October 24, 2001 5:45 PM PDT
XP partnerships have a familiar ring
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In an announcement with eerie similarities to Microsoft's first major salvo in the browser wars, the software giant revealed Wednesday that 150 companies will support Windows XP's media technology and formats. The deals, announced on the eve of the operating system's launch, could help Microsoft's ongoing battle with streaming-media rival RealNetworks and the MP3 digital music format.
Microsoft's roster of supporters lacks marquee names such as AOL Time Warner and Walt Disney, but nevertheless cuts a wide swath across the computer, Internet and entertainment industries. Partners planning to build products or deliver services specifically around digital media technologies found in Windows XP include AMG, Aiwa, CinemaNow, Compaq Computer, Kenwood, Pressplay and Sonicblue.
"If you turn back the clock two or three years, you're looking at a market that only included MP3," said IDC analyst Bryan Ma. "Microsoft has been doing a good job of getting its player out into the market, but consumers haven't been using Windows Media Player. This announcement means that (Microsoft) will be getting in the faces of consumers more and they will be muscling their way into the market."
Wednesday's Windows Media announcements are specific to XP, said David Fester, general manager of Microsoft's Windows Digital Media division.
"These are companies that are doing things specifically around XP," he said. "As you know, our Windows Media effort is broader than just XP."
Microsoft has been down this path before. Having fallen behind Netscape Communications in Web browser development and market share, Microsoft released Internet Explorer 3 on Aug. 13, 1996. But the content providers and deals backing IE 3 overshadowed the significant enhancements to the Web browser. Those arrangements--with Internet service providers, Web sites and newspapers such as The Wall Street Journal--helped catapult IE 3 ahead of Netscape in the war for browser market share and later led to two federal antitrust trials against Microsoft.
Like the earlier skirmish, Microsoft is again leveraging the monopoly power of its Windows operating system. Although the software giant has offered a rudimentary media player with Windows since version 3.1, the player is fully integrated into XP and has strong ties to the company's MSN Web properties.
The practice, known as "bundling," served as the second beachhead in the browser wars, after Microsoft integrated Internet Explorer into Windows 98.
This leverage, along with XP's favoring Windows Media Audio (WMA) format over MP3, could once again make successful a strategy that helped beat Netscape, now owned by AOL Time Warner.
Microsoft is attacking on two fronts simultaneously: bundling and partnerships.
"That has been the Microsoft legacy," said Jupiter Media Metrix analyst Mark Mooradian. "(In) the original Windows vs. the Apple days or IBM days, Microsoft reached out to developers. Microsoft built its platform on the strength of its partner developers."
At this week's developer conference in Los Angeles, Microsoft attempted to woo the development community to the company's .Net software-as-a-service strategy. Microsoft envisions a time when software is sold on a subscription basis along with ancillary services delivered by the company or third parties. The first fragments of .Net will come with Windows XP.
But some analysts note the array of Windows Media supporters is much less impressive than the group Microsoft brought out to launch Internet Explorer 3--and that reveals some cracks in the strategy this time around.
"We've got a bunch of software and hardware companies, we got 12 consumer electronics companies, we got a handful of entertainment companies, and a lot of no-names. I wouldn't call that a groundswell," said Forrester Research's Carl Howe. "I would expect to see guys like Sony, Virgin and the companies burned by the MP3 world, and I don't see them."
Although Sony was not named
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XP partnerships have a familiar ring
Part of Microsoft's problem is the changing landscape upon which the company must fight its opponents. Microsoft may be the world's largest software company, but fierce competitors such as AOL Time Warner, Sony or the major record labels won't be easy to beat.
Sony, for example, has developed its own digital music format called ATRAC 3; AOL Time Warner, meanwhile, owns Winamp, a popular MP3 music player that has become a centerpiece of its online music services.
The road to common digital media standards has been blocked partly by fears among media companies of ceding too much power to one technology provider, particularly as the industry looks down the road to a day when its entire business could potentially be conducted over the Net.
As a result, warn analysts, Microsoft's bundling strategies are creating new enemies.
"It used to be that Microsoft could only make enemies in the hardware and software business," Howe said. "Now through bundling they seem to be able to make enemies in the entertainment industry as well. Have we come to the end of bundling being a bulletproof strategy?"
