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.