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Here are some ideas that I have for Natal:

World Championship Dodge Ball:
Using Natal, this dodge ball game would be basically a 1:1 mapping of real space and game space. The player would be able to use maybe a 10ft X 10ft area in order to play. If a player moves 1 foot to the right and forward, the game character would move the exact same distance. So this would basically be a pseudo virtual reality game.

The player can catch, throw, jump, dive, dodge, etc. Whatever you can do with your body in real life, can be done in the game. Catch a ball and then use the ball to deflect balls coming at you, etc. The game is played in rounds where each opposing team member must be eliminated to gain a point. Games can be won with a configurable amount of points.

It is called World Championship Dodgeball because of the Live integration. On a monthly basis world championships will be held. Each country would have a team in the championships. Country teams are determined by single players competing in country wide ranked matches during the month. The top players from each country would represent their country as a team in the championship tournament. The tournament would be held on a Saturday at a time that is convenient(time could be rotated so that regional favoritism is not shown) for all parties involved. The tournament could be completed in about 3 hours since multiple matches can be held at the same time and match lengths could be relatively short.

Players from around the world not involved in the matches could spectate any of the current matches in progress. Perhaps allowing their avatars to be in the stands.

Aside from the tournaments, multi-player matches can be played at any time using Live's matchmaking system, complete with skill and ranking support. Matches can be configurable to a high degree. Physics configurations(ball speeds, etc), match lengths, time based events, etc. One such configuration could have parts of the floor be removed after set time limits. This could help speed up the game and provide for some intense action.

World Championship Sports:
This concept of 1:1 motion controlled world championship sports games could be implemented for a wide variety of games. Tennis, volleyball, bowling, sword fighting, etc. MS could start their own virtual reality sports Olympics.

Personal Trainer:
Natal is obviously incredibly well equipped to handle all manner of exercises. The basic concept does not need explaining. But an interesting aspect that would be unique for XBox Live members, would be the ability to have a real time trainer perform daily programs. Users could tune in to the real time programs during set times during the day. The trainer could talk in real time and provide users with unique daily training programs. There could be trainers for a wide variety of exercise styles. Users are provided feedback on how well they are following the trainers so that they can be assured they are performing the exercises correctly. The daily regiment could also help keep users coming back on a more consistent basis. If users are unable to catch the programs in real time, the software will allow them to play back the program at any time. Perhaps keep a backlog of 2 weeks worth so that users can have a large selection of exercise sets. Parties could be created so that during the exercises, people can talk to their friends who are also doing exercises. This could be a nice draw as people can socialize and work out at the same time. Much like going to a gym with your friends.

I think this could be a HUGE draw and provide a differential from the other exercise software.

Tron Disc Game from the movie:
Not sure if you are familiar with Tron, but in the movie a game is played where discs are thrown at the opponent's platform in an attempt to make them fall. This would be quite fun as a Natal game. Not sure if it could be a full release by itself though. Perhaps a mini game included with another game. Multi-player would be a blast with this.

Educational Child Programing:
Not sure how well the Live infrastructure is suited for this, but I think this could be a great draw from an entirely different audience than what the 360 currently has.

Child programming on televeision usually consists of segments where the children are asked to participate in something that is going on. Such as choosing a solution to a puzzle, or providing the answer to a question that is asked. With Natal, children can now actually interact with these programs. The main draw to this is the fact that no controllers are necessary. The children can be sat down in front of Natal and can interact in a manner that is natural. Natal can even recognize the children and perhaps be programmed to greet them and congratulate them on successful answers. Vocal and gestural responses would be perfect for choosing the correct piece of the puzzle that is onscreen, or correctly pronouncing a word that is displayed. Awards are given to the children for successful completion of the programs. Perhaps unlocking content, or avatar awards. This gives children incentive to continue their learning. The possibilities are endless. MS could provide the programming via a channel on Live.