WMA all the way
Unlike the browser wars, where Microsoft responded to what it perceived as a threat to its PC operating-system monopoly, digital media is more of a business opportunity that fits nicely into .Net.
Specifically, Microsoft sees control of digital media as a key leverage point in its bid to make Windows NT and Windows 2000 server software more attractive to enterprise clients. It now controls nearly 28 percent of the server market, estimated to be worth $52.6 billion this year, according to a recent study from research firm Gartner.
The company has steadily improved the quality of its streaming capabilities and has attacked RealNetworks on cost: Streaming comes bundled as a standard feature with Microsoft's server software, while RealNetworks charges hefty per-stream licensing fees. The software giant has also offered to help shoulder bandwidth costs for customers who agree to use its streaming products.
Microsoft's eye on the server market has increasingly drawn attention from regulators. In August, the European Union expanded an investigation of Microsoft to include its media technologies, focusing on whether the company is unfairly using its monopoly in desktop operating systems to bolster its server sales.
As a vocal opponent to software piracy, Microsoft also is in a strong position to woo content providers with digital rights management (DRM) technology that reduces illegal copying of video or audio files.
"There's 275 content providers today that support our DRM out on the market," Microsoft's Fester said. He said most major studios and record labels backed the company's anti-piracy technology.
"Microsoft has some natural allies in this," Forrester's Howe said. "You have to remember Microsoft goes around saying, 'We defend copyright.' Windows Media Player does have digital rights management. So anyone who is interested in protecting copyright online is a fairly natural partner for Microsoft and Windows Media Player."
DRM is a fundamental element of XP's digital media technology and the WMA files that compete with de facto standard MP3. Windows Media Player for XP only fully supports WMA. Consumers looking to "rip," or convert, songs to MP3 using Windows Media Player for XP have to pony up $10 more for third-party add-on packs.
But Microsoft's anti-piracy effort faces some challenges. On Thursday, DRM maker InterTrust Technologies expanded a lawsuit against Microsoft, alleging, in part, the violation of DRM patents. On Friday, a hacker cracked the software giant's copy-protecting feature, jeopardizing its ability to woo the industry into using WMA as a preferred standard.
Microsoft already faced some resistance from entertainment giants, particularly considering ongoing security breaches with Windows, Internet Explorer or Office.
But the new partnerships could take the choice from content providers, which have been unable to agree on a standard for protecting digital content. If software and hardware developers back Windows Media technology and formats, the company can in the long run win a foothold against MP3, say analysts.
The battle will be lost or won largely on the devices. "The biggest issue all these services are facing is the portability problem," Jupiter Media Metrix's Mooradian said. "Unless that goes away, these services aren't going to go anywhere."
On this front, Microsoft has made tremendous inroads. All the major manufacturers of digital audio player are supporting WMA in their devices, including Sonicblue and Samsung, which combined make up half the worldwide market, as well as tier-two makers, such as Creative Labs, Sony and Compaq, according to IDC.
Microsoft's Fester says "over 70 percent of devices today support Windows Media" formats, ranging from car stereos to handheld PCs to digital music players.
Analysts say the XP digital media deals put extra pressure on RealNetworks, which has its own DRM file format but not the advantage of Windows leverage to drive hardware partnerships.
"What Real has yet to do is cut deals with Rio, Creative or Apple with the iPod now," Mooradian said. "Real, because theirs is a new DRM, they effectively have to go out there and make all those deals happen. They're claiming it's about a six-month time frame."
A RealNetworks representative reeled off in an e-mail a list of content partners--including CNN, Fox Sports, ABC, CBS, EOnline and MusicNet--that have signed up for its new RealOne subscription service. RealOne is scheduled to launch in November, replacing the company's year-old GoldPass subscription service, which has signed up 400,000 active paid members, according to RealNetworks.
Still, IDC's Ma said Microsoft has its work cut out for it in seeking to replace MP3, and he does not foresee WMA making any major inroads soon.
But Microsoft is trying. One of the features in Plus, an entertainment add-on for Windows XP, converts MP3s to WMA to save hard disk space.
"There's nothing duplicitous about this, if you're concerned about disk space," Jupiter Media Metrix's Mooradian said. "But I would read the fine print on the quality of the bit rate to see if, as Microsoft says, it really saves twice the space."
CNET News.com's Richard Shim contributed to this report.