit into a key earner, Kinect may prove his most important accomplishment; the independent research company Forrester hails it as an era-defining technology that will “forever change the way humans and machines interact.” Hyperbole aside, Kinect does give Microsoft what might be its first ever leading-edge consumer tech product.

Canadian Business: Kinect’s launch comes at a crucial time for Microsoft. CNN Money recently called you folks “a dying consumer brand,” and at Canadian Business, I’m afraid we just listed Microsoft among the losers in our annual Winners and Losers issue. Tell me why we’re wrong.

Don Mattrick: Here’s what I’d say: Microsoft had a couple great recent successes, and we’re hoping that Kinect will be our third one this holiday season. Windows 7 has sold over 240 million copies, the company just posted its best quarterly financial results ever, and it’s just shipped Windows Phone 7. And the work that we’re doing inside of Kinect is something that is revolutionary. So I think that when you write next year, there’ll be room to put Microsoft on the leaders list, and I believe a lot of people will be positioning it in that way.

CB: Do last quarter’s results suggest that the interactive division is becoming more important strategically within Microsoft?

DM: Well, I think the division is important inside of Microsoft. We’ve been the top-selling console in North America and Europe for the last four months. Our share on a relative basis year over year is up approximately 38%, and we’ve got an install base of over 45 million Xbox 360 owners, 25 million Live members, and we’re going to be bringing to market millions of Kinect sensors this holiday. It’s nice to be in the leadership role, to be posting growth at a time when others may not be as fortunate.

CB: My impression is that Kinect came about by unifying some disparate threads of research that were happening within the company. Have I got that right?

DM: Well, a few things kind of came together. The first thing is just the whole idea of approachability. What would cause our category to expand is something that I’ve been pondering for a decade-plus and talking about with people like Steven Spielberg and George Lucas, who are on the board of the University of Southern California School of Cinematic Arts with me. When can move beyond the thumb and can do things that really engage people, and use their voice as a form of control, Steven and George thought that we would see explosive growth inside the industry. I’m really excited about having a revolutionary sensor that puts those principles in place.

CB: If this has been on your mind for a decade, how many years back did we have the first real concept for Kinect?

DM: The team at Microsoft came to me and said, “Look, we’ve got these tremendous assets, would you be interested in becoming part of the team?” In the first few weeks, a core group of us got together, wrote the principles for Kinect and said, Hey, wouldn’t it be fun if we could create something that would identify you, and would know me from you? Wouldn’t it be fun if we could design something that could capture your gestures, where you can just use your body in a natural way? You can kick a ball with your feet. You can steer a car with your hands. We started to think about the technical problems, and really started on preproduction incubation. And something that is unique to a company like Microsoft, there’s about a thousand people in the research team that had been doing advanced research on machine learning and voice control, so we were able to work with them. We built our first sensor prototype about 2?? years ago. Our first one cost us $30,000 to create. That was just hard costs, ignoring all the millions and millions of dollars of software research that had gone into all those areas that we spoke about. And our team took that and moved from that $30,000 prototype price point to something that we’re bringing to market for $149.

CB: What was the most challenging aspect of the design process?

DM: There are approximately a trillion poses that the human body can be in at any point in time, so solving the real-time learning that’s required to do that is something. And a lot of data gathering. I mean, we’re going to be launching the product in 38 countries, we’re going to be rolling out voice support in approximately six different languages, we’re going to continue to invest in additional languages and expand that. So just the volume of work in terms of body types and voice data was another big challenge.

CB: Some analysts are speculating that gaming is actually going to be the least powerful application for this kind of user interface. They’ve talked about the potential for other businesses to tap into this, with simulated retail experiences, for example. Should we expect those kinds of partnerships in the near term?

DM: I see how Kinect can be very complementary to things that people just do naturally, in terms of their entertainment activities. What I’ve learned is, any time you bring a broader toolbox to a creator, they’re going to surprise and delight. People will continue to build Kinect-enabled experiences. We’re going to see all sorts of good things come to market. And I do love the long-term vision that brings up, which is, hey, this is an important point in time, this has changed how people interact with technology. It’s made the technology learn about the human, versus the human learning about the technology. And that paradigm shift is something that just feels like it’s the right balance. We’ve got these smart devices, so how come they make us learn some artificial command, or one very limited motion? We’re enabling your mind, your body and experience to be fully connected, fully enabled. It’s more immersive, it’s richer, and it does have a broad range of applications. I can imagine there’ll be language studies, there’ll be academic work. There’ll be all sorts of things that come as a result of what we’ve created.

CB: Let me ask you about Microsoft’s recent acquisitions of Canesta and 3DV, companies that have been developing technology similar to what’s inside Kinect. Were those purchases made with an eye to integrating their technology with what you’ve already got, or is that more about creating barriers to entry for competitors?

DM: This is an important category for us. We’re going to continue to build new products, new services, and new capabilities. This launch window is the first launch window. I’m anticipating there’s going to be many, many more in the future.

CB: OK, fair enough. Well, of those initial gaming titles launching with Kinect, which best exemplifies the experience you’re trying to deliver?

DM: You know, I love the dance title [Dance Central] just in terms of seeing how groups of people get together. I think that that’s a really social, really party-oriented experience.

CB: Are you a good dancer?

DM: I’m OK. There’s a few people on our team who are becoming great dancers, so I’m careful not to trash-talk.