Microsoft takes on the iPad

By Tom Taulli

Microsoft (MSFT) has made its name less so on being a technology pioneer and moreso on attacking existing markets, making its profits by leveraging its massive distribution network and powerful ecosystem. It has done this with software products like Office and Windows, as well as hardware like servers and the Xbox video game console.

So can Microsoft do the same with the rapidly growing market for tablets? Perhaps. At a surprise event in Los Angeles Monday, the company announced the Surface -- a tablet that will be the "ultimate stage for Windows."

It's ironic, as Microsoft actually has been a thought-leader in the tablet market. Back in late 2000, Bill Gates talked about the massive opportunity in tablets and launched several products into the market. However,?they failed to get any traction as the technology still was too early with regard to issues such as mobile networks and battery life.

But the Surface is a huge leap for Microsoft. In terms of the hardware, the finish for the device has the feel of a luxury watch, and the tablet itself is about the same thickness and weight of?Apple's (AAPL) iPad. The Surface also has a next-generation touchscreen that allows for typing at twice the typical rate. It also includes a standard HD screen and an integrated kickstand, which is helpful, and the back of the device includes a detachable keyboard.

Microsoft will launch two versions of the Surface. One will use an?ARM Holdings (ARMH) chip (which will feature Windows RT), while the other use an Intel (INTC) chip (which will feature Windows 8 Pro). The pricing has not been disclosed, but it will be competitive with typical tablets.

But isn't the success of a tablet based on the software ecosystem? Absolutely. And this is why Microsoft is using Windows 8 (and the similar Windows RT, built specifically for the ARM processors) as the platform. The OS has a huge number of rich applications, though it still is unclear whether there will be limitations on what's available. But if the Surface includes the ability to use the Office suite, the tablet almost certainly will get plenty of uptake in the corporate market -- the sweet spot for Microsoft.

Over the past couple years, Apple's?iPad has been eating away at PC share, and the momentum is showing no signs of letting up thanks to an ever-expanding tablet market. According to IDC, the global shipments of all tablets are expected go from 142.8 million in 2013 to 222.1 million in 2016. Microsoft needs to get in on that action.

Investors and users alike still should have some healthy skepticism about the Surface. After all, Microsoft's previous mobile efforts have been terrible, as seen with the partnership with Nokia (NOK). The duo's smartphones, which are based on the Windows operating system, have not caught the interest of consumers or businesses.?Not to mention, Microsoft has failed with other devices such as the Kin and Zune.

In the tech world, it is extremely rare to show strength in both software and hardware. So far, Apple's cracking of the code has proven more exception and less rule. Microsoft has instead focused on its strengths -- that is, software -- and has partnered with hardware providers, like Intel, Dell (DELL) and Hewlett-Packard (HPQ).

However, you can't underestimate the power of the Windows platform. If Microsoft executes the Surface well -- as long as the user experience is prime and focused on the needs of mobile users -- the company might just have a game-changing tablet on its hands.

(Microsoft owns and publishes Top Stocks, an MSN Money site.)

Tom Taulli has written and published several investing books. He also runs the InvestorPlace blog IPO Playbook. Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.

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