March 2, 2001 6:45 AM PST

Microsoft shifts WebTV oversight to Redmond

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Picture imperfect

October 12, 2000
Confirming a long-running rumor, Microsoft said Thursday it is shifting management of its WebTV service to its MSN unit.

"MSN will assume responsibility for the WebTV Internet-on-TV service and will become the Internet service for WebTV's products," a Microsoft representative told CNET News.com on Thursday.

The move is not expected to produce any changes for subscribers to the television-based Internet service, the representative said. The company is not planning any job cuts as part of the move.

The Mountain View, Calif.-based unit that manages the WebTV service will report to MSN General Manager Mark Looi in Redmond, Wash., according to an internal memo.

News of the changes at WebTV was reported earlier by the site Net4tv Voice, which tracks the interactive TV market and first published details of the Microsoft memo.

"The primary focus of the Internet-on-TV team will be to deliver the key areas of the MSN service for TV-enabled devices," WebTV Networks boss Bruce Leak said in the memo addressed to employees.


Meta Group says that by placing WebTV in the MSN division and repositioning it primarily as a conduit to deliver MSN services to television devices, Microsoft is looking to boost interest in both.

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Besides the WebTV service itself, Microsoft is using the underlying technology in its soon-to-debut UltimateTV service. That offering combines interactive television, a digital video recorder, satellite TV and Internet access.

GartnerGroup analyst David Smith said the management shift makes sense, largely because providing a standalone Internet TV product these days is insufficient.

"I wouldn?t interpret (this move) to mean that the technology or (the WebTV) group is any less important," said Smith. "The fact that Microsoft is aligning (WebTV) more closely with mainstream consumer efforts like Ultimate TV and having a more active role in it is probably a good sign" for WebTV, he said.

Smith added that Internet TV in general, for all players including Microsoft rival America Online, is "destined to be a part of something else, as opposed to a standalone product. These products have been around for a while and just haven?t taken the world by storm...Access to the Internet through the TV is just not that compelling to that many people."

Microsoft said that the group that develops the WebTV units will continue to be a part of the Microsoft TV operation, while UltimateTV will remain in Mountain View, headed by Leak.

Microsoft acquired interactive TV pioneer WebTV in April 1997 for $425 million. Although WebTV continued to grow after the acquisition, the number of subscribers eventually hit a plateau at about 1 million.

Former employees said in a series of interviews last October that conflicting goals and rising tensions eventually clouded the company's vision, stunted hardware innovation and ultimately led to one of the highest customer turnover rates on the Internet.

"Honestly, the WebTV folks really didn't want to be part of Microsoft," said a former senior executive from company headquarters in Redmond, Wash. "They had their own identity, their own vision, and they wanted to maintain it as separately as possible. The cultures were very different and hard to blend." Picture imperfect

The conflicts often led to shifts in strategy and clashes between managers at WebTV and Microsoft.

Not all of WebTV's failed promise, however, can be chalked up to Microsoft's handling of the start-up. In general, the dream of combining PC technology with America's favorite entertainment medium has been a nightmare.

Gateway and Compaq have both released PC-television combinations that met with extremely slow sales. More recently, AOL Time Warner's AOLTV has received a tepid reception.

 

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