When Microsoft ( MSFT) invested a cool $1 billion in Comcast ( CMCSA) more than eight years ago, Chairman Bill Gates talked up a grand vision for a world of connected PCs and TVs. Since then, his company's tentacles have spread in all directions in hot pursuit, acquiring WebTV, launching the Xbox video-game console and Media Center PC, and creating a new platform called Microsoft TV IPTV, or Internet Protocol TV. And yet, the digital living room still remains a thing of the future -- an affliction of sorts for Microsoft, given the vast sums it has spent trying to realize that vision. Though Microsoft has misstepped, other factors have postponed the arrival of the connected home. But because of Microsoft's ubiquitous PC presence, opportunity is still rife -- if the company can fend off expected competition from Sony ( SNE), Apple ( AAPL), Google and Yahoo! ( YHOO).
Microsoft can make it work," says Steve Perlman, who heads tech and media incubator Rearden. That's because the universe of television sets -- an estimated 250 million in the U.S. alone -- is far greater than that of PCs, where Windows dominates, says Perlman. Perlman and many others in the industry believe that through IPTV, which delivers television programming via broadband networks, Microsoft can gain a position on the TV. What the technology has over cable and satellite is greater programming variety, faster channel changing and easier integration with other devices. "IPTV is inevitable," says Perlman. "It will become the dominant form of information delivery, just as the Internet is becoming the dominant form of music delivery." The big question, however, is when. Bandwidth and competition from cable and satellite providers are among the obstacles. Multimedia Research Group estimates that there will be 8.8 million IPTV subscribers in the U.S. by 2009, out of 28 million DSL subscribers.
Windows of Opportunity"There's an opportunity bigger than Windows ... if they
Microsoft began peddling its IPTV software for set-top boxes in 2004 and signed up primarily telephone companies for trials in 2005. This year AT&T ( T) and Verizon ( VZ) plan to roll it out commercially, Gates said earlier at the
Consumer Electronics Show (CES) held earlier this month in Las Vegas. Adoption of IPTV is catching on in places such as Hong Kong, where a majority of consumers weren't getting cable or satellite before IPTV came in, says Media Research Group senior analyst Bob Larribeau. By contrast, the U.S. is a saturated paid TV market, with about 80% of households subscribing to satellite or cable, he says. Cable companies aren't flocking to Microsoft's IPTV service because they're afraid of Microsoft strong-arming the user experience as it's done on the PC, and they want as much as of the tens of billions of dollars they spent on their current networks as possible. AT&T and Verizon, however, are jumping on the bandwagon, looking for new revenue to supplant their maturing wireline businesses. "The DSL guys have all the motivation in the world to innovate because telephony is being absolutely destroyed by Internet phones and cell phones," Perlman says. "It's do-or-die for them at this point." Cost and easier connectivity to other devices than cable or satellite TV will be major factors in wooing consumers to IPTV, says analyst Kurt Scherf of research firm Parks Associates. "Microsoft's advantage is it sits on 90%-plus of computers," Scherf says. "Bring in the game-console platform, and all of a sudden you get a network where the PC talks to the set-top box and the console." In addition to competition in the IPTV arena from Siemens ( SI), as well as smaller pure-plays such as SeaChange International ( SEAC), industry observers say other tech bigwigs are poised to enter the fray.