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Microsoft Hunts the Digital Set-Top Box
from the ny times
regards
May 10, 1999
Microsoft Hunts Its Whale, the Digital Set-Top Box
as Bill Gates become the Captain Ahab of the information age?
By JOHN MARKOFF
Gates' white whale remains an elusive digital set-top cable box that his company,
Microsoft Corp., is hoping will re-create the personal computer industry by blending the
PC, the Internet and the television set into a leviathan living-room entertainment and
information machine.
It has been an obsession for more than six years for Gates, whose "Windows
everywhere" software strategy has led the company to look to extend its Windows
operating system monopoly into every cranny of the computing industry -- from mighty
mainframes to the computers embedded in cars.
Still, it is the tantalizing possibility of the computerized television set that has fixated
Gates most, leading to the construction some years ago of a faux living-room laboratory
in a building on Microsoft's office campus in Redmond, Wash.
Presumably, that is because the prospect of digital television -- part PC, part boob tube
-- promises the greatest return on the company's research and development investment.
Digital television holds out the Holy Grail: the intersection of the nation's most vibrant
industries, including media, computing, entertainment and telecommunications.
Small wonder, then, that Microsoft agreed last week to invest $5 billion in AT&T, as
part of that company's deal to add MediaOne Group, the cable television company, to
its recently acquired Tele-Communications Inc. cable empire.
Television sets are in some 98 percent of American households, while personal
computers are having trouble breaking the 50 percent threshold. Thus, a Windows
operating system monopoly on the set-top box would dwarf the scale of the PC
industry.
"The television is the 3,000-pound gorilla," said Nicholas Donatiello, president of
Odyssey, a market research firm in San Francisco.
And yet, just as Captain Ahab's quest for Moby Dick led to a miserable outcome, there
is no certainty that Microsoft's quest for the television set top will succeed.
As early as 1993, Microsoft proposed a joint venture with Time Warner Inc., AT&T
and TCI called Cablesoft, in an effort to harness the cable and phone industries to the
Microsoft Windows software operating system standard. Since then Gates has
repeatedly tried to forge pacts with partners in those industries.
Though some have welcomed such overtures, like Comcast, the cable company in
which Microsoft acquired a 11 percent stake a few years ago, others have held back.
The laggards feared they would inevitably fall victim to the same forces that enabled
Microsoft to reduce many PC hardware makers to mere purveyors of commodity
goods.
But Microsoft's considerable financial heft has eroded most resistance. Besides the
Comcast stake, Gates' investments in his pursuit of interactive digital TV have included
WebTV, Time Warner's Road Runner, four European interactive cable television
investments and, finally, last week's investment in AT&T.
In return for a $5 billion stake, AT&T has warily agreed to license a minimum of 5
million copies of Microsoft's Windows CE operating system and engage in several
showcase tryouts of the software, the consumer-electronics version of Microsoft's
industry-dominating Windows software for PC's.
The deal will ensure that Microsoft gets an inside track in the new interactive television
industry, which after years of delay appears to be showing some signs of life.
Clearly Microsoft's chairman believes with great certainty that interactive digital
television is the Next Big Thing. And yet just as Gates, the visionary, entirely missed the
dawning of the Internet, there is growing evidence that rapid technology transitions are
not predictable -- let alone manipulable.
In pushing for multimillion-dollar test runs, Gates may be ignoring years of consumer
indifference and outright interactive television failures like Time Warner's debacle in
Orlando, Fla., a few years back -- not to mention the rapid emergence of a range of
alternative technologies for delivering Internet content that may quickly bypass the living
room.
The risk to Gates is that the interactive television set, upon which he is betting most
heavily, may prove a mirage that wastes billions of dollars of investment capital and
Microsoft development efforts.
The offspring of a dream that stretches as far back as the 1970s, digital television has
long been a Chimera pursued by high-technology executives -- whether in the form of
videotext, video on demand or, more recently, Internet via television.
The new hope is that while no one has been able to figure out the challenge of how to
supply more than several channels of compelling programming for a television audience
simultaneously, the World Wide Web would offer an easy solution.
Both AT&T and Microsoft envision that the DTC-5000, a set-top box due this fall from
General Instrument, will serve as a choke point for all the digital information flowing into
and out of the home.
The original vision of interactive cable has now stretched far beyond 500 channels to
include telephone service, video on demand, stereo audio, video games and Internet
access. As a result of this "all things to all people" impulse, the DTC-5000 has
sometimes been derided as an information-age Cuisinart.
Indeed, the joke inside AT&T labs, where engineers are testing the box, is that
DTC-5000 has so many connectors that the physical integrity of its back panel has been
compromised. The prototypes include connections for cable, power, Ethernet and
Firewire networks, Universal Serial Bus, telephony, audio, video, infrared, PCMCIA
card, smart card and computer monitor.
While simpler and more compelling alternatives -- ranging from the home PC to a
growing array of wireless and hand-held computers and phones -- offer a seemingly
more convenient way to obtain Internet data, Gates has continued to pursue the parallels
between the world of interactive digital television and the personal computer industry,
and to re-create a dominant role for Microsoft. Indeed, forcing Windows CE on the
cable industry has become a virtual religious crusade inside Microsoft's headquarters.
"This is a big frontier, and Bill is scared to death that it's going to pass him by," said a
member of the AT&T team that negotiated the deal with Microsoft. As described by
Microsoft's deal-maker and chief financial officer, Greg Maffei, the investment makes
sense as a bet on the future of high-capacity -- or broadband -- telecommunications
networks.
"There is finally a plan to go out and deploy something, and that's a great opportunity for
us," Maffei said in a telephone interview Thursday, after the deal closed.
Microsoft executives argue that a business rationale now exists for interactive television
-- as opposed to the Orlando interactive television pilot that Time Warner started with
great fanfare in 1994 only to unceremoniously shut it down in 1997.
"Deregulation is allowing a single supplier and pipe into the home to provide digital
television, telephony and high-speed Internet access," said Hank Vigil, vice president for
consumer strategy at Microsoft.
Yet, the crusade to bring E-commerce to the family-room sofa is probably no closer this
week than before the arrival of last week's alliance between the software and the
telecommunications industry giants.
In particular, AT&T will be competing with other technologies challenging cable as a
means to deliver Internet data: fixed and cellular wireless telecommunications; the phone
industry's digital subscriber line and interactive satellite systems from the Hughes
Electronics subsidiary of General Motors.
Moreover, other technologies -- including the PC, digital videocassette recorders from
companies like Replay Networks Inc. and Tivo Inc., as well as a new generation of
video game players from Sony, Sega and Nintendo -- will all contribute to the
accelerating fragmentation of the mass cable-television market.
AT&T may even become its own largest competitor, especially for providing consumers
access to Internet electronic commerce. The company has quietly accelerated plans for
a nationwide introduction of Internet-ready cellular phones, skipping 64 kilobits a
second and going directly to 384 kilobits.
Such a network will be ideal for a new generation of Internet-compatible
telephone-Web browsers now being shown by Nokia and Ericsson. Though a shift to
mobile Web browsing would be warmly greeted by AT&T, it is likely to sharply limit
the market for consumers willing to buy an expensive additional Internet account just to
permit them to browse the Web on their TV.
And in the mobile and wireless world, Microsoft is already at a clear disadvantage
competing with the cellular phone industry, which has shown little interest in a Microsoft
Windows CE operating system.
Gates appears to have nearly infinite capital to invest in his dream, but there seems to be
little to ensure that he will be able to enact his vision. That, of course, is the risk of being
a visionary.
Copyright 1999 The New York Times Company
-Nat |
