Don't Tune Out Microsoft

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Last week, fellow Fool Evan Niu asked whether Google (Nasdaq: GOOG  ) or Apple (Nasdaq: AAPL  ) will win the war for your living room. Although I'm sure both of these companies will play major roles in changing the way we consume TV and video, I believe Microsoft (Nasdaq: MSFT  ) is actually in a better position to conquer the sofa than anyone else.

Gather round the Xbox
Back in October, Microsoft announced that it had partnered with nearly 40 TV and content providers -- including Verizon (NYSE: VZ  ) FiOS, Comcast (Nasdaq: CMCSA  ) , and Time Warner (NYSE: TWX  ) -- to bring both live and on-demand television to the Xbox 360 this holiday season.

The service will be fully integrated with Kinect, allowing you to channel surf using voice commands. You can also use Bing Search to find content. For example, you could say "Xbox, Bing 30 Rock" and your console will show you all the ways you can catch up on Liz Lemon's adventures. If talking to your TV isn't your thing, you can also use a Windows Phone as a remote and, I would assume, later on, a Windows tablet.

Although these features are plenty cool, Microsoft's real advantage is the Xbox's massive install base. In August, the company reported that it had over 35 million Xbox Live users. And more recently, Xbox Live Director of Programing Larry Hryb tweeted that sales of the system has surpassed 57 million units worldwide. Microsoft only needs to convince these users to try the service in order to gain traction, which is a heck of a lot easier than getting consumers to buy a new gadget or high-priced television set.

It's also not that much of a stretch for people to migrate to watching television through a game console. Video game consoles make up 60% of Netflix (Nasdaq: NFLX  ) streaming traffic. Furthermore, the Microsoft Zune Video Marketplace is the second most popular online movie store, with 16% of the market -- although I suspect the Marketplace would be more popular if the company did away with Microsoft points. Finally, before streaming came along, we used consoles as DVD players. Consoles have grown into media centers; replacing the cable box is the next logical step.

It's still bound to be a good show
I don't mean to say that Microsoft won't be in for a fight. We don't know much about the Apple TV other than it's likely coming soon. However, I would expect to see most, if not all, of the features that Evan predicted in October. iTunes also holds 65.8% of online video market, making it far and away the leader. For some people, built-in access to their iTunes video library is enough to sway them toward an Apple TV. If you don't have the massive locked-in library, though, then using the hardware you already own makes more sense.

Google's plans to bring original content to YouTube probably won't attract many users to Google TV, but the company could use a licensing strategy similar to Android's to capture market share. However, Google needs to cut deals with content providers in order to compete.

Foolish takeaway
In light of Apple's and Google's recent dominance in the gadget world, it's easy to assume that with the exception of Office, Microsoft has sunk into irrelevancy. I think this is a mistake. The Xbox has become an undeniable success and is the perfect vehicle for reinventing television.

If you would like to keep an eye on Microsoft as it enters the battle for your living room, click here to add it to your watchlist.

The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Netflix, Microsoft, Google, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Patrick Martin owns shares of Netflix. You can follow him on twitter @TMFpcmart03. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On November 15, 2011, at 11:50 AM, techy46 wrote:

    Agree on XBox potential but Microsoft won't realize that until they provide Windows 8 tablets which will displace notebooks running Office 365. The addition of Windows 8 smart phones will just increase the potential.

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