The bundling of Windows Media Player 8 with the forthcoming XP version of Windows appears to be a case of the new version of a software application exploiting features available in the latest version of an operating system--a natural development.
We do not believe, as some have implied,
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Want Media Player 8? Buy Windows XP
This is not a parallel to the IE situation for several reasons. First, when Microsoft embedded IE into Windows, it was selling that new version of the operating system into a marketplace with strong pent-up demand. People were upgrading immediately to get basic functions lacking in older Windows versions. When they received a free copy of IE with their new operating system, and particularly when that operating system version did not work well with the contending Netscape browser, they had no reason to add Netscape to their computers.
In contrast, new Windows versions are not currently flying off the shelves, as many consumers stick with their current operating system versions longer than before. Many large corporations have frozen their plans to move to Win2000 on the desktop, despite new desktop management capabilities that are valuable to them, because of the economic slowdown and the need to upgrade or replace most of the PCs on their desktops to run the new operating system.
No pent-up demand for XP
Similarly, we see no huge pent-up demand for Windows XP in the consumer and small-business markets. Although we believe that eventually most consumers and small businesses will move to XP, this is likely to be gradual and, in many cases, accidental--many people will upgrade only when they replace their current PCs with new ones that come with XP.
Second, one of XP's main selling points in the consumer marketplace is its advanced media management, but that's of value only when software that uses those features appears on the market. By introducing Media Player 8, Microsoft is trying to enhance the sales appeal of XP to consumers who want to play music on their PCs--quite the opposite of trying to ride a wave of upgrades to a new operating system to stamp out application-level competitors.
Third, most consumers do not care whether they use RealPlayer or Media Player. Actually, many have both, because both are free Internet downloads and Media Player does not support RAM file format, which RealPlayer does. Many people acquire the players as an adjunct to multimedia files that they download. RealPlayer will be popular as long as media providers use RAM file format, and we see no indication that they are moving away from that.
Fourth, the bundling of Media Player 8 into Windows XP will not have the impact of IE because the capabilities of Media Player are add-ons, while the ability to browse the Web is a necessity for conducting business and is becoming a necessity for personal lives.
We believe Microsoft may have confused the marketplace by calling its Media Player product for the XP operating system "Media Player 8," implying that it is the only upgrade path for Media Player 7. There is a significant distinction to be drawn between the underlying technology and the applications. The Windows Media technology is used by both versions--the only difference in Media Player 8 is that it uses various operating-system features unique to XP. As the underlying technology improves, Microsoft will continue to upgrade other versions of Media Player for other technologies. It could have avoided confusing the marketplace by calling this product "Media Player 8 for XP."
The real danger for RealPlayer
RealPlayer's future is in question for another reason. To compete, RealPlayer has had to offer a base version of its software for free on the Web. It hopes to make money by then selling an enhanced version, which offers CD-quality music reproduction and more access channels.
So far, however, only a small percentage of the market has bought that enhanced version; most consumers are happy with the free download. The result is that Real is not making large amounts of money, and its financial potential appears to be limited. It needs to find new revenue streams, such as compelling new features to add to RealPlayer, that will drive market demand for the enhanced version.
Businesses that have a compelling value proposition for delivering multimedia capabilities to their partners, employees, customers or suppliers should continue to use the player that best fits the nature of the multimedia content being delivered and the infrastructure over which it is being delivered. In most cases, this will result in consumers having both RealPlayer and Media Player on their desktops.
Because we believe Windows XP will take some time to permeate the consumer and small-business markets, content providers should ensure their content works well with existing players and count on Media Player 8 capabilities only as an added-value option.
Meta Group analysts Val Sribar, Dale Kutnick, Jack Gold, Steve Kleynhans and David Cearley contributed to this article.
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