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Microsoft TV: Not ready for prime time
To many in the industry, Microsoft has only itself to blame for not dominating the interactive television arena three years after purchasing WebTV.
On paper, it had all the makings of a natural market leader: the top company in a new field, vast resources, marketing prowess and enormous deal-making power. But former executives say Microsoft suffers from a blind spot that it may never be able to overcome: It just doesn't get television.
This is why some believe competitors may still have a chance at taking business away from Microsoft, even though they are years behind in development. For all the megacorporation's prowess in software, Microsoft has never proven that it can replicate that kind of dominance with Middle America--in essence, the TV-viewing masses.
It is for this reason that companies like AOL, which have built their success by catering to the general public, may pose a threat in the interactive TV market, especially with the potential to provide original programming and high-speed cable lines to deliver that content through its merger with Time Warner. Companies such as Sony, which have successfully targeted consumers for decades, also are in a position to challenge Microsoft with their own strongholds in traditional TV products and increasingly sophisticated game consoles.
Leak dismissed recent TV efforts by AOL, calling its AOLTV too little too late, a product designed to compete with WebTV while Microsoft TV has moved on to more sophisticated technologies and marketplaces. But others caution against any premature judgment.
"AOL is always going to be an extremely powerful player," Alterlayer's Jacob said. "It faces some of the same challenges as Microsoft (in focusing) on a lot of technology and a lot of infrastructure work. But it is primarily a consumer-focused company, so they do have some very viable subscriber bases to test this stuff out."
In some ways, Microsoft's handling of interactive TV mirrors the early days of the Internet's mainstream popularity in the mid-1990s. Many believe that, had Microsoft recognized the sea change in online computing earlier, it could have continued to dominate the PC business as it migrated from the desktop to the Web, preventing the growth and encroachment of portals and other major players.
The criticism that it doesn't understand mass media and content is a familiar one for Microsoft. For years, the company has attempted various forays into online content, through the Microsoft Network, Slate magazine, the Sidewalk city guides and several other ventures. By most accounts, its track record has been underwhelming, and top executives have not been shy to pull the plug when their patience was tried.
Television, however, is a different matter. From Bill Gates on down, Microsoft has long had its sights on the living room, anticipating the day when consumers would embrace and demand something more than a passive medium for their family entertainment.
The potential is enormous, even if interactive television experiences only a fraction of the growth seen by preceding generations: TV penetration quadrupled from 1949 to 1952, the first three years that official statistics were recorded, and grew steadily until it reached at least 95 percent in the late 1980s.
With the Internet as a catalyst, Gates saw an opportunity for another upward spiral in which content and technology fed off each other's growth. "As more television sets were sold, more programming was created, which enticed more people to buy television sets," he wrote in his book.
WebTV seemed the perfect greenhouse to nurture the seeds of the interactive TV revolution, and Microsoft had the software to cultivate it. But Microsoft was less interested in providing the second component in Gates' equation: programming.
"WebTV was an engineering company run by engineers," one former employee said. "Content was not king."
Few argue with Microsoft's decision to avoid deep investment in content, which has always been an expensive proposition for any mass medium. The problem was that no one else stepped up to provide the programming--relegating WebTV to a commodity status alongside a proliferating array of other simple devices used for Internet access, sometimes for less money.
"One of the founders once said to me, 'I don't understand why we need 25 editorial people. It only took two engineers to create email,'" Jolna said. "Talk about a disconnect. It's not that these aren't incredibly brilliant people, but they come from a very different perspective."
Working further against Microsoft is the company's take-no-prisoners reputation, which has kept potential partners at arm's length in important industries ranging from entertainment to telecommunications.
Last year, Microsoft made a bold statement with a $5 billion investment in AT&T that was widely viewed as an attempt to secure a relationship for distribution of Windows software in cable TV boxes and other products that require high-speed digital connections. But AT&T has always kept its options open, making deals with Microsoft but also with many of its competitors, possibly including AOL.
Even Microsoft supporters concede that, if it had done a better job with its TV initiatives, products like AOLTV would never have made it off the drawing board. A more serious threat may come from companies like Liberate Technologies and Sun, which are aimed at the next generation of interactive television, not WebTV.
"We were two or three years ahead of Liberate, which now seems to be the company of choice in that category," one former executive said. "But we lost that lead."
Microsoft says its software efforts are still on track but concedes some of its expectations for interactive television may have been overly ambitious. "It's par for the course," Graczyk said of Liberate's recent announcements.
AT&T and UPC, which have decided to use Liberate software on their cable boxes instead of Microsoft technology in recent contracts, always intended to work with multiple software and hardware companies, Graczyk said--alliances that further complicate the development process.
Microsoft TV is unlikely to be widely available by the end of this year, as originally promised, Graczyk acknowledged. "We're not finished yet, but I don't know that it's correct to characterize it as delayed," he said.
Regardless of what becomes of Microsoft TV, the once-prized WebTV brand will likely remain a corporate stepchild. Microsoft chief executive Steve Ballmer himself confirmed as much at a recent conference when asked about WebTV's subscriber numbers, which have appeared stalled at 1 million for some time.
"I actually think that the narrowband, current WebTV service is interesting but not overwhelming," Ballmer said. "What we do today is let you get Internet on TV, as opposed to enhancing the TV experience."
That comes as a disappointment to those who thought a new era in interactive communications was just around the corner. Love or loathe Microsoft, its purchase of the interactive TV company was seen as a major step toward realization of this elusive dream.
"Anytime an acquisition takes place, there's a transition period, and I think that continues to this day," Jacob said. "Microsoft is primarily a software and operating system company. And WebTV was a combination of a large engineering organization focusing on creating a consumer product and a bunch of people creating a new programming medium--the convergence of television and the Internet.
"The reality is that people who have the resources and knowledge to create interactive television and those who do PC software are living in separate worlds."
Separate, too, are the futures of WebTV's co-founders, who have grown in different directions since their days of ponytails and tie-dyed T-shirts at Apple. Some sources say disputes have arisen between WebTV and Perlman over recruitment of employees to his new venture, Reardon Steel.
"Steve Perlman and Bruce Leak are no longer friends," a former associate of both men said flatly.
Even those who were happy to leave WebTV are saddened by what could have been. Many speak of their days there almost wistfully, the way people do of their high schools or colleges once time and perspective have dulled the more painful memories.
"There are definitely morale problems now, for sure. The good people have left. There's been an exodus since last year. They say there's a party every week for someone (who's) leaving," one former employee said.
"There's been a loss of urgency. It just doesn't have that start-up mentality anymore."