Microsoft continues to work on getting Natal ready for release this holiday season as the company announced at CES yesterday. Part of getting it ready is figuring out how to manufacture Natal at a cost that is reasonable and that allows Microsoft to make money on it, while at the same time providing a peripheral that customers will want. This is a pretty tall order, if you ask us.

While we know that software is still the ultimate key in getting people to buy Natal, the fact of the matter is that Natal is apparently expensive to produce; and Microsoft looks to have found a way to cut some of the cost.

Apparently, Microsoft will elect not to use the chip-based hardware/sensor, but instead will adopt a software layer solution that will offload onto the Xbox 360 multi-core CPU. From what we hear, the decision also allows better flexibility to update the software layer for Natal. While many have commented about the 100ms lag time that still seems to be a bit of an issue, the decision does not seem to affect the performance with the decision to use a software based solution, which is good news.

While Microsoft is spinning the decision as a software layer that makes the magic of Natal possible, we think that what it could actually make possible is being able to put Natal out at a price that will make people want to buy it. If the software is good and is compelling, we do think people will be interested in Natal provided the price is reasonable; but as we have seen as of late, expensive peripherals are becoming a bit of a more difficult sell.