Microsoft is rumored to be working on a new “Xbox Surface” tablet, a cross-branded device that will further blur the line between the Windows, Xbox, and Surface brands. The Xbox Surface is, according to a report from The Verge, a 7-inch tablet that will run a modified version of the Windows kernel. Microsoft is said to be developing the tablet in secret, with sections of its Interactive Entertainment Business division being “locked down” and limited to select employees.

The report meshes with Microsoft’s strategy of tying its myriad services together. Windows Live Messenger is being retired in favor of Skype, which is a core aspect of Windows Phone 8; the Xbox brand now extends beyond the living room and covers anything media-related; and Microsoft has made SkyDrive and the Windows Store key aspects of its devices. Microsoft’s services and brands are more intertwined than ever before.

Xbox Surface could make the Xbox brand even more influential, could solidify Microsoft’s place in the current post-PC marketplace, and could be one of the first tablets to do gaming properly. That is, of course, if it remains the Xbox surface, if Microsoft continues to improve as a hardware maker, and if one of its competitors doesn’t beat Microsoft to the punch. No pressure.

The first aspect – the Xbox Surface retaining that name, or at least similar branding – seems likely. Instead of posing its 7-inch tablet as “just” a tablet, Microsoft could try to sell it as a cross between other portable consoles, like Nintendo’s 3DS or Sony’s PlayStation Vita, and other, more generalized devices. A device that ties all of the Xbox media properties and throws a few recreational apps (Facebook, Twitter, etc.) in for good measure could, at the right price, be damned enticing.

Then there’s the issue of improving its hardware prowess. Based on a number of reviews, the consensus seems to be that the Surface tablet (sans Xbox) is a well-built, if imperfect, device that is marred by jittery software. While a 7-inch tablet is an entirely different beast when compared to a 10-inch tablet, Microsoft should be able to use everything it learned building the original Surface to make the Xbox Surface a competitive device.

My biggest concern for an Xbox Surface from a hardware perspective is storage. Microsoft has confirmed that its original Surface tablet starts with 32 gigabytes of storage because Windows 8 requires a whopping 16 gigabytes to function. Users can work with this – the iPad starts at 16 gigabytes, after all – but a tablet built specifically for games may require more space. Games are storage hounds, with several on my iPad taking up at least 1 gigabyte of space each. This is a problem that Microsoft has to solve if the Xbox Surface is going to work.

For anyone concerned by the tablet’s size, an unlikely ally may come to Microsoft’s side: the iPad mini. The blogosphere has been ringing with the sentiment that the iPad mini is the best iPad to date, and this is only the first generation of the product. Microsoft could very well pull a Samsung and (allegedly!) ape off of Apple’s design – with a unique spin, I hope – as a starting point for the Xbox Surface’s design.

Unfortunately, the iPad mini is more than just validation of the 7-inch form factor – it’s a formidable competitor. Every potential Xbox Surface customer who doesn’t think “ugh, look at the crap they put out this year” every time they see an iPad mini will be tempted by Apple’s device. On the bright side, Apple does have one possible weakness: games.

Ask any “hardcore” (ugh) gamer about the quality of games available on the iOS platform and you’re likely to get a bemused grunt at best or a blood-curdling tirade at worst. Though there are a few standout titles – Infinity Blade being one of the most recognizable –  iOS games tend to be simplistic, “casual” romps that lack the depth of console offerings.

If Microsoft leverages the Xbox brand to bring more in-depth, difficult games to touch devices the Xbox Surface has a shot. Imagine “Halo” or another blockbuster franchise coming to the Xbox Surface and not the iPad mini and you’ll have an idea for what Microsoft might be going for. As ridiculous as it may seem, people will purchase a new device just to play a new installment of their favorite series.

Nintendo is doing something that’s almost, kinda-sorta similar to the Xbox Surface with its new Wii U console, which ships with a touchscreen controller meant to resemble a tablet. While the Wii U is building a tablet-like controller, however, Microsoft is said to be building a tablet that, in some ways, can also behave like a controller. Though the two approaches sound semantically similar, in practice the Wii U and the Xbox Surface would be worlds apart.

What is the Wii U’s controller? Is it a decent tablet? Based on the specs, not really – its screen isn’t even multitouch-capable, meaning that it can only recognize one point of contact. Other tablets can recognize multiple points of contact (the iPad can sense 11, so if you’ve ever wanted to control a tablet with all of your fingers and your nose, it’s the best option), automatically putting the Wii U behind the competition.

Microsoft has the chance to avoid this mistake by building the Xbox Surface as a tablet first and an Xbox 360 (or, depending on when it comes out, the next generation Xbox)  peripheral second. The Wii U controller is worthless without the Wii U, despite its roughly $172 starting price. People that want a real tablet won’t even consider the Wii U as an option, and Nintendo, despite controlling some of the most iconic videogame characters, has also fallen down the same “it’s for 12-year-olds!” trap as iOS devices.

So, while Microsoft is directly or indirectly fighting against two industry giants – Apple and Nintendo – the Xbox Surface can distinguish itself from both companies’ products by offering a complete solution that plays against the other players’ competitive weakness. If Nintendo and Apple teamed up and brought “Mario” or “Legend of Zelda” to iOS devices this argument would be rendered moot almost immediately, but – unfortunately – this deal doesn’t seem likely.

Despite all of the “ifs” that stand in its way, an Xbox Surface tablet could be a serious (video)game changer. Assuming Microsoft puts its weight behind the product, an Xbox Surface sounds more appealing than the currently-available Surface tablet and could, to some, be more appealing than an iPad mini or comparable Android tablet. Xbox may very well be Microsoft’s future.