Microsoft’s Xbox TV revolution is missing one thing

December 6, 2011, 4:24 PM UTC

FORTUNE — Microsoft’s announcement Monday of a major upgrade to its Xbox 360 television interface, which includes voice commands, has some people wondering whether the company has, for the first time in a long time, gotten a jump on Apple and Google. The truth is, it’s simply too soon to tell.

The new update aims to improve the Xbox in several ways. It allows navigation on the dashboard via voice command. Users can speek commands like “videos” to navigate to Microsoft’s (MSFT) Zune store or Netflix (NFLX). Voice commands can also be use to search the web with Microsoft’s Bing search engine. Asking it for Michael Jackson will bring up music videos from YouTube, for instance.

Bigger still, as Steve Ballmer promised in September, live TV will be available through Xbox Live. It looks as if that is happening, although in a limited way. Verizon’s FiOS (VZ) cable service will make 26 channels (no local broadcast channels) available through the Xbox this month. Another cable partner, Comcast (CMCSA), won’t come on board until early next year. Also due next year are such media partners as TimeWarner’s (TWX) HBO, Major League Baseball, and CinemaNow.

By the end of this year, Microsoft said, apps from a bevy of video providers will be available, including Vudu, YouTube, Vevo, Crackle, TMZ, MSNBC, UFC and SyFy. Xbox live had already been streaming video from Hulu Plus, Netflix and ESPN, but those apps are being upgraded. If nothing else, the service represents a major advance for Internet video providers, who will suddenly have access to millions of living-room screens. Microsoft has an installed base of about 58 million Xbox 360s, though only about 11 million of them are equipped with Kinect sensors, which are needed to access the service. Those cost $149 each. The service is available with a gold Xbox Live membership, now at $60 a year, plus fees to cable providers.

The attention-grabber on Monday was the voice-activated control that will be available to those who have Kinect sensors. Like Apple’s Siri, it sounds pretty cool, but judging by reports from people who have tried it out, it, like Siri, is in early stages of development and isn’t flawless (which is not to take away from the amazing fact that it works at all). That means that while the interface might be a lot better — and the Bing-driven video search certainly sounds much better than the interfaces offered by cable operators — finding programs could still involve a fair amount of digging around and clumsy typing from the remote.

A revolution? Not exactly. This all sounds more like a big step in the right direction than the sea-change Microsoft is saying. The company has a history of letting its leads get away from it. The challenge now will be attracting more cable operators — the biggest thing missing from the update — to its technology. At the very least Microsoft is stoking further competition with Apple (AAPL) and Google (GOOG) over domination of America’s living rooms.