It seems Microsoft (NASDAQ:MSFT) is determined not be left out of the coming wearable tech market. The Wall Street Journal reported yesterday the company is prototyping eyeglass technology similar to Google's (NASDAQ:GOOGL) Glass.

Though Microsoft's not close to bringing the technology to market, it's still an important step for the company.

Consumers are where it's at

Microsoft notably missed out on the early days of mobile. The company has tried to get back on track with the Windows Phone OS and its recent revamp of the Surface tablet line. But Windows Phone lags far behind iOS and Android as a distant third in smartphone OS market share, and Surface tablet sales have been lackluster at best.

Wearable poses a new opportunity for Microsoft, but it's difficult to pull off.

An anonymous source told The Wall Street Journal that Microsoft is "determined to take the lead in hardware manufacturing to make sure the company won't miss out on the opportunities in the wearable gadget market."

But the success of wearables will be built on a perfect pairing of hardware and software -- an area Microsoft is currently struggling with.

Google Glass seamlessly pairs the Android operating system to eyeglass hardware. The software is robust enough to handle mapping and video, yet simple enough not to distract the user. Though this pairing is true for all consumer tech, it will be even more important for wearables.

This is why Apple and Google already have a head start on Microsoft. Apple has been in charge of its own software and hardware since the company's beginning. Part of the Apple's success has been in creating software and hardware that famously just works together. Apple's decades of software and hardware know-how have already translated into MP3 players, smartphones, tablets, and Apple TV. The next step would be using that knowledge for wearable technology.

One step ahead

Google holds the advantage over both companies because it's already testing Glass in the real world with actual users. That type feedback is critical for such an unproven industry.

The challenge for Microsoft will be to develop software that can both win over consumers and pair seamlessly with its hardware. The company's recent purchase of Nokia's devices and services division could help with that, but it's still too early to tell.

Juniper Research says the wearable tech industry will be worth $19 billion in retail revenue by 2018 -- compared to just $1.4 billion this year. That's why Microsoft investors shouldn't be surprised the company is experimenting in this segment, but they should be aware the company isn't ahead of the game. Samsung has already released its Galaxy Gear smart watch and is working on a follow up version. Qualcomm has done the same. But first-movers won't necessarily be the ones to make the most gains in wearables -- it'll be the companies that get the delicate balance of software and hardware right. To do this, Microsoft will have to better at both than it currently is.