Microsoft (NASDAQ:MSFT) is the dominant player when it comes to the operating system market where it competes primarily with Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG), and has also seen a lot of success in the gaming console market where it is up against Sony (NYSE:SNE) and Nintendo, with the launch of the Xbox 360 and the Kinect motion gaming add-on. The Kinect, which was launched almost a year ago, was a runaway hit, and boosted the revenues of its Microsoft’s Entertainment and Devices business, which is comprised of the Xbox, Zune and Windows Phone.
Microsoft recently launched a Kinect SDK for Windows 8, which will enable developers to create Kinect powered apps for Windows 8. It also announced that it is working on new Kinect hardware for PCs running Windows 8, which will be similar to Kinect for Xbox, but optimized for PC centric scenarios. 
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Windows 8, the next version of Windows, is expected to be Microsoft’s biggest release yet, bigger than even Windows 7 which sold nearly 500 million copies to date. It will be available for computers as well as tablets, and will compete with Apple’s Mac OS X and iOS, and Google’s Android and Chrome OS. We expect Windows’ market share to increase marginally in 2012 following the Windows 8 launch.
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We expect both Kinect and Windows sales to increase significantly, following the launch of Windows 8 in 2012. Thanks in part to the Kinect, the Xbox now has around 19% share of the gaming console market, which is expected to increase steadily throughout the forecast period. Microsoft recently also launch an accelerator to fund and support Kinect based startups. It has also launched new social and video features in Xbox Live, and recently acquired a video search startup to improve video content discovery on Xbox Live.
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Windows accounts for nearly 25% of Microsoft’s $32 Trefis price estimate, while Xbox, Kinect and other devices account for 8%. The Trefis price estimate for Microsoft stands nearly 30% above its current market price.Notes: