Microsoft: So Close, Yet So Far Away

If Microsoft (NAS: 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 (NAS: 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 (NAS: 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 (NYS: 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 (NAS: 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.

Microsoft's new products may not be a revolution yet, but we've identified a stock that will profit from a new technology revolution. Our free report unveils the stock and explains why we think this is a stock you should own.

The article Microsoft: So Close, Yet So Far Away originally appeared on

Fool contributorTravis Hoiummanages an account that owns shares of Apple and Microsoft. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdings, or follow his CAPS picks atTMFFlushDraw. The Motley Fool owns shares of Microsoft, Apple, Google and Netflix.Motley Fool newsletter serviceshave recommended buying shares of Microsoft, Apple, Netflix, and Google and creating bull call spread positions in Microsoft and Apple. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.