Apple, Microsoft have designs on your living room

The two companies last week each revealed new pieces to their digital living room strategy, aiming to move beyond their core strengths. At the Consumer Electronics Show in Las Vegas, Microsoft Chairman Bill Gates showed off Windows Home Server, a slimmed-down version of its operating system. It's designed to power a new generation of cheap and simple servers that can serve as a central household repository for photos, music, movies and more.

Two days later, Apple CEO Steve Jobs formally introduced Apple TV, a small box that sits next to a television set and enables people to play content stored on a Mac or PC elsewhere in the home.

"Apple--their business has been revived by the iPod and iTunes. It makes sense to try and build on that in whatever way they can," said Matt Rosoff, an analyst at market research firm Directions on Microsoft. "Microsoft--yes, they have a mobile story, but they seem to be more focused on in-home experiences."

The two products are not competitors, but reflect both companies' efforts to build on their strengths and work toward an all-encompassing range for the home.

Beyond the new home server product, Microsoft has been pitching its Media Center entertainment PC notion. It has also been expanding the role of the Xbox console beyond games into movies and, last week, into Internet Protocol-based television.

Apple, meanwhile, has dominated the mobile device market with the iPod, and it has sold millions of downloads of TV shows primarily for viewing on the media player. With the Apple TV box, it gains a much-needed gateway to the television.

Jobs gave a preview of Apple TV (then code-named iTV) in September, saying that the product "completes the picture" for the Cupertino, Calif., company.

"Now I can download content from iTunes and enjoy it on my computer, my iPod and the big-screen TV in my living room," Jobs said at the September event.

Apple TV is not, as some had hoped, the equivalent of a full Media Center PC, capable of recording TV shows that come in via cable or satellite. Rather, it is more akin to a Media Center Extender in the PC world--connecting content stored on a computer to the TV.

The $299 device does not take on all tasks, but it does offer Apple an important connection to the TV. The bridge is all the more important now that the Mac maker has begun selling movies. This week, the company expanded beyond selling Disney flicks, adding content from Paramount Pictures.

Digital Lifestyle Outfitters' HomeDock Deluxe takes a different approach to the same problem. Figuring that most of your iTunes content is already on your iPod, the dock simply connects the iPod to the TV via its own remote-controlled interface. The original version, launched last year, handled music files. In the latest version, DLO has added video. And at $149, it's a cheaper alternative for folks who just want their iTunes TV shows on the big screen.

For those who want to add TV recording abilities to their Mac, Miglia's TVMax is a Mac Mini-shaped box that does allow digital video recording, using El Gato's EyeTV software.

Fitting pieces together
Microsoft's big announcement at CES, Windows Home Server, was less about getting content into the home and more about what consumers do with it once it is there.

"We're really recognizing the fact that homes now (have) four or five PCs, an Xbox, music player, a Zune," Microsoft entertainment unit president Robbie Bach said in an interview. "We're going to want things to help people manage that, whether it is file backup or security or whatever it is you need in the home to keep your network safe and running well."

Hewlett-Packard plans to start selling a MediaSmart Server using the Microsoft technology later this year. Other PC makers are also expected to adopt the technology, which is based on Microsoft's Windows Server 2003 operating system.

Both Apple TV and the home server from Microsoft are potentially niche products for now. In an interview with CNET News.com, Gates said it isn't easy to predict when the notion of a home server will go mainstream. "As you get a product that's, say, well under $1,000, viewed as just dead simple to use, I think a reasonable percentage of multiple-PC homes will find this very attractive," he said.

Diffusion Group analyst Michael Greeson said in a note Friday that Apple TV has been overhyped by the media, noting that many of its abilities are already available in other products.

"In what world do these people live? Are they completely oblivious to the fact that Internet-enabled DVRs and set-top boxes, not to mention digital media adapters, have been around for a couple of years?" Greeson wrote. "Are they aware that the latest generation of game consoles do pretty much the same thing as Apple TV (sans iTunes), including burning content to an embedded hard drive?"

Microsoft and Apple are far from the only players here. There are content providers--DirecTV, the Dish Network and the cable companies--offering their own, more powerful set-top boxes and services to consumers. Telecommunications companies are also getting into Internet-based TV (though this is another area for Microsoft, which has signed a number of customers and has been working in the area for more than a decade).

Notably, TiVo has added a variety of abilities to its popular digital video recording system in recent years, allowing content to move to other PCs and devices. This week, it finally brought that TiVoToGo mobile service option to the Mac.

And Digeo, which counts Microsoft co-founder Paul Allen among its investors, has been trying to crack this market for a long time. Years of selling its Moxi line of set-top boxes to cable companies has brought only limited results, though: about 400,000 people have signed up through smaller cable outlets. At CES, Digeo said that it will start selling its devices directly to consumers. It also offered a preview of two high-definition personal video recorders that it plans to release in the second half of this year.

A key reason for this shift to the consumer is a long-planned change in the cable industry that will allow people to buy rather than rent DVRs. People will be able to purchase their own set-top box at a retail stores, then hook it up to their local cable provider via a small insert, knows as a CableCard.

Microsoft has been touting plans for CableCard support for a long time. In November 2005, the company said it had signed a deal with the cable industry that would pave the way for Media Center PCs with built-in CableCards to arrive by the 2006 holiday sales season. That didn't happen. At CES last week, Microsoft said it sees such PCs coming out in the second half of this year.

Electronic ease of use
The big challenge the computer companies face, said Digeo CEO Mike Fidler, is not the technical one but that of making products that are as easy to use as the consumer electronics they seek to usurp.

Fidler, who spent nine years as head of Sony's home products unit, said people expect more out of their TVs than they do from a PC.

"It doesn't have a 'blue screen of death,'" he said. "It has always been, 'I turn it on. I turn it off.'"

The hurdle for Digeo and others now is to maintain that ease of use and reliability while adding options such as direct delivery of digital content, and streaming of music and pictures stored elsewhere in the home. People want those things, but they want them to be easy to use, he said.

"They don't want to have to stress out in their living room trying to find their entertainment," Fidler said.