Microsoft splits its WebTV strategy into
interactive TV and the technology that
runs it
by Jay Greene
Seattle Times technology reporter
MOUNTAIN VIEW, Calif. - WebTV is based 700 miles from
Microsoft headquarters, but it couldn't be any closer to the center
of the software giant's goal of bringing Internet-connected devices
everywhere.
Last month, Microsoft spent $5 billion for a 3 percent stake in
AT&T, the biggest investment it has ever made. The company
spent the money largely to guarantee that AT&T's TCI cable unit
will use Microsoft interactive technology in up to 10 million cable
set-top boxes.
That technology is WebTV.
That says a lot, considering skeptics lined up to skewer Microsoft
when it bought WebTV for $425 million two years ago. At the
time, WebTV was seen as nothing more than a service that
offered customers the opportunity to surf the Web from their
couch.
Today, WebTV is the leading provider of interactive television
services. And though the interactive-TV piece of its business is
still rudimentary, it has offered enough to lure 850,000 customers
nationwide and is gaining support from a growing number of
television programmers.
For all the promise, WebTV is at something of a crossroads. It
clearly is the leader in an industry on the cusp of exploding. It's
also backed by the deep pockets of Microsoft, a company that
can cut deals while enduring a stream of losses at a unit such as
WebTV that's working to secure a foothold in an industry.
But the promise of interactive television is drawing competitors,
from upstarts with little backing to longtime Microsoft adversaries,
including America Online and Sun Microsystems. Moreover, as
WebTV moves center stage for Microsoft, it will face those
challenges without its longtime standard bearer, co-founder Steve
Perlman.
Both inside WebTV and out, Perlman is considered a visionary,
someone who has pioneered interactive television and brought it
to the masses. Last month, Perlman decided to take a break, to
travel and then look for new ventures.
The responsibility of leading WebTV now falls to Perlman's
longtime partner, Bruce Leak. Perlman became the champion of
interactive television, using his WebTV soapbox to evangelize on
the future of TV. That won't be Leak's shtick.
Though hardly a wallflower, Leak isn't prone to the big-think sort
of talk that Perlman could easily engage in. Leak's more of an
operations guy. He's more comfortable talking up the promise of
WebTV's business.
"We're building a customer base of potential," Leak said. "We are
the largest interactive-TV trial in the world."
More TV than Web
The TV part of the product is still more gee-whiz than the Web
component. Using its top-of-the-line WebTV Plus service,
viewers can check TV listings that are downloaded to their
set-top boxes daily. Those listings allow them to watch a program
while checking out what's on other channels.
They can also program WebTV to remind them - with a note that
scrolls on their televisions - when a program is about to start.
Users also can record a show by simply popping in a tape and
clicking on a program listing.
The Web part is basically the same thing computer users see
when they launch a Web browser. With a portable keyboard,
users can surf the Web from their couch, buying books, checking
out sports scores or e-mailing friends.
WebTV, though, was never designed to turn television sets into
computers and simply give viewers the chance to get online during
commercials. The idea is to make television interactive, giving
programmers the opportunity to develop shows that let viewers
participate if they want to.
"For consumers, we need to distinguish between going to
someone's Web site and an interactive-TV experience," Leak
said.
To do that, WebTV needs to convince the folks who make
programs that building interactivity into shows is worth the
investment.
Leak is optimistic.
"They want it to happen," Leak said. "They need it to happen to
have a deeper relationship with their customers, especially the
broadcast networks who are losing viewers to cable."
NBC already has experimented with interactivity, building links
during the Emmy awards show and a "Saturday Night Live"
episode. "Wheel of Fortune" has developed interactive
programming that lets home viewers play along. Those with the
highest scores can qualify for a tryout to be on the show.
Elsewhere, the Weather Channel and MSNBC run interactive
content throughout the day.
The links in these shows appear directly on the screen, so viewers
don't have to switch between their browser and their TV. The
signals that handle the links run on the TV bandwidth reserved for
closed captioning.
Another show experimenting with interactivity is "Judge Judy," the
TV courtroom presided over by the irascible Judge Judy
Sheindlin. With WebTV, "Judge Judy" fans can click on links to
learn more about the plaintiff or defendant, get information on
points of law and even buy the judge's book, "Don't Pee on My
Leg and Tell Me It's Raining."
But the most popular links let viewers guess how Judge Judy will
rule and allow them to chat about the case with other viewers.
For programmers, interactivity gives them a chance to connect
with their audience.
