Microsoft headed into NCTA's Cable 2000 in the midst of a first-class struggle with the U.S. Justice Department over its future. But that distraction isn't stopping Microsoft from moving ahead with plans for its Microsoft TV platform.
With respect to the cable market, Microsoft has spent more time positioning and investing than delivering in North America. So this month's start of field testing with Rogers Cable in Toronto is an important step for Microsoft's TV platform, first introduced at last year's NCTA convention.
The field testing is part of Microsoft's $400 million investment in Rogers Communications, a deal announced last July. Phil Goldman, general manager Microsoft TV platforms, says the deal with Rogers is a great example of the potential of Microsoft TV, because Rogers will use Microsoft's end-to-end solution for reaching a million customers.
Customers of Rogers Interactive will be able to surf the Web, receive e-mail and even shop and bank online via their TV set and cable connection.
"The big issue is building the interactive market, and that's where our focus is right now," says Goldman. "We have to prove enhanced TV can be successful, and that's tough because the industry has tried it before and failed."
It's also tough for Microsoft because many view the company's forays into the market with a tremendous amount of skepticism. Microsoft speaks as if it is advancing technology to help an entire market segment, even its competitors, but those outside the company wonder "what's the catch?"
On May 9, Microsoft expanded that reach a little further with a 2% investment in SeaChange International, valued at $16 million to $20 million. The deal with Microsoft includes joint development with the Windows Media Technologies group to build a single server platform that can stream MPEG-2 video to TVs and IP video to PCs. Product development will take place during the next six to 12 months.
An interesting side note to the deal is that SeaChange has partnerships with companies like Liberate that are direct competitors to the Microsoft TV Platform. But the 2% investment in a company that offers technology that helps a competitor is typical in today's business environment.
"Microsoft is often viewed as threatening by companies that are in new areas where Microsoft has aspirations," says Alan Yates, Microsoft TV platforms group director of marketing. "We've struggled early on to determine what the right strategy was to make sure we were viewed as a partner to the industry."
In recent years, that strategy has resulted in a number of investments in cable companies. Microsoft's first foray into a cable investment was a $1 billion investment in Comcast in June 1997. That deal focused on Microsoft software enhancing Comcast's high-speed data and video services delivered via its cable systems.
And last year there were two more investments. The largest was a deal completed in May in which Microsoft sent $5 billion to AT & T. Now, both companies are working on deployment of digital cable services in two to-be-announced cities.
AT & T is using Microsoft's TV software platform in its set-top devices, and estimates are that a number of set-tops using Microsoft's Windows CE-based software could be in the 7.5 million to 10 million range from that deal alone. The other deal in 1999 was the one struck with Rogers.
Yates says the AT & T investment, and others like it, will help build the case for enhanced TV. "We were looking for a tight partnership to break the chicken-and-egg problems," says Yates. "We gained a major partner who was as committed as we were to get advertisers, broadcasters and programmers excited. It was all about creating a close collaboration to bring broadband enhanced TV to the marketplace."
But for all the money invested by Microsoft, the company's TV platform has yet to materialize in homes. Charlie Tritschler, vice president of marketing for Liberate Technologies, a competitor to Microsoft in the cable space, says his company has a deal with Comcast as well, and that Liberate's technology should be up and running within a Comcast system later this year. But he doesn't see the same thing happening with Microsoft. "In fact, at the Comcast Investor Conference in Philadelphia, which I was a part of, they displayed the technologies they're deploying this year, and it was ourselves and Worldgate. There was no Microsoft mention, booth or anything," he adds.
Goldman counters that the decision to roll out enhanced TV is ultimately up to the MSO. "What I can tell you is we're going to be ready to roll out in the second half of this year and everything that we're doing is focused on that. But we obviously can't commit to a month or day, because that would be unfair to those doing the heavy lifting."
To Tritschler, however, the Comcast deal is money changing hands without technology changing hands. "It's a classic example of Microsoft buying its way into the market, and it's because they don't have the technology today. And because of that, they're trying to influence the people who are going to make the decisions in the future, by influencing the business today."
But Goldman says the investments are just that-investments. "What we're trying to do, generally, with these investments is help make enhanced TV move into the next phase, and those companies are the ones taking the big risk, more so than Liberate or us," he adds. "And Liberate is focused on competition with us. If I were them, I'd focus on us, too. But our concern is not competition."
Yates believes Microsoft's investments, particularly in Comcast, highlight Microsoft's commitment to the medium. "Early on, we determined to make an investment that was a signal to the marketplace of the value we placed on cable," he says. "It was a good way to tell the rest of the market that we felt that cable's long-term assets were undervalued; it's a great medium for two-way communication and, long term, for interactive services."
Much of Microsoft's approach to the Microsoft TV Platform is based on experience with its Web TV product. Yates says that by understanding the hardware and software aspects needed for the Web TV receiver, Microsoft has a greater understanding of what the capability of the software for traditional set-tops needs to be.
"We've taken the approach to separate the technology around Web TV into pieces so that cable operators can choose the parts they need," he explains. "Our competitors, like Liberate for example, have started from the other direction, by developing a browser and then trying to develop a comprehensive solution from that point on. In the marketplace today, you have a set of low-end system software suppliers who started in Europe, and a set of higher-end people focused on browser environment, like Liberate, who have followed our lead in developing an advanced set-top box feature set."
But Tritschler doesn't agree with Yates' assessment. "I don't know what he means by us coming from a different direction by being browser-focused and then trying to enhance it," counters Tritschler. "We really did the opposite. We focused on enhancing the TV experience, and used all the technologies of the Internet to do that."