Harrah's also is working on other applications, including one that will let customers in VIP areas of popular nightspots, such as Pure Nightclub at Harrah's property Caesar's Palace, order beverages or send beverages to other patrons, Stanley said.

T-Mobile plans to deploy Milan kiosks to provide customer service in 1,200 of its retail stores, said Jeffrey Gattis, director of product management for Microsoft's Surface Computing group. Customers can take the handset model they want off the shelf, place it on Milan, and use the touchscreen to configure their desired services and applications. They can then take that model to a customer service agent, he said.

Microsoft said it will release an SDK for third-party developers once the computers catch on in the market. And while the company initially plans to offer the Milan hardware, manufactured by a third-party contractor, Microsoft said it might let hardware OEMs build and brand Milan computers in the future.

That move will be necessary for Milan's long-term success, said Matt Rosoff, an analyst with Directions on Microsoft. "To turn it into a real business, they have to take a very Microsoft approach and OEM the hardware out," he said.

It will be some time before consumers will want to put in their living rooms the rather bulky prototype Microsoft is demonstrating, though this is where Microsoft is going with Milan, said David Dauod, an analyst with IDC.

"Ultimately, Microsoft's goal is to see the product become something like what used to be a plasma TV," Dauod said. "As awareness grows and prices go down, [it will be more ubiquitous]. ... Ultimately, mainstream will become something you will see in the mid- to long-term."

Microsoft said Milan's price will be between $5,000 to $10,000 per unit, which is too expensive for consumers in the near term, he said. Microsoft hasn't disclosed its manufacturing costs, but Dauod guesses that Microsoft does not expect a profit from Milan in the near term.

More importantly, however, the product shows real innovation from Microsoft for the consumer market, the first the company has shown in a long time, he said. Both the Xbox and Zune were me-too products that entered competitive markets. Milan raises the bar for other consumer electronics vendors, Dauod said.

"I've regained confidence in Microsoft with this product," he said. "It's showing a different side of Microsoft, which is cool."