Microsoft: So Close, Yet So Far Away

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If Microsoft (Nasdaq: MSFT  ) had introduced its new Surface tablet two years ago, the crowd would have ooohed and aaahed as the shiny new device was shown to the crowd. But today, in a tablet world dominated by Apple's (Nasdaq: AAPL  ) iPad, the response was one of skepticism. The same can be said for the new Windows Phone 8 software unveiled yesterday. It's a breakthrough -- for 2010.

Apple has now set the bar so high that the best Microsoft can do is introduce products that reviewers skeptically accept as decent rivals to the dominant players. No breakthroughs, no eye-catching moments, and certainly nothing that will immediately challenge Apple and Google's (Nasdaq: GOOG  ) dominance of the mobile market. But that doesn't mean Microsoft lacks the capability to compete. In fact, I would argue that if Microsoft wanted to, it could create a platform that's better than either Apple or Google can offer -- if it could only get its act together.

Game-changing capabilities
Just imagine what Microsoft could do with new devices that run its software. There aren't many capabilities (if any) that Apple or Google offers that Microsoft couldn't compete with, and in my opinion, there are lots of advantages Microsoft has in its battle with Apple.

Microsoft has millions of Xbox users who could potentially use their gaming consoles and tablets to watch movies, access apps, and even play games if Microsoft so desires. The device is far more powerful than Apple TV, and if Microsoft beat Apple to the punch, offering an extensive number of third-party apps, it could change the game for good. Maybe Microsoft is setting the table for this kind of capability in the next-generation Xbox?

The company's base of PC users is also many times larger than Apple's, meaning that the claws that Apple uses (like iCloud) to bring users into more and more of its devices are the same ones Microsoft could use on an even wider base.

It isn't just the individual devices that make Apple's product line impressive; it's the way they work together and the services offered to users that keep consumers coming back. But will Microsoft include these same capabilities? It doesn't appear that way right now. There weren't many details released, and members of the press weren't able to test Surface, but it appears to be built for office users more than Xbox users or casual consumers. As Apple tries to bring office users onto devices built for consumers, Microsoft takes the opposite approach -- not a great way to compete against the "cool" of Apple.

Free isn't Microsoft's style
If Microsoft really wants to compete in tablets, smartphones, and TV devices, it would be wise to learn some lessons from Apple on pricing. Apple doesn't charge for its basic iCloud services, something users will point out when looking into Apple. Xbox Live could open up a world of possibilities for Microsoft if it didn't cost consumers so much. You can use your Xbox to stream Netflix, watch ESPN, or catch up with shows on Hulu Plus, but you'll have to pay $59.99 per year for the capability. With an iPad and an Apple TV, that and much more is free. I even streamed the U.S. Open to my TV last week, no fee required.

Free services have never really been Microsoft's style, but it may be time if it really wants this tablet to catch on.

Two years too late
The tablet release, more than two years after Apple's iPad, is another example of how Microsoft is playing catch-up instead of leading the pack. Microsoft is years behind in the smartphone business as well, and partnering with sinking ships like Nokia (NYSE: NOK  ) doesn't give me a lot of confidence that partners will make devices that will be impressive enough to make a difference. Plus, Microsoft may now be so far behind Android and iOS smartphones and tablets that it can't catch up.

Microsoft is so close to being relevant, yet so far away.

Maybe this is a step in the right direction?
These could be baby steps for Microsoft. Maybe when the new software and tablet are fully uncovered, they'll integrate completely with Windows 8 and even the new Xbox. Microsoft is at least upping its "cool" factor with a partner like Zynga (Nasdaq: ZNGA  ) upon the launch of its new mobile platform, so maybe more partners like this are to come, but I don't see enough from the tech giant. Microsoft has the capability to win the battle, or at least compete, and maybe it will eventually. I just expected more by now, and I think the tech community did as well.

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Fool contributor Travis Hoium manages an account that owns shares of Apple and Microsoft. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool owns shares of Microsoft, Apple, Google and Netflix. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, Netflix, and Google and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 23, 2012, at 10:28 PM, dwilh51183 wrote:

    My family loves AAPL roducts and can't wait for new releases AAPL stock is cheap too

  • Report this Comment On June 24, 2012, at 12:39 AM, peanutgalerygeek wrote:

    Just got a look at Windows 7 Outlook at work this week. It works fine but the UI is crazy. There are 70 million icons spread on a bunch of tabs with some of the most important functions like full email search hidden away in obscure spots. What a CF compared to Safari! Just a monument to really bad design. It actually has some nice features... good luck finding them however.

    While I own some Microsoft and expect to make money, it will never catch Apple with this kind of design.

  • Report this Comment On June 24, 2012, at 9:31 AM, jafutral wrote:

    One thing they may have going for them, particularly with enterprise, is if they can pull off a tighter integration between PC and tablet. Especially as MS Office is still the major player in productivity software. But the Surface will have to be more than Wi-Fi for that to have relevance to enterprise, even if the pull an iPhone and just go with one carrier at first.


  • Report this Comment On June 24, 2012, at 11:42 PM, Secs27 wrote:

    My iPad cannot replace my computer. While it is a wonderful device, its OS is severly limited and the ipad lacks the very important usb and flash. The Microsoft Surface combines the power of a full Blown PC with the portability of my iPad.

    The surface can be a device to read email, surf the web like an iPad, but then can be a powerful computer to run programs such as Office. The surface looks to be built like a bank vault. It seems that the Surface is the first tablet that can truly replace my computer AND my iPad as well. I can finally be a one device person. I cannot wait until I can purchase a Surface Pro and sell the laptop and my third generation iPad.

  • Report this Comment On June 25, 2012, at 9:31 AM, seattlelove wrote:

    I just signed up here so I can leave my 2c.One thing I can't agree more with author is MSFT is like greedy mega banks always nickel and dime consumers, this biz model is dead in this internet era. I use hotmail and live mail, I'm extremly frustrated with bugs on there. surface Tab will go the way of all others kin and pink and zune .. etc. Adobe is another that will die slowly.

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