A Glimpse At Microsoft's Gadget Projects: Xbox Avatars, Mobile Ads (MSFT)

What awesome, futuristic gadgets and services is Microsoft’s (MSFT) entertainment and devices division cooking up? You’d never know from division president Robbie Bach’s presentation today at Microsoft’s analyst day, which was mostly a rehashing of recent announcements.

The big picture: Bach wants the Xbox to appeal to people beyond hardcore gamers, and wants Windows Mobile to appeal to consumers — not just people whose companies stuck them with a smartphone for email.

So Microsoft will be adding stuff to the Xbox like avatars — an obvious riff on Nintendo’s popular Wii “Miis” — and non-gaming entertainment content, such as TV shows and streaming movies from Netflix (NFLX).

And for mobile, Microsoft will use some of its recent acquisitions — like Sidekick-maker Danger — to add more consumer-focused services to its Windows Mobile devices, which have mostly been successful in the enterprise smartphone niche. One feature he highlighted as an advantage over Apple’s (AAPL) iPhone: The fact that Windows Mobile phones come in lots of shapes, sizes, prices, etc.

Bach also talked up mobile advertising — and had a colleague show off a wonky, unimpressive, ad-supported mobile video game — a throwback to “Space Invaders,” in which Microsoft’s “clippy” character (from MSFT’s Office apps) danced around the mobile phone screen as Microsoft’s Sean Alexander shot at Dorito chips. We hope there’s more to mobile advertising than this.

LIVE Notes:

– Might make the Microsoft Surface (“big-arse table”) a consumer product someday.

– Going to talk about mobile and gaming.

– Gaming business: Creating a whole new interface for Xbox. Adding avatars, expanded video library with Netflix (NFLX).

– Game lineup this year probably the best we’ve ever had. Going to expand with more, broader content.

– Windows Mobile: Very successful year, gained share, outsold RIM and Apple. Most success in a business context. People using for email in a business environment. More “well-equipped” than Apple, will beat RIM in corporate market. But also have to expand from just a work device to being a device for consumers.

– Just released Windows Mobile 6.1. Going to make it easier for people to find video, music, and games. Also expanding on idea of choice. Not just one form factor that’s going to work. You NEED that diversity. (Take that, Apple!)

– Know that phone experience is about software and services. Going to continue expanding work in software and services around WinMo. This is why we bought Danger, etc.

– Talking today about mobile advertising. Advertising on WinMo: Some stuff we’re doing, some stuff in labs.

– Sean Alexander joins to talk about mobile advertising. Somehow convinced that mobile advertising going to be an awesome experience for consumers.

– Showing crappy version of Windows Live on a smartphone. Clicks on Hotmail, but first have to look at an interstitial display ad. Ironman promotion above his email. So far nothing interesting.

– “Amazing” ads coming! Already generating 400 million ad impressions per month.

– Now to the “sneak preview” stuff from the “labs.” Email from his buddy Mark inviting him to play a Doritos game. Browser automatically launches! Silverlight mobile app launches; ad-supported game. Shooting Dorito chips. The graphics look like something from an 8-bit Nintendo game. Nothing like iPhone apps.

– He wins! A barcode coupon that’s good for a free or discounted bag of Doritos. Clicks on the ad to launch location-based map with participating retailers.

– Bach excited about this because user is participatin in the ad. Can track user activity, track ROI.

– Q&A to begin. After Robbie fields questions, will take a break as planned.

– What are you looking for in ’09 in terms of margin improvement? Won’t go through in detail. But if you look across E&D, hard to make one simple statement about that. Margin structure so radically different for each area. Still think we can continue to grow the business.

– How do you value the Xbox need to kind of drive share and lower prices vs. profitability? Typically the way we think about those issues are a function of cost management (we feel good) and demand. We try to gauge pricing structure based on what’s selling. As you saw in Q3 and Q4, demand’s very strong. Feel good about demand.

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