Perlman established WebTV with Bruce Leak and Phil Goldman in 1995, introducing one of the first TV set-top boxes offering Internet access. Leak will succeed Perlman as president of WebTV, while Perlman will join WebTV's advisory board.
Perlman, 35, will take some time off, before exploring new entrepreneurial ventures. In the meantime, he expects to spend time dabbling in hobbies such as photography and videography in a San Francisco lab he has set up, he said in an interview with CNET News.com.
"People who know me, know how hard I've been working," Perlman said. "It's time for me to take a break and unwind a little bit. I've even threatened to go somewhere without an email connection."
Under Perlman's watch, WebTV was acquired by Microsoft in 1996 for $425 million. Microsoft has subsequently integrated the company into its digital television strategy, with plans for next generation WebTV set-top boxes to run on the Windows CE operating system.
WebTV has about 800,000 subscribers and has been growing at a rate of 20,000 per month. Still, that accounts for less than 1 percent of all U.S. households, according to market research firm International Data Corporation, and the company faces stiff competition from cable and satellite providers, who are starting to deploy similar television-based Internet access.
"I think this was something that was some time in coming," said Kevin Hause, an analyst at IDC. "I think it was largely due to a personality and culture clash," between start-up WebTV and Microsoft.
Prior to starting WebTV, Perlman worked at General Magic and Apple Computer. Although WebTV's assimilation into a large corporation like Microsoft was clearly a potentially difficult transition, Perlman denied that frustration stemming from the merger forced him out the door.
"If that was an overriding factor then I would have left a while ago," he said, noting that WebTV has now been part of Microsoft for 30 months, longer than it was independent. But "it's a fair thing to say it was a new thing for Microsoft and a new thing for us. We are Microsoft's only subsidiary."
Any strain between the two companies was probably intensified by the importance that WebTV plays in Microsoft's long-term goals, analysts say. "While Microsoft doesn't necessarily repress entrepreneurial thinking...[WebTV] has an important strategic place in Microsoft's future, and there may be a good bit of influence from Redmond," Hause said.
Microsoft's decision to replace Perlman with one of his co-founders is a telling sign of support for WebTV's current strategy, Hause noted. "This is someone who has also poured his heart and soul into it," he said. "It's not just another Microsoft VP that they've designated to come down [from Redmond] and take over."
For his part, Leak says that there will be no major management or strategic changes when he takes over as president at the end of the month. Leak will continue as general manager of the WebTV service, he said.
"Our first priority is to give Steve a send-off to thank him for his contribution to WebTV," Leak said. "He's easily the person who worked here the longest, and arguably the person who has worked the hardest."
There will be no delays in rolling out products as a result of the management change, the executives said, including large deals announced with AT&T and TCI and Echostar. "We really need to buckle down and execute and turn them into products," Leak said.
Changes in strategy
WebTV has undergone some obvious shifts in strategy since the company was founded by Perlman, Leak, and Goldman, most obviously with respect to the company's plans to include support in future products for Windows CE and cable and satellite access.
"[Perlman's] not a cable and satellite kind of guy," said Sean Kaldor, another IDC analyst. "There's some question as to where WebTV goes from here and what the future is for WebTV. I don't think this is a clear indication either way."
Perlman was probably not forced to leave, Hause said, but the decision was probably mutual. Although WebTV has made huge leaps since its founding in 1995, the company has failed to make strides in some key areas, like growing its subscriber base.
"It really depends on how you measure success," Hause said. "At one level, he took a vision he had and turned it into a reality worth half a billion to Microsoft. But it's only reached less than 1 percent of all households."