In the latest example of Microsoft's efforts to redefine how humans interact with computing devices, the company has added a feature to its Xbox Kinect motion-control technology that allows the system to "see" users' facial expressions and project them onto an on-screen avatar in real time.

The update, called Avatar Kinect, launches this spring. Users can congregate in avatar form in any of several pre-configured cyber venues—including a talk-show style TV studio--with friends, family, or business associates, and will be able to communicate with one another not only through voice and chat, but also with their facial expressions.

Erik Lang, general manager for the Microsoft Startup Business Group, said the development of Avatar Kinect spanned numerous divisions within the company and was "a huge amount of work," given the complexity of developing algorithms to capture "the geometry of a gaze" and "the science of a smile."

Avatar Kinect will no doubt be a big hit with gamers out of the gate, but it also shows how Microsoft's work in digital entertainment could ultimately yield products that benefit business users. Facial recognition holds significant implications for security, telepresence, Web conferencing, and other commercial applications.

"The end result is a highly-curated consumer service that is very compelling, but also has tremendous headroom for future innovation from Microsoft and its partners," said Pete Thompson, general manager of Microsoft's Xbox Live service.

Indeed, Microsoft recently unveiled a software development kit that will let developers build Kinect-compatible apps for Windows PCs. The company's deal to acquire Skype, meanwhile, is another sign that it is looking to deliver integrated voice and video capabilities as a seamless part of the Windows computing experience.

Driving such innovation into Windows is crucial if Microsoft is to keep the platform competitive at a time when tablets like Apple's iPad, as well as increasingly smart mobile devices, are taking a bite out of traditional PC sales. Kinect-style capabilities could be the differentiator Windows needs to stay ahead.

Microsoft sold 8 million Kinect sensors in the first sixty days of availability late last year, making Kinect the fastest selling tech gadget of all time, according to Guiness Records.