An unfortunate aspect of the software industry is that those on the cutting edge tend to underestimate companies that seem down and out. Microsoft (MSFT) is one of these companies, or at least that is the sentiment you get from those involved in the industry. Take a step back and you will see that Microsoft is still among the software elite, and the pace at which it has been developing new products and solutions might make this more evident.
First and foremost, Microsoft has put itself in a very strong position for growth with the introduction of its new Windows 8 operating system. With the recent $300 million dollar investment in Barnes & Noble (BKS), Microsoft added a strong e-book competitor to its Windows 8 lineup. Specifically, the addition of the "Nook" e-book reader puts Microsoft in a good position to compete in the tablet market with the iPad and Kindle Fire. Since Android-based tablets have little market share, the tablet market will be open to a new competitor for those looking to buy a lower-priced tablet than the iPad and a more functional tablet than the Kindle Fire.
Also, Windows 8 will introduce Microsoft to the smartphone market. Although it already has a Windows Phone, you are unlikely to see anyone actually using it. With Windows 8, Microsoft looks to change this. In fact, some think that Windows Phone could take over Android's market share, slowly pushing it out of the market. Being that Android has the highest market share among smartphones this is a bold prediction, but even if that's slightly true it could bring massive returns for Microsoft.
Expect it to also leverage its popular Xbox 360 Kinect technology. This technology, which uses motion to control the game, is in being rolled out for laptops. Don't expect it to stop there. With mobile gaming as popular and lucrative as ever, expect some sort of Kinect technology to move to its tablets.
Similar technology inspired by the Kinect is called SoundWave, which will allow users to navigate using their voices. Think of a version of Siri that is actually useful to the average user. The technology will be able to detect hand gestures based on sound alone, which will also make it more useful than Siri or Google's voice technology.
The past few months have seen Microsoft step up its competition with Google (GOOG) and Apple (AAPL). This has driven Microsoft to meaningful, useful innovation, something the company has lacked for far too long. The Windows 8 operating system is a step toward innovation, but being that it holds about 84% market share in operating systems, any Windows operating system would likely work. The more meaningful innovation comes in markets outside of its typical success.
One of the burgeoning markets right now is the TV market. We are witnessing the disruption of the television industry, and both Google and Apple furiously working to be major players. Surprisingly, many believe Microsoft to be the front runner in this race. Due to its hugely successful Xbox 360 gaming console, Microsoft has slowly incorporated content, now including the standard Netflix and YouTube, but now extending to some cable apps. This is something that neither Apple TV nor Google TV has done.
Microsoft understands this, and it now cutting the price of the Xbox 360 to just $99, making it competitive with the Apple TV pricing. However, the new pricing model requires a two year subscription to its Live service, which provides access to all of the premium content. I believe this will be very popular for the time being, but since one also has to pay for subscriptions to all the other premium content providers such as Comcast or Netflix, Microsoft is essentially replicating the price of cable TV. The difference -- and this is likely the key -- is that people will feel better knowing they are only paying for content they want, unlike bundles that one pays for with traditional cable.
You can be sure that Microsoft is scared of any true release of an Apple TV set, as the iTunes store and its huge app store could bring droves of customers to its TV. For the Xbox 360 to continue to drive success in the television industry, Microsoft will have to offer more than just paid for content -- it will have to sync its Windows 8 devices across tablets, phones, computers, and the Xbox 360. Every indication tells us that this is precisely what it is doing.
As stated earlier, it will face fierce competition from the likes of Google and Apple.
Google, with is huge variety of offerings and innovation, will not sit idle as Microsoft increases the quality of its products. As reported recently, Google is planning a subscription-based service for YouTube, which would add more high-end video to its offerings. This has two distinct motives. One, it would compete directly with the Xbox 360 by offering premium content in its ecosystem. Second, and perhaps more importantly, it would put its own premium service on the Xbox 360 and Apple TV, linking any success of either of these two to its own success.
Apple is also working at a breakneck pace to add content to its Apple TV. Specifically, it is reported that Apple is in talks to add the WatchESPN app to the Apple TV. If this goes through, it will be a huge bump for Apple, as ESPN is among the most sought after content providers. Needless to say, this would be a big move on Apple's part to garner the sports market and a big move for ESPN's parent company Disney (DIS) to further the value of its sports brand. The company that does integrate a large part of ESPN's repertoire into its system be that Apple or perhaps Microsoft at one point in the future stands to grab a large spot of interested consumers.
With a laser focus on entrance into new post-PC markets such as the tablet and smartphone, Microsoft is putting its name back into the software elite. More importantly, you should keep an eye on its transition to a content provider via its Xbox 360 platform. TV is an extremely lucrative industry, which is why Microsoft, Google and Apple are trying so hard to gain traction in the industry. For Microsoft, being the first into this market could give it a huge advantage. But as any industry that includes innovative giants like its competitors, be cautious as we are all likely to see something we didn't expect.