To my surprise, I am watching something in the tech world that may be a shocker if it actually comes to pass. As I have watched the introduction of the Microsoft tablet "Surface," I observe the company possibly moving in a different direction than it has traditionally taken. In the past, it has made a good portion of its revenue by licensing agreements while others have built the hardware. But this time it looks like it is doing it all together by itself. Is Microsoft (NASDAQ: MSFT) positioning itself to look like Apple?
It Starts with the "Surface"
I recently read an article at how stunned Microsoft executives were at the great lengths Apple (NASDAQ: AAPL) would go to exploring innovative materials for its products. Case in point - Apple went to Australia to explore the use of high grade aluminum for the iPad. Once it found it, it bought up the market so no other company could create the same copy cat. Quite a length to go to, isn't it? This passion for uniqueness and the experience is also a driving force behind what looks like Microsoft's envy to copy what Apple is doing.
Good things are being said about the "Surface" Tablet as it is introduced. And if it can hold up to expectations, it could possibly give Apple a run for its money. If battery life can yield six or seven good hours and the key board works out, then they may have a noticeable product. Of course, this is where the pessimism begins for Microsoft's old allies. Acer's senior VP and president of Europe, Middle East and Africa, Oliver Ahrens, believes Microsoft's strategy with its tablet, Surface, will not bode well. He stated:
I don't think it will be successful because you cannot be a hardware player with two products. Microsoft is working with two dozen PC vendors worldwide, including the local guys, whereas Apple is alone, it can more or less do what it wants.
Yes, Apple is alone and it has worked well for them. There are advantages to being the one who designs the software and hardware together. As Microsoft has experienced with multiple alliances - this is not always good. With the original tablet that Hewlett-Packard Co (NYSE: HPQ) put out, there was constant conflict with the two and finger pointing. After being introduced, the Slate 500 began to change for the worse upon production. The tablet was thicker than the iPad and Intel's (NASDAQ: INTL) chips made it run hot. Software and hardware did not seem to work well together as HP steamed at Microsoft. While MSFT was pouring its resources into the Windows 8 platform, the "Slate 500" struggled with Windows 7 technology that was described as (less than adequate) for tablet devices.
So Microsoft is making its own tablet. And if it is accepted, it is different than the iPad. Not only does it have a nice sleek modern design, but it also has the ability of a full computer. One is getting a tablet with the characteristics of an Ultrabook. Whereas with Apple, to get the same experience one needs a MacBook Air and an iPad. And it may not stop here. There is talk of Microsoft building its own handheld device also. According to Nomura analyst Rick Sherlund, Microsoft may be working with a contract manufacturer to develop its own handset for Windows Phone 8. I guess we will stay tuned for this.
It looks like Microsoft might be taking notes from Apple on how to do things itself. If this is the case, and it works, we may well see new growth from the old matriarch. It may become more than a software licensing company that relies on other companies to build the hardware. It might become much more than it has been.
So what does an Investor do?
I do not think in the short term Microsoft will have any adverse affect upon Apple stock even if these moves are good. What has made Apple unique and able to command fierce loyalty from its customers is that its products are unique to Apple. If Microsoft can successfully go this route, it will take some time and will not happen over night. Then again, I believe it can gain a lot of market share. But can it steal enough business away from Apple to make a significant dent? That is years away.
As for investing in Microsoft - if one believes that the company is in a transition and will be successful, the safest way to invest in the company is through dollar averaging. I cannot say for sure the company will be successful in this manner or that the "Surface" will be a sensation. But it is making all the right moves so far and dollar averaging is the safest way to invest.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.