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On October 26, Microsoft Corporation (NASDAQ:MSFT) will release its Windows 8 software and Surface tablet as an effectively packaged deal. Microsoft is now on the leading edge of a trend to fuse smartphone, tablet, and PC technologies together. The Surface arrives in retaliation to the Apple Inc. (NASDAQ:AAPL) and Google Inc. (NASDAQ:GOOG) brands that trail-blazed this integrated consumer electronics ecosystem model that is now the new normal.

Following the Surface launch, we will discover yet again, that the Microsoft-Apple rivalry is more so synonymous with a Venn diagram. Although Microsoft and Apple share a similar backbone, these two brands appeal to and dominate opposing sets of customers. The Surface will garner significant share if Microsoft makes the pitch to leverage its already strong presence within the education market. Politicians would refer to this strategy as cultivating a "base."

The Education Market

Apple took the initiative to frame its war against Microsoft behind the effective "I'm a Mac - I'm a PC" campaign. This series of advertisements aired between 2006 and 2009. In these commercials, Apple personifies itself as a chic and eager-to-please hipster. Alternatively, Microsoft is a company man in a tweed suit, who cannot get out of his way. Today, Microsoft can now play off these corporate stereotypes to its own advantage. According to Nick Bilton and The New York Times, overzealous "fan boys" who attack critics are damaging the counter-culture appeal of the Apple brand.

Ironically, Microsoft is now the underdog. As such, Microsoft can undercut Apple's version of "cool" within the K-12 and college set. Above the young professional demographic, Microsoft can rely leverage its reputation for functionality to close tablet sales with parents and institutional IT buyers. In academia, the PC already dominates traditional computer banks and classrooms. The Surface tablet is shaping up as a natural extension of this pre-existing infrastructure.

Textbook companies such as McGraw-Hill Companies Inc. (MHP) and Houghton Mifflin Harcourt actually pose as the most formidable barriers of entry for the Surface tablet into academia. The staid Ivory Tower will be the last domino to fall, as traditional publishers fight for survival amid this digital era. Over time, Microsoft Surface dealmakers can take advantage of the perfect storm of a fragmented digital e-reader market, outrageous tuition and fee schedules, and a nearly extinct traditional publishing model to force concessions within the education market.

Windows 8 Microsoft Surface Specifications

Windows 8 software is designed to integrate the feel of the smartphone, tablet, and personal computer platforms within one standard interface. As such, Windows 8 users will be able to toggle through using touch for executing laptop and desktop commands, before picking up a Surface tablet and opening up Microsoft Office. As a workstation, the Surface does include a functional keyboard and USB port for printing, sharing data, and charging phones.

In terms of je ne sais quoi appeal, Microsoft promotes the sleek profile of the Surface tablet. Weighing in at 903 grams, the Windows 8 Pro Surface tablet features a 10.6-inch high definition screen and is a mere 13.5 millimeters thick. For portability, the Surface keyboard and kickstand fold together as protective coverings. Taking a page out of the Apple playbook, the Surface comes available in five separate colors across the spectrum. For entertainment, the Surface converts into two separate cameras for taking pictures. The Surface also features dual microphones and stereo speakers for chatting via Skype.

With the Surface, youngsters can now carry a portable device for studying digital text, taking notes, and typing up assignments through Office programming and online Cloud file management. Over time, the portfolio of Windows-based applications will grow to fully customize the Surface experience.

To date, Microsoft executives remain mum on pricing for the Surface tablet. According to Forbes, Microsoft would sell its Surface tablet for $200. This $200 price point is likely reserved for the low-end Windows RT Surface at 32GB in storage. The premium Windows 8 Pro Surface at 128GB may retail for more than $500. Microsoft has a track record of launching product at cost, in order to steal share and generate future cash flow through its Office 365 subscription model.

The Bottom Line

The Microsoft Surface will make inroads within the tablet market through education. Still, shareholders will quickly discover that Microsoft's tablet revenue is not likely to trickle down to the bottom line and power significant growth for shareholders. Microsoft is a $260-billion corporation, where profits have stalled out at $17 billion over the past five years. Microsoft stock will continue its record as a beta follower that tracks the S&P 500 Index and routinely issues out fatter dividend checks every year.

Success for the Surface tablet actually threatens to cannibalize the PC market, where Microsoft primarily earns its keep through Windows software licensing. In terms of units sold, analyst Richard Shim projects that the tablet will overtake the PC during the year 2016. According to Shim's calculations, original equipment makers (OEMs) will ship out more than 350 million tablets in 2016.

Apple stands alone as the ideal investment to leverage today's tablet revolution. For the third quarterly period ended June 30, 2012, Apple sold 17 million iPads. By units sold, this Q3 2012 performance is an 84% increase above the year-over-year period. Last quarter, the iPad accounted for $9.2 billion of Apple's total $35 billion in revenue. The iPad alongside the iPhone are the primary drivers behind Apple's four-year average of 66% annual growth. As an added bonus, Apple closed out last quarter with $117.2 billion in cash and investment securities on the books. This cash position calculates out to $125 on a per share basis. At today's $660, Apple stock trades for 15 times earnings and is relatively cheap.

The iPhone 5 and iPad will continue to power Apple's bottom line through 2013. For 2013, I am projecting $50 billion net income, or roughly $53 in earnings per share for Apple. This earnings estimate, when taken alongside Apple's current multiple, establishes a one-year price target at $800.

Source: Microsoft's Surface Can Leverage Education Market