Microsoft Corporation (MSFT): Forget Smart TVs, Give People a Box

In an age where smart TVs are increasingly popular, there sure are a lot of over-the-top devices bringing smart capabilities to television sets. Microsoft Corporation (NASDAQ:MSFT) recently revealed the Xbox One focusing more on its entertainment features than its gaming capabilities. Amazon.com, Inc. (NASDAQ:AMZN) is reportedly working on a Roku/Apple TV rival. And Intel Corporation (NASDAQ:INTC) is rumored to be working on a set top box that replaces traditional pay-TV options.

These companies all clearly see an opportunity in the set top box space, and I’m inclined to agree that there is plenty of opportunity to pursue. The question for investors is which company has the greatest chance of capitalizing on the opportunity.

The opportunity

While the percentage of TVs with “smart” capabilities on the market is expected to grow to 55% in 2015 and 66% in 2016, the majority of smart TV owners don’t use their television set’s internet capabilities. The two biggest culprits are poor user interfaces and a lack of compelling content and applications.

There are several companies, in my opinion, in a strong position to capitalize on the opportunity, and solve the perceived problems of the current generation of smart TVs. More importantly, they don’t have to make a whole TV in order to succeed.

Microsoft Corporation (NASDAQ:MSFT)

Microsoft Corporation (NASDAQ:MSFT)’s Xbox 360 provides smart functionality for any TV. With the upcoming successor, Xbox One, Microsoft Corporation (NASDAQ:MSFT) is looking to solve the interface and content problem currently plaguing the smart TV format.

One of the biggest upgrades Microsoft Corporation (NASDAQ:MSFT) made to the Xbox is integrating live TV with all of its online entertainment, social, and gaming features. Switching between live television and online content and applications never looked so easy. The interface is clean, voice and gesture navigated, and allows users to easily find what they’re looking for in both live television and online apps.

Microsoft Corporation (NASDAQ:MSFT) is also working to provide more content. Its Xbox Music service allows users to stream unlimited music. Moreover, the company is working on developing its own original video content a la Netflix and Amazon.com, Inc. (NASDAQ:AMZN) Prime. Plans include a Halo-inspired television series produced by Steven Spielberg.

There is one potential pitfall to the television interface integration. In order for it to work, many users will need to upgrade their cable boxes, which is either tedious or impossible. It’s the same problem Google ran into with its Google TV platform, and will prevent many Xbox One owners from controlling their cable with their voice, hands, and phone. Instead, they’ll have to resort to infrared remote controls that make the experience clunky.