Microsoft's iPad Killer: Introducing The Xbox Surface

Jul.20.12 | About: Microsoft Corporation (MSFT)

Going Vertical

Last month's Surface announcement was an earth shattering event for a company whose last breakthrough product for the PC was introduced in August of 1995. The fold-out keyboard is breathtaking, the kickstand durable, razor-thin and unobtrusive. Beyond the tear down specs, which include expandable memory and a USB slot, the new tablets are Microsoft's (MSFT) first foray into vertical integration since the introduction of the Xbox Live.

Apple: Standing in Microsoft's shoes

Microsoft is betting on the sleek design and superior computing power of Surface. However, while Microsoft may have a great product, its brand is no longer synonymous with Cool.

Fifteen years ago, Bill Gates could get a meeting with anyone in the business world on name recognition alone. The counter-question "Is Bill Gates rich?" replaced the proverbial bear in the woods as the rhetorical flourish of choice when the answer was deemed obvious. Michael Crichton uses the phrase on one of the first few pages of his book Disclosure.

Microsoft also had a weapon so terrifying and universally destructive that no one bothered keep its existence a secret. Its name was F.U.D, an acronym that stood for "Fear, Uncertainty, Doubt." The mere suggestion that a third party product might not work with Windows was enough to declare the product DOA before it even launched.

Microsoft will be held to a very different standard now: Apple (AAPL) is currently standing in what were Microsoft's shoes. In the tablet and mobile market, iOS is the clear winner at 65% of the market. The runner up is Android at about 20%.

Microsoft? 0%.

How did Microsoft miss the Tablet boat? Actually, it didn't. Microsoft got the ball rolling with the Tablet PC back in 2001 and the OEMs fumbled it. Apple fished it back out in 2010 and threw a Hail Mary for the touchdown. (Though to be fair, the origin of the Tablet concept can be traced back to Apple's release of the Newton Message Pad 100 eight years earlier, which would mean that the Tablet was Apple's ball to start with.)

That's all about to change with the integration of Microsoft Surface of Xbox.

Leveraging Windows

What sets the Surface apart from iPad, Fire, and the various Androids? First and foremost the Surface is Windows 8. The Surface isn't running a mobile platform tablet version of Windows like iOS (a watered down version of Mac OS X) or Android. It's running honest to goodness Windows 8. While the days of F.U.D. may be long gone, the Windows brand is anything but dead. 85% of today's systems run some version of the Windows Operating System.

Enter the Surface. Sharing with NFC, Bluetooth and WiFi or syncing with services like Microsoft SkyDrive and Xbox Live will be a snap. The same can't be said for Google's (GOOG) Android, Amazon's (AMZN) Kindle Fire, the iPhone or Barnes & Noble's (BKS) Nook. What gaming platform does Apple have? More on that in just a moment.

Windows Phone/Surface Integration

Windows 8 on the Microsoft Surface gives us a unified experience. Our desktops, laptops, tablets, and phones will all look the same. Windows Phone/Surface integration will allow for text messages to be displayed in a seamless manner as they are received on our phones giving us the opportunity to know who's calling without having to lose our sniper bead on our target in HALO III. Getting game messages and update notifications to phones, stats to phones that can be shared via text, or synced with the tablet and posted directly to Facebook. (FB) That borders on magical.

If you're used to syncing your iPhone with your work computer (85% chance it's a Windows machine) via iTunes it probably doesn't seem like that big of a chore. After all, you brought your cable with you, you've already downloaded and installed iTunes, set up your iTunes account, asked yourself how iTunes can recognize my device (even my iPod down to the color), and wondered why you couldn't pull data from or transfer to the hard drive. For a tech savvy user, it's not hard...but on the other hand, it's hardly magical.

Apple co-founder Stephen Wozniak put it best at the Intel's recent technology conference in Chile when he commended longtime Apple rival Microsoft for its design turnaround, lavishing praise on what he views as the company's new commitment to the "convergence of art and technology" with the Surface tablet, Xbox Kinect, and Windows Phone operating system.

These new products are so visually appealing, Wozniak said, it's as though "Steve Jobs was reincarnated at Microsoft."

XBox Integration: The Ultimate Cool

While Windows 8 and Office 2013 will get Microsoft's foot in the door, Xbox/Surface integration is the real 800 lb. gorilla. The Kinect holds the Guinness World Record of being the fastest selling consumer electronics device" after selling a total of 8 million units in its first 60 days, building on the phenomenal success of the Xbox brand name.

Now, if you're wondering how Microsoft plans to expand the Surface brand into 2013 while competing with three new Kindle tablets, Google's Nexus 7, a 7.85 inch razor thin iPad and an upcoming Nook with a revolutionary new screen, I have two words for you: "Xbox Surface."

Introducing The XBox Surface

Wow. The display is a 7 inch multi-touch screen with 1280 x 720 resolution. Under the hood are two IBM Power 7 SCMs featuring 12 individual processing cores and 16 MB PSRAM. What about video performance? Try gigabytes of system memory and a custom 28 nanometer video chipset courtesy of Advanced Micro Devices. Storage? 250 GB. Not enough? You can expand all you want via USB. Multiplayer games? The Xbox Surface supports four USB 3.0 connectors. Ethernet port? Check. Want Dolby TrueHD or Surround Sound? It's in there.

Eat your heart out, Cupertino.

A Caveat

Microsoft has the legacy, but Apple has the cachet, the top talent and the teams in place. Apple isn't going to stand idly by a second time and watch Microsoft repeat the stunning hardware success it had with XBox. Like Darth Vader in Star Wars, Cupertino will strike back.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.