There has been a lot of speculation in recent weeks about Microsoft's (NASDAQ:MSFT) rumored entry into the wearables market later this year. While rumors originally claimed that the company was looking to produce a smart watch, more recent reports suggest the device will use a wristband form factor similar to current fitness bands. While this shot down earlier speculation that the company might be reviving its SPOT smart watch concept from 2004, it does raise interesting questions about where Microsoft may be headed with the technology.

The fitness band market already has a few key players, including privately owned FitBit and Nike (NYSE:NKE). The smart watch category isn't quite as mature, though the Pebble has certainly made a splash, and both Samsung (OTC:SSNLF) and Apple (NASDAQ:AAPL) have highly anticipated entries coming soon. Why would Microsoft opt for a device category that seems so far removed from its core products instead of targeting a more obvious extension of its mobile offerings?

The wristband
Though nothing definitive has been announced by Microsoft yet, leaks and informed rumors hint that Microsoft's wristband may have less of a fitness focus than it initially appeared. The band is said to have several sensors in it to monitor common fitness data such as heart rate, steps taken, and similar information. But that doesn't mean that these are the only functions.

Rumors say the band will be able to load third-party apps in addition to first-party software such as Bing Health & Fitness. So, while the device certainly seems to be fitness-focused, it may offer a versatility not seen in standard fitness bands.

Entering the fitness market
Fitness wearables are big business. The global market for these devices is estimated to triple in value between 2011 and 2016, according to marketing research company TechNavio. With a predicted compound annual growth rate of 49.9% and an estimated value in 2011 that had already reached $2 billion, it's easy to see why the fitness and medical wearables market would be attractive to a company like Microsoft.

It's also a segment that the company already has some presence in behind the scenes. The company offers health-care-focused analytics and Cloud services for health-care providers. Releasing a fitness-focused wristband would allow the company to expand its presence in the health and fitness segment to the consumer side, while also releasing a product that has a broader appeal than a fitness device.

The biggest selling point of Microsoft's wristband device could be the rumored cross-compatibility with Android and Apple's iOS, in addition to Windows Phone devices. This isn't hard to imagine, given the recent expansion of Microsoft Office to non-Windows mobile platforms, and it would be an excellent way for the company to market the new device to users who don't want to be shackled down to a Windows Phone.

Cross-compatibility could also make the device seem "friendlier" to users than some other offerings. It would eliminate the reliance on a specific operating system; users could change phones without having to worry about making the device obsolete or having to use unofficial or partially supported apps. While Microsoft would like users to migrate to Windows Phone, they wouldn't be penalized for choosing a different OS.

Facing the competition
Perhaps the biggest reason that Microsoft might opt for a wristband instead of a full smart watch is that it has a better chance to differentiate its offering in the wristband category. Releasing a standard smart watch would put Microsoft's offering in direct competition with Apple's iWatch. That risks Microsoft's device being overshadowed the way it was in the smartphone and tablet arenas. By shifting the device to a wristband, consumer perceptions may change, and it won't be hit quite so hard with iWatch comparisons.

There is competition on the fitness band side of things as well. But Microsoft may be able to set itself apart there both by the full cross-compatibility of its device and the premium associated with being part of a Microsoft brand. While Nike, Samsung, and other companies are producing fitness wearables, Microsoft has an opportunity to associate its product with one of its existing brands to further help it straddle the line between fitness tech and mobile tech. Provided that the hardware is on par with or more powerful than the offerings of its fitness competition, this could help the company carve out some market share in the fitness wristband market.

Looking forward
Right now, there is little more than leaks and speculation to go on regarding Microsoft's rumored wearable. But the leaks -- and associated patent filings from Microsoft -- seem to be converging on a singular wearable design. While Microsoft could create a straight-up smart watch, staying away from direct competition with Apple seems to be the smarter approach. Instead, the company is aiming toward a slightly more mature wearable market, but one that it stands a better chance of establishing itself in.

Given the company's progression with its Surface tablet line, it's likely that this wristband will only be the first step in its wearable line. Provided that the company is able to capture market share with its initial offering, future versions of the device will likely move more toward a smart watch design. Even if the product never becomes a huge success, it shows that Microsoft is willing to enter new markets after seeming to stagnate for years around its core products of Windows, Office, and Xbox.