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The Digital Skeptic: Software Can't Reinvent Microsoft; Hardware Might

Tickers in this article: MSFT AAPL

NEW YORK ( MainStreet) -- Memo to Mr. Ballmer: Change company name to Microstuff.

Let's be honest: watching Redmond roll out Windows 8 and its Webish upgrade to Microsoft (MSFT) Office 2013 is like covering teenage street racing. What they come up with is cool and all. But heavens, the risks!

That's not to say the newly "interactable" Word, Excel, PowerPoint and some other programs nobody really cares about stink.

Far from it.

The touch-enabled Word is smooth. The cloud-based Skydrive file tool actually, gasp, works. Outlook is streamlined for business users. And pay attention to something called Lync. It uses HD video in a new and cool way to have meetings.

But the idea that this Web makeover of Windows makes Microsoft feel like 1995, as CEO Steve Ballmer was widely quoted as saying ... well, that's just digits floating in a cloud.

In one of the most bizarre twists of the digital age, the big phat hard upside in Microsoft turns out to be not in software. It's the gadgets, the gaming devices, PCs, peripherals and virtual controllers this company makes that makes the company.

Microsoft as Microstuff
Keeping things real is really nothing new at Redmond. This year marks the 30th anniversary of something called the Microsoft Hardware Group . Over the years it has developed a deep archive of keyboards, mouse controllers, gaming platforms and even PCs.

"The Hardware Group transformed Microsoft beyond just a software company," Robbie Bach, president of the company's Entertainment & Devices Division, said back in 2007 to Ecoustics.com, the high-end audio and video website.

Were there flops? Oh yeah. Remember the Zune? The MP3 player was announced with much fanfare back in 2006 but did nothing against the Apple(AAPL) iPod and was quietly allowed to die earlier this year, according to The New York Times ' BitsBlog .

But even with these duds, look around at the Hardware Group you'll see real stuff, not software, is what gives Microsoft its spine.

First off, the soon-to-market Surface tablet PC has something Microsoft has not seen for a decade: positive brand buzz. This thin, elegant tablet computer with a bolt-on keyboard immediately grabbed the attention of even the pickiest geeks. The otherwise impossible to impress Gizmodo called the Surface's keyboard "the killer (or be killed) feature."

And the Surface is only the beginning of the real things with real legs.

Microsoft Touch Mouse , for example, is simply the best on the market to me, and the Xbox, a major winner in worldwide video game tools. Behold these stats from a splashy promo video : 66 million consoles shipped, 40 million XBox live members and 18 million Kinect sensors, which let users interact with the device using no controller at all, were also sold.