Microsoft created a lot of excitement earlier this month when it unveiled "Project Natal," but not everyone was cheering.
The move to a controller-less gaming culture might open up the industry to an even wider audience, as Microsoft hopes — but if Project Natal lives up to its hype, it could negatively impact some significant industry players.
Peripheral manufacturers don't get a lot of time in the video game spotlight, but they contribute notably to the industry's bottom line. In 2008, revenue from peripheral sales essentially matched sales of PC games — $662 million vs. $701 million, respectively.
While Microsoft doesn't plan to do away with standard controllers altogether, Natal could reduce the need for them. That would affect revenue at companies such as Logitech, one of the largest peripheral makers for both video game and consumer electronics devices.
The impact won't be catastrophic for the company. Game peripherals make up only 5 percent to 7 percent of Logitech’s annual revenue. But Andy Hargreaves, an analyst at Pacific Crest, notes that Natal is part of a growing trend that ultimately could prove to be a significant threat to earnings.
"It certainly could [have an impact]," he says. "And if you extend that and look at changing interfaces between people and computers in general — and what I mean by that is multi-touch track pads and touch screens on the standard PC — then it could definitely be a material risk."
An even bigger risk to Logitech is the growing popularity of the Apple iPhone. It has, so far, proven to be a product that doesn't have need for high-priced peripherals, with the exception of headphones.
Microsoft, of course, is not alone in its move toward motion control. Sony has also debuted a motion sensor system, which it expects to deliver to stores next year.
Sony’s new controller is less likely to impact peripheral makers, though, since it has two physical components — a wand-based controller (the prototype, which will be changed before launch, looked like someone had super-glued a glowing ping-pong ball onto a remote control) and a Webcam.
Natal’s controller utilizes proprietary video and audio sensors, and it’s unlikely Microsoft will grand licenses to third parties to make the device.
The risk posed by Natal and, as its gaming influence grows, the iPhone is actually greatest at smaller companies, such as MadCatz, Intec and Nyko.
Each of those companies specializes in alternate controllers, driving wheels and other accessories for the Xbox 360, PlayStation 2 and 3 and the Wii. None has secured a license to create accessories for the iPhone.
Ironically, it's the Wii and the PC that could be the savior of gaming-centric peripheral companies.
Nintendo has approved third-party versions of its Wii controller — Nyko has a version available now, and MadCatz has one coming soon. And charging stations for Wii controllers have proven to be big hits as well.
PC gamers are smaller in number but tend to be much more enthusiastic about their favorite genres. Flight simulation enthusiasts, for example, can spend anywhere from $50 to $500 on controls to make their gaming experience more realistic.
Diversification into other areas of consumer entertainment won’t hurt either. MadCatz bought Take Two Interactive's Joytech subsidiary in 2007, giving it not only a premier line of gaming accessories, but allowing it to dip a toe into the consumer electronics waters as well.
Analysts, after all, say Logitech’s diversification is one of the keys to its success.
"There's not a peripheral they don't own," says John Bright of Avondale Partners. "They've gone out and bolted on to everything they can. They've got remote controls, They've got speakers. They've got controllers. [Some areas] are going to decline, I suspect … [but some] have the potential to take off for them."