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This Could Be Microsoft's Next Billion-Dollar Business

By Timothy Green - Jun 26, 2015 at 10:00AM

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Microsoft will soon launch its expensive Surface Hub, aimed squarely at enterprise conference rooms. Here's why it could be Microsoft's next billion-dollar business.

Three years ago, Microsoft (MSFT 3.42%) acquired Perceptive Pixel, a company that specializes in multitouch interfaces. Perceptive Pixel's giant multitouch screens first found success during the 2008 presidential campaign, when newscasters used them to display information about the election. These early screens were priced in the hundreds of thousands of dollars, greatly limiting their appeal.

Earlier this year, we learned what had become of Perceptive Pixel's efforts. Microsoft in January announced the Surface Hub, a giant screen aimed at the corporate conference room, allowing multiple users to interact with the screen at the same time. The Surface Hub is Microsoft's ambitious gambit at taking over the conference room, replacing projectors, whiteboards, and videoconferencing equipment with an all-in-one solution. If the device lives up to its potential, the Surface Hub could be Microsoft's next billion-dollar business.

Source: Microsoft.

A big opportunity
At first glance, the Surface Hub might seem like nothing more than a glorified whiteboard, and an expensive one at that. Microsoft will sell two versions of the Surface Hub, a 55-inch version priced at $6,999 and an 84-inch unit that costs a whopping $19,999. At these prices, the Surface Hub is clearly aimed at companies that have no trouble spending thousands of dollars on conference room equipment.

Because the Surface Hub runs Windows 10, it can run any Windows 10 application, as well as specialized large-screen apps designed specifically for the device. Built-in cameras and sensors, along with Skype for Business, make the Surface Hub a potentially potent videoconferencing solution, allowing for collaborative meetings in a way that is not possible with legacy videoconferencing systems.

The potential to replace videoconferencing systems from vendors such as Cisco and Polycom could be the Surface Hub's biggest draw. While the Surface Hub might seem expensive, videoconferencing equipment can easily cost tens of thousands of dollars, making the Surface Hub a veritable steal if it fits a company's needs.

Global enterprise videoconferencing equipment sales totaled $484 million during the first quarter of this year, with Cisco claiming a 42.6% share of the market, followed by Polycom with a 25.4% share. However, sales are already being pressuring by software-based solutions and cloud services, which don't require any specialized hardware, leading to sluggish growth.

There are plenty of inexpensive software-based videoconferencing solutions available, but Surface Hub offers a compelling level of collaboration and integration. Users with laptops, tablets, or phones can fling their screen onto the Surface Hub using Miracast, for example, and any changes made to a document are then synced back to those devices. And since the Surface Hub runs Windows 10, it supports the device management tools used by information-technology departments to manage PCs and mobile devices.

Microsoft's next billion-dollar business
The Surface Hub has the potential to be an incredible productivity tool for enterprise users. The Microsoft that has emerged from the transition to a new CEO and a new strategy is one in which all of the company's products and services work together seamlessly, and the Surface Hub seems to be the culmination of these efforts.

Having said that, Microsoft's history as a hardware maker is mixed. The Xbox has largely been a success, although it remains a distant second in the game console market. The Surface tablet started out as a disaster, particularly the ARM-based versions, but the high-end Surface Pro 3 proved to be much more popular. And the company's phone business, acquired from Nokia, has yet to gain much traction at all, with Windows Phone stuck at a minuscule market share.

It's clear that Microsoft has made mistakes in the hardware business in the past few years, and the company could very well find a way to mess up what looks like a very promising idea. But with a $2 billion per year videoconferencing equipment market ripe for disruption, the Surface Hub looks like a compelling product that could be Microsoft's next billion-dollar business.

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