But it costs you $150
One of the biggest complaints about the Xbox 360 Kinect camera is its price. At $150, it's more expensive than a Nintendo DS and almost the same price as the Xbox 360 itself. But apparently it costs much less to actually make the device.
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A "teardown" analysis from UBM TechInsights reveals exactly what the innards of the Kinect camera contain. It has numerous chips from different IT companies, along with an infrared camera and two image sensors. The camera, microphone, and processor combined only cost $17 to manufacture. Altogether, UBM priced all individual components to be around $94 less than what Microsoft is charging.
Of course, that $56 price tag doesn't factor in other expenses Microsoft faces in selling the device, including the initial research and development, packaging and distribution, and marketing costs. The latter is probably the single biggest expense for Kinect, as Microsoft is spending more money to advertise the Kinect than it did for the Xbox or Xbox 360.
In any case, if Microsoft manages to pull off its incredibly ambitious goal of 5 million unit sales by the end of the year, that will be a pretty nice profit margin to add to its 2010 balance sheet. It would also be good news for companies like PrimeSense, STMicro, and Texas Instruments, which provide most of the under-the-hood technology for the device.
By comparison, when the Xbox 360 launched in 2005, Microsoft paid $525 for every unit, which it in turn sold at retail for no more than $400. The console itself is now turning a profit, but not nearly at the 168% markup level that it's raking in with Kinect.
Kinect is crucially important to Microsoft and its Xbox brand, as it is essentially the next Xbox console. After five years, this is historically the time when a system would die out and need to be replaced. Due to firmware upgrades and online connectivity, that isn't such a strict rule anymore, but the Xbox 360 is still at risk of losing momentum. Kinect is the main thing that can save it from that.
For the real teach heads out there, EE Times has a complete list of what's inside the Kinect.