Microsoft: This Small Clue Could Mean Big Growth

| About: Microsoft Corporation (MSFT)

One of the main reasons that I'm bullish on Microsoft (NASDAQ:MSFT) - aside from the company's pristine fundamentals, nice dividend, and cheap price - is that the company is starting to gain traction as an "ecosystem" company.

Apple (NASDAQ:AAPL) is really still riding the early adoption curve of introducing the "ecosystem" play. They paved the way for smartphones, iTunes is dominating the music industry, and there's likely to be a foray into television coming this year. Whether it's introducing an actual television or simply updating the Apple TV, the company is making easy for you to use their products no matter where you are.

What components make up an ecosystem right now? Smartphone, TV, PC, tablet, and vehicle.

Microsoft is - well, getting there. The company's Surface 2 is making up for the poor performance of its original tablet and as SA contributor Michael Blair continues to point out, Microsoft is starting to get some real traction in mobile. Additionally, due to its partnership with companies like Ford (NYSE:F), Microsoft is getting its Sync system into vehicles - an area that Apple has claimed it wants to introduce iOS to.

I've argued many times over that Microsoft has a niche that Apple doesn't - Xbox. It's important because Microsoft can use Xbox as an entry path to the consumers home media hub. There aren't too many edges that Microsoft has on companies like Apple, but Xbox is definitely one.

One of the biggest questions that was going to surround Satya Nadella's tenure over the company is whether or not he was going to spin off certain parts of it. Xbox has constantly been the target of those that are looking for the company to shed pieces. This morning, news was announced that it appears Microsoft is looking to build an Xbox reading app.

ValueWalk reported this morning:

Microsoft Corporation is building an Xbox Reading app for Windows 8. According to a job listing, discovered first by LiveSino, the Seattle-based company is looking for a software development engineer to develop a "groundbreaking interactive reading app" for Windows 8. The app will incorporate magazines, books and comics. The new hire will be working with the Music, Video, and Reading (MVR) team. The same team has already developed Xbox Video and Xbox Music apps for Windows 8.

It's a bit surprising to see Microsoft Corporation developing another reading app. But sources familiar with the development told The Verge that the Redmond-based software giant is developing a new app. Microsoft has already launched the "Reader" app for Windows 8. So, there are speculations that the company might be planning to rebuild and redesign it under the Xbox brand. The current Reader app supports XPS, PDF and TIFF files. The already launched Xbox Video and Xbox Music apps run on Xbox One, Xbox 360, Windows and Windows Phone.

Why is this news important?

  • It shows that the company is committed to continue to develop and innovate through Xbox - using it as a portal to consumers.
  • It shows that at least so far, Nadella is likely going to keep Xbox as a part of the company.
  • Microsoft has yet another leg up on Apple through Xbox, as Apple doesn't currently have a primary reading app through Apple TV - it has individual apps to content providers like WSJ and Bloomberg.

The focus here is in the right place. I have no doubts that not only will Xbox eventually be profitable on its own (Microsoft is raking it in from Xbox 360 at this point), Xbox One can be the start to Microsoft making a serious push for your home "ecosystem".

As I've said in many of my past articles, if Microsoft can get their foot in your door and into your entertainment system, tablets, PCs and additional supplemental Xbox sales (Microsoft Points, etc) are likely to follow. Additionally, the Xbox gets brand recognition into households and in front of people and is arguably the one Microsoft product that die-hard Apple supporters would buy. I know, because I was one of them.

Microsoft will likely profit from its media capabilities once established inside the home - and that leads me to continue being bullish on Xbox as a division of Microsoft and on Microsoft as an investment.

Xbox remains a gamble, but continuing to move in this direction could pay off massive for Microsoft in coming years. I remain bullish on MSFT.

Best of luck to all investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.