Rumors have swirled that Microsoft is developing a high-powered 7-inch gaming tablet dubbed Xbox Surface, the Reese's Peanut Butter Cup of Microsoft's homegrown hardware brands. Such a move would change the landscape of Microsoft's Xbox and portable game initiatives. It would mark a reversal for the company, which has stayed out of the increasingly challenging handheld space in favor of promoting Windows Phone as part of its ecosystem battle. However, it would be in keeping with Steve Ballmer's promise (or is it OEM warning?) to expect more hardware from Microsoft. As the tablet was partly Apple's answer to the netbook, it could also be Microsoft's answer to the PlayStation Vita.
In terms of OEM conflict, there would be even less to ruffle the feathers of the likes of Acer as no Windows vendors have broached the 7-inch tablet market (with good reason given the current focus on a PC-like experience). If, as reports have indicated, the device is ARM-based, it would likely be a Windows RT tablet. Building the device on Windows RT would imbue the tablet with a strong technical foundation and set up distribution via the Microsoft app store. This would continue the industry transition from physical product to digital distribution advanced by the imminent Nintendo Wii U.
It's a subtle point, but while we tend to lump the smartphone gaming and tablet gaming phenomena together, in part because of Apple's strong position in both markets, they are really different beasts and increasingly will be used in different ways. This will remain true even if we see a strong behavioral uptick in consumers sending smartphone games up to their televisions via technologies such as MHL or AirPlay (which the Xbox Surface, like the first Surface, will no doubt be able to do). Tablet games, as the heir to PC games, are more graphically impressive and immersive; they will come to walk the fine line between casual and hardcore games that even the home consoles must navigate these days.
Unlike the Nintendo 3DS and PlayStation Vita, which must compete for pocket space with ever more powerful and larger smartphones, the Xbox Surface would, like most tablets, straddle home and mobile use. The looming question is whether it would expand the portable gaming category or sell to a subset of Xbox users. In addition to all the technology assets and game business experience Microsoft would bring to an Xbox Surface tablet, it has earned a flag-bearer position in button-free gaming in the console world (albeit with dramatically different mechanics) with Kinect and has a growing app library to make a handheld gaming tablet a robust competitor against the Kindle Fires and iPad minis. In fact, in pushing average prices of small tablets up with its iPad mini, Apple would be doing Microsoft a favor in establishing a benchmark for premium smaller tablets.
It's not about graphics, which are rapidly improving across all tablets as CPUs and GPUs and hybrids of the two continue their relentless improvements in power and efficiency. If Microsoft can strike the right balance between engagement and complexity with Xbox Surface, it has a real opportunity to establish a step-up device that appeals to mobile gamers that want a console-quality experience with established franchises in any room of the house as well as thousands of miles away from it.