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After a long wait, Microsoft today is releasing Avatar Kinect, the online video chat application for Xbox that uses the Kinect sensor to track facial expressions and mouth movements and translate them into a user’s avatar on screen. Users stand in front of the sensor and talk, and move their arms, and their avatar does the same.

As you can see in the video above, I’ve been previewing Avatar Kinect and testing it out on my Xbox 360, using my avatar. It’s definitely fun, and a novelty, and it will be interesting to see what people do with it, using the many different stages, settings, graphics and sound effects that Microsoft supplies inside the app.

It could go viral, based on the built-in mechanism for recording sessions and sharing them on Facebook and Microsoft’s Kinect Share site.

But based on my initial usage, my hunch is that this first version will appeal primarily to a niche audience of avid Kinect users — particularly those who have friends interested in spending time in virtual discussions or even staging avatar talk shows with them online. I don’t think this is a mainstream application out of the gate. It seems more like a technology demonstration for an approach that will start to realize its true potential when it’s incorporated into actual games.

As my avatar explains in the video above, the application makes use of the physical controller as the default mechanism for activating special visual and sound effects during the chat sessions. Microsoft’s technology acts like a virtual producer, controlling the camera movements, but using the application still took some getting used to, at least in my experience. It’s also important to talk relatively slowly and keep your head up, looking in the direction of the Kinect sensor.

Microsoft sees this as a first step, and it’s looking at future applications for the technology even outside of games, in areas including health care. Craig Mundie, the company’s chief research and strategy officer, explained Microsoft’s motivations during a speech last week.

What we wanted to do was essentially go beyond just the skeletal animation and create a product that would be the first step toward three-dimensional, multiparty, telepresent interaction, and to use the Kinect technology to do that.

We started with the game environment, one, because that’s where we had Kinect, two, at this stage, we have to focus on caricature-type avatars because there’s a real challenge in ultimately crossing what people call the “uncanny valley” into the place where you could have photo-real avatars. And if you get stuck in the middle someplace, it’s kind of weird, and people don’t like it, there’s cognitive dissonance.

But humans are incredibly capable of taking cues from cartoon characters. They grow up with them; they sense very basic emotional elements from these things. And so it turns out that for all the reasons cartoon characters and caricatures actually are meaningful to people, so are these avatars. And they’ve gone from being sort of a quirky thing in the early days of Xbox to something that’s a very integral part of how people interact in that environment.

So, there’s probably 100 or 200 million avatars on Xboxes that have already been made, and of course a fairly young demographic for the population. And so we decided, well, if we want to experiment in this space, let’s start with the Xbox community and create this product.

Microsoft first showed the technology at the Consumer Electronics Show in January and initially promised to release it by the spring. Avatar Kinect is free to Xbox Live Gold members, but Microsoft says it will be available to unpaid Xbox Live members, as well, until Sept. 7.

As part of its efforts to promote the technology, Microsoft will be hosting an Avatar Kinect comedy festival on its Facebook page starting later this week.

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