Microsoft has something Apple and Google must envy. It has sold 67 million Xbox 360 video game consoles and has more than 40 million Xbox Live members. According to Frank Shaw, Microsoft's vice president for corporate communications, video consumption has grown by 140% each year on the Xbox since 2008.Apple and Google have the name as innovators, but, clearly, Microsoft still knows how to play the game. Xbox did not emerge as a full-fledged streaming service by accident. And you cannot blame happenstance for what's about to happen: The combination of Windows 8 and Xbox will connect your mobile devices -- smartphones and tablets -- to not only your PC, but, maybe more importantly, your television screen. Relative to Xbox, Apple TV and Google TV are abject failures. There's an obvious reason: Gaming leads the way on Xbox. You fire up your Xbox to play Tiger Woods PGA Tour and you realize, whoa, this thing does everything any other streamer can do and more. When you stop and think about it, it's really the most brilliant innovation that investors, swept up by Apple euphoria, largely ignore. Well-positioned to win the battle for the living room -- or at least continue to establish itself as the leader -- it will be interesting to see what Microsoft does from a mobile standpoint. While most talk has centered on smartphones, particularly the firepower Microsoft and AT&T ( T) have put behind Nokia's ( NOK) Lumia, the tablet space might end up an equally as interesting battleground.
How will Microsoft use Office?
Rumor has it Microsoft will launch Office for iPad as early as November of this year. The company might even have plans to build a version that can run on the Android operating system. While it made sense for Microsoft to provide Office for iOS, I am not sure it should go the same route given the mobile landscape and its place in it. It seems that, in addition to the synergy Xbox can provide across devices, Microsoft's other edge over Apple and Android is the widely used and generally well-liked Office suite. In fact, Morgan Stanley ( MS) analyst Kathryn Hubert expects Microsoft to surge past Android for the No. 2 spot, behind Apple, in the tablet market once Windows 8 hits the streets. The difference maker, according to Hubert: Office. With that in mind, I simply do not see the sense in making Office available on the competition's mobile operating systems. It's one thing to do this during a time and in a space (computers) where you compete from a position of strength. But that's hardly the case in mobile; Microsoft needs every advantage it can get as it looks to challenge Apple and Google, let alone take second or, less likely, first place.
How I am Playing It
If Microsoft keeps the mobile version of Office for itself (it's a no brainer!), I will become ultra-bullish. Ultra bullish means the stock might become one of my top holdings. Everybody uses Office. Most people use it on a PC. The ability to sync the work you do in Office with mobile devices -- and to maybe even pull it up on your television screen via an Xbox Live account -- could break the game. That's why it's a no-brainer. In any event, with or without Office as an exclusive weapon, I still like the odds that Microsoft wins the living room and, at a minimum, makes some meaningful noise in mobile with the Windows 8/Xbox combination. I tend to think it will do more than make noise; expect Microsoft to disrupt the space going forward. I am long MSFT January $30 calls. I intend to add to this position on any dips related to broad market weakness. No matter what happens in Europe or on a macro level in the United States, I anticipate the story Microsoft is writing at the moment to play itself out as what could be one of the few bullish narratives in another otherwise topsy-turvy market. Expect to see me in some at-the-money MSFT January 2014 calls as well before the year is out. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.