Why I'm Buying the New Microsoft

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For as long as I can remember, Microsoft (NAS: MSFT) has been something of an "evil empire." The company controlled the PC market with an iron fist through its operating system and never really made a particularly endearing product. The company's negative reputation and a number of product failures (think Zune) opened the door for a struggling company called Apple (NAS: AAPL) to build better products surrounding the PC business (iPods and iPads) and take share in PCs as well. Millions of customers made the move to the chic new brand and Microsoft became a has-been in the tech space.

This has left investors with anemic returns compared to Apple, which is eating Microsoft for lunch.

MSFT Total Return Price Chart


MSFT Total Return Price data by YCharts.

As a shareholder in Microsoft, I've been looking for a reason to sell at a profit and move on to a company with more growth opportunities, but I can't. Despite the earnings miss last week, I've bought into what Microsoft is selling, and I think Windows 8 will be a good release for investors. 

New and improved OS
Microsoft's operating system hasn't really had a complete overhaul since Windows 95 nearly 20 years ago. Windows 8 is a complete revamp that brings common functionality for desktop and mobile users, something not even Apple does.

What really separates Microsoft's operating system apart from Apple or Google (NAS: GOOG) Android is the business functionality it brings to mobile devices. The Surface will come with Office and you can turn the Surface into a computer with a keyboard and mouse, something that Apple can't claim. Documents will be available over the cloud, so Microsoft is finally catching up to Apple and Google in that respect.

I'm an Apple user for every device but the new Windows operating system has me intrigued. I would love to be able to work on a tablet word processor but the iPad makes it difficult. I also work in Word, the standard for word processing, which Apple doesn't support in the iPad. The Surface makes word-processing a selling point for its tablet, something that business users will love.

Creatures of habit
The question: Will the new operating system change the game for Microsoft in tablets and smartphones? It may not immediately, but as users become familiar with Windows 8, they may be more inclined to make the switch.

Think about the sheer number of people who will be using Windows 8 in a year or two. They'll get comfortable with the tiled start screen layout, how apps work, and likely get used to using the cloud. Now you go into a store to buy a tablet or smartphone and you're comfortable with the operating system already. There's no need to learn a new interface or store your files in a different location. The Microsoft ecosystem will take care of it for you.

It's the same thing Apple has done with iPhones, iPads, and to a lesser extent, Macs. There may be growing pains as users get used to the interface, but Microsoft has a huge potential base to sell to.

Low switching costs
It's also important to keep in mind that mobile devices don't have the same switching costs as PCs. Just look at how fast Research In Motion (NAS: RIMM) and Nokia (NYS: NOK) have lost market share in mobile to see how fast users are willing to move to a new device. Today Apple and Google dominate smartphones and tablets but there is little to stop users from switching. Microsoft has a huge opening if it can get the OS right.

Let the debate begin
Friday is when the wraps finally come off of Windows 8, and there will undoubtedly be debate about its design. When it comes right down to it, over a billion users will have nowhere else to go. Apple still doesn't have a major share of the PC market, particularly in business, and Windows is the default for more computers. When Microsoft stops supporting Windows XP, hundreds of millions of users will have to upgrade, and the choice is between Windows 7 and Windows 8.

I think the choice is easy, and Microsoft may have finally developed a product that will excite users. I'm keeping my outperform CAPScall on the thesis that tablet and smartphone sales with Microsoft's OS will jump. No doubt others will disagree, but the upside is strong for investors.

In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

 

The article Why I'm Buying the New Microsoft originally appeared on Fool.com.

Fool contributor Travis Hoium manages an account that owns shares of Microsoft and Apple. The Motley Fool owns shares of Apple, Google, and Microsoft. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDrawMotley Fool newsletter services recommend Apple, Google, and 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.

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