"I can never get more time," said Larry Namer, chairman of
Steeplechase Media, which develops "Judge Judy's" interactive
programming. "The network will never give me another minute.
But I can change the density."
The virtuous loop
Microsoft announced a key shift in its WebTV strategy last week
at the National Cable Television Association conference in
Chicago. It is splitting WebTV - one piece of the company will
provide the service to its 850,000 customers, and the other will
develop an interactive-TV software platform that cable companies
can put inside set-top boxes.
Some of the cable companies might offer WebTV to their
customers, but the new platform, called TVPak, for television
platform adaptation kit, would allow them to create their own
interactive-television offering as well.
Cable companies might be slow to adopt the WebTV service
because it will only extend Microsoft's business, not their own,
said Hank Vigil, vice president of consumer strategy and
partnerships.
So Microsoft decided to give cable companies the option of
choosing WebTV or building their own service with TVPak.
To some, though, the strategy is flawed. Josh Bernoff, an analyst
with Forrester Research in Cambridge, Mass., believes the real
money in interactive television will come from the services
business, not from the operating-system platform.
If the technology is not tied to the service, there will be little
incentive for cable companies to offer WebTV. They'll likely offer
their own to keep all of the monthly subscription revenue to
themselves.
That makes Microsoft more dependent on revenue from the
TVPak. Microsoft hopes that cable companies will use that
platform, which runs on Microsoft's Windows CE operating
system, as the core of their set-top boxes.
It's a similar strategy Microsoft has used to dominate the
personal-computer operating system business - put Windows at
the center of the PC universe and get software developers to build
programs off it. As more customers opt for Windows PCs, more
developers build programs for it. And that cycle continues to
spiral.
It's what economists call the virtuous loop.
"We are skilled at trying to generate a platform win," Vigil said.
"It's kind of in the genetics."
But Bernoff believes the virtuous loop stops with interactive
television. While there is money to be made in set-top boxes,
Bernoff believes cable companies will be agnostic when it comes
to choosing which operating system runs it, in large part because
they don't want to become beholden to Microsoft or any other
company.
"The cable industry went a long way to make sure that the cable
box is a commodity," Bernoff said.
Microsoft disagrees. The company expects TVPak to be the
foundation of interactive television.
"The platform in the old days was Windows and the services were
applications," such as word processing software or games, said
Bill Keating, WebTV's senior vice president in charge of the
platform business. "The platform is now becoming digital television
and the services are video-on-demand, online banking and a lot of
things we can't even think of yet."
Microsoft wants to be at the center of that world. "Microsoft has
a very strong digital-television initiative," Keating said. "We're
extending the notion of what the company has always been and
that's a platform provider."
While there's no question WebTV is the current king of the
mountain, there are plenty of would-be kings. Most notable,
perhaps, is America Online (AOL), which last month announced
plans to launch AOL TV next year. AOL's audience, at least
initially, will be somewhat limited because its only deal is with
DirecTV, a satellite service.
Another company, WorldGate of Bensalem, Pa., has just begun
offering a competing service directly through cable companies. It
offers television service and Internet connections over the same
cable line.
OpenTV, a Sun-backed competitor, has made inroads in Europe
and is developing a U.S. business. It offers interactive television,
over digital-television signals, without an Internet connection.
"Least worst time"
The biggest challenge for WebTV, though, may be overcoming
Perlman's departure. Because of his vision, Perlman has had a
large amount of autonomy within Microsoft to run WebTV. There
are few names in interactive television that carry the weight of
Perlman's.
Even though fellow WebTV co-founders Leak and Phil Goldman
remain with the company, Bernoff doesn't believe they have the
same stature.
"At WebTV, who do they have that's a known quantity in the
cable business?" Bernoff asks. "Nobody."
That's important, because relationships help secure deals.
"This is as much a relationship game as it is one of technology,"
Bernoff said.
While Microsoft's Vigil acknowledges Perlman's importance in
WebTV's history, he also believes the company has "a lot of key,
bright, visionary people." He points to Craig Mundie, long
Microsoft's visionary on hand-held appliances and interactive
television, as someone with Perlman-like stature.
"We have a deep bench," Vigil said.
Leak added that Perlman remains as a WebTV adviser. "I'm
going to his belated wedding reception in two weeks, and I'm sure
I'll get some vision there," Leak said.
To him, Perlman has helped bring the company to the point where
it is a creditable force with a lot of potential. Now is the time for
the company to execute Perlman's vision.
"I describe it as the least worst time to leave," Leak said.
Copyright © 1999 Seattle Times Company |
