Microsoft wants to beat Nintendo at its own game. Nintendo revolutionized the $30 billion gaming industry with a console that lets people use body movement in their game play. Now, Microsoft plans technology it hopes will let players use a wider range of movements, as well as voice commands, while they play games.

The maker of the Xbox 360 game console said on June 1 that it will sell a motion-sensing camera that will capture body movements and respond to voice commands. Internally dubbed "Project Everyone," the technology would be added to existing gaming systems, but let users play games without having to touch a console. "We're going to create amazing new experiences that have never been possible before," says Shane Kim, head of Microsoft Game Studios.

Microsoft (MSFT) timed its announcement ahead of the annual E3 game-industry trade show's June 3 opening, and just a day before press conferences by its main gaming rivals Nintendo (NTDOY) and Sony (SNE). With a pioneering technology that tracks hand, arm, and leg movements, the Wii tops the current generation of consoles, with nearly 50 million in sales. Nintendo was expected on June 2 to demonstrate games with its new Wii Motion Plus technology, which it says more accurately captures complex motion such as the twirling of a wrist during a tennis match.

Camera's Launch Expected in Late 2010

The Microsoft Xbox 360 accessory, expected to go on sale in late 2010, would rely on a more sophisticated camera that senses entire body movements. The Redmond (Wash.) software giant melded technology from its recent purchase of camera maker 3DV Systems with its own research into the use of natural gestures and language to change how people interact with machines. "It's a big objective of ours to break down any barriers that exist," Kim says.

The company is taking a calculated gamble by announcing the camera system some 15 months before it is expected to go on sale. Rivals might be able to rush to market similar additions to their consoles over the next year. But Microsoft needs to get third-party developers on board to create games that take advantage of the accessory. Major titles on new hardware often take a year or more to make.

Microsoft also is betting that expectation for the new accessory will cause buyers to choose the Xbox 360 over the Wii and PlayStation 3. The Xbox 360 began selling a year earlier than both Nintendo's Wii and Sony's PlayStation 3, but has fallen to a distant second, with 30 million units sold.

Gaming is at an important crossroads. About midway through the current generation, console makers try to make their systems more appealing to a mass audience by slashing prices and introducing games that are easier to play. Microsoft is adding more family-friendly games, though it already has introduced lower-priced versions of its consoles.

Adding Services and Hardware to Xbox 360

In demos, Microsoft showed the camera using face recognition software to detect individual players and voice commands to launch programs. In one game, players could use any part of their body to smack a ball into a wall of collapsible blocks.

Instead of beginning work on a new system that might outshine its competition, Microsoft continues to add new services and hardware to the Xbox 360 that it hopes will persuade both consumers and software developers to lean its way. Says Tom Adams, founder of consumer electronics consultancy Adams Media Research: "They're saying: 'We're not going to make you buy a whole new console in the next few years; all you have to do is buy this new accessory and we'll take you into the stratosphere for a brand-new level of entertainment.' " It's also consistent with Microsoft's strategy to build on existing innovation.

Indeed, the Microsoft effort is part of a broader industry trend to expand gaming from a solitary pursuit into a more social experience inclusive of all ages and types. To do that, Sony and Microsoft are rushing to position their consoles as multipurpose entertainment centers. Both the Xbox 360 and PS3 now let users download movies and television shows through Internet connections. And Microsoft aims to one-up competitors this year by adding Facebook and Twitter applications that are closely integrated into its online Xbox Live Marketplace, which offers access to friends' lists, the games they are currently playing, and their digital avatars.

Analysts say that for rivals to have any chance of winning back market share against Nintendo they will have to convince more people that their console is not just a games platform. More widespread availability of high-speed Internet connections makes it easier for console makers to forge partnerships with Netflix (NFLX) and other content providers. But convincing people other than ardent gamers that consoles are a good choice for such services has been a challenge, says Gartner (IT) analyst Michael McGuire.

Price: More Than $200?

Microsoft's plan to add game-changing technology might require spending hundreds of millions of dollars more to support its money-losing game business. Experts say depth-sensing cameras of the type Microsoft is demonstrating cost about $600 each. Prices should drop during the next year, and the Xbox team is likely to bargain for bulk discounts. Still, analysts say most consumers will balk at paying more than $200 for such a gizmo.

It's a risk Microsoft seems willing to take. The company has a larger objective of securing a lasting place in consumers' living rooms. Once there, it can charge content providers and advertisers to get access to potential customers through the Xbox. "Those transactions are not something that has escaped Microsoft's attention," McGuire says.

The appeal hasn't been lost on Nintendo and Sony either. Both have efforts under way to deliver new services and technology to their handheld systems and home game consoles.

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