Microsoft's "Better Together" Strategy

This afternoon, I spoke with Ed Graczyk, marketing director for Microsoft TV. Mr. Graczyk made time in his busy schedule at my request. Based on the conversation, I would like to refine my earlier assessment of today’s Microsoft TV Foundation announcement.

Microsoft finally may have hit on the right strategy for courting the cable TV market.

Microsoft’s past forays into the cable market favored the company’s technology or would require cable operators to make massive upgrades. With Microsoft TV Foundation, cable companies’ new investments largely would be limited to servers and Microsoft software for delivering rich content services. Cable operators would be able to deploy software to existing digital cable boxes, typically as an automatically dispatched update. One morning, the consumer wakes up to a new program guide and services. The software installs on top of the digital cable box’s embedded operating system.

This “middleware” makes it possible for cable companies to substantially upgrade services without swapping out existing digital cable boxes. Mr. Graczyk described Microsoft’s strategy as helping cable operators offer more branded, interactive content and services while driving “more value out of the investments they already have.”

This is a remarkably refreshing approach compared to Microsoft’s earlier failed attempts to woo cable operators.

But don’t assume loads of goodwill on the part of Microsoft. The company couldn’t really favor its own digital media technologies, because most deployed digital cable boxes simply don’t have enough processing power or storage for the task.

In my earlier Weblog posting, I took a hard view of the limited cable operator support for Microsoft TV Foundation. Turns out, Microsoft purposely left some information out of its press releases, so that Chairman Bill Gates could make the announcement at the National Cable & Telecommunications Association's 2003 National Show in Chicago. Comcast plans to put Microsoft TV Foundation into trials later this year, Gates revealed. Apparently, Comcast has distributed millions of Motorola digital cable boxes capable of running the Microsoft TV Foundation client software. I have two of these boxes in my house.

If Microsoft’s technology lives up to the hype, cable operators will be able to deliver customized program guides and video-on-demand programming, among other features. The big win for cable operators would be branding and the customization that would support marketing of video-on-demand content. They also would be able to drive directed advertising, supporting more types of video-on-demand services. After all, consumers might crave choice, but valuable content might be missed while navigating 250 or more channels of programming. Customized guides that organize video-on-demand offerings into genres, like sports or cooking, would make the services easier to sell or to consume.

Consumers also would be able to download games to the cable boxes for playing on their TVs.

There’s also a big win for Microsoft, and one that is part of the company’s long-term vision for unifying PCs in the den with televisions and consumer electronics devices in the living room. I asked Mr. Graczyk about how Microsoft TV Foundation might benefit users of other Microsoft products. After all, Windows XP Media Center also serves up a program guide.

He then went on to describe Microsoft’s “better together” strategy, where the company does plan some synergy around cable content, Microsoft TV Foundation and products like Windows Media Center or the Xbox game console. So in one scenario, a Windows Media Center PC might use the cable box’s program guide to schedule shows for digital video recording. In another, games could be delivered by the cable operator through the digital box to Microsoft’s game console. That kind of distribution potentially would open up new revenue opportunities for games publishers, cable operators and Microsoft, whether games run permanently on Xbox or for a limited time in a games-on-demand type service. Mr. Graczyk also discussed other content delivery or sharing options, at least in networked homes, on handhelds and other devices running Microsoft software.

Companies competing with Microsoft in markets such as console games, digital video recording or digital media should not take Microsoft TV Foundation lightly. While there is no guarantee that Comcast or other cable operators would widely deploy Microsoft TV Foundation, Microsoft sells a constellation of products capable of taking advantage of wide deployment. The appeal to consumers should be obvious, although I have no handy data from Jupiter Research surveys to predict whether consumers would embrace the “better together” approach.

Posted by Joe Wilcox at June 09, 2003 07:45 PM