Microsoft has made a string of investments in and alliances with broadband data delivery companies--at home and abroad--but has yet to offer a clear picture of its high-speed Internet strategy. Microsoft's own content franchise is even viewed as under-utilized by some, despite its high hit counts.
"To date, you're hard-pressed to see what the real tangible benefits have been," said Brian Adamik, senior vice president for telecommunications research at The Yankee Group. "Not to belittle what [Microsoft has] done, but it appears that AT&T has made a bigger impact in the cable industry so far.
"But the rollout of broadband and cable is still happening, so stay tuned," he said.
Microsoft's plan to make a $300 million investment in Dutch cable leader United Pan-Europe Communications is the latest example of Redmond's efforts to get a foothold in high-speed communications. UPC intends to work with Microsoft to bring digital video, Net access, and Internet Protocol-based telephony to the Netherlands and ten other countries.
With billions of dollars thrown at various companies, experts say Microsoft may be positioning itself for a multi-pronged thrust into the broadband market, while contending with Web content leaders like Yahoo.
But Microsoft has seen little strategic return on its broadband investments so far.
Many of Microsoft's cable investments gave new life to the industry at a time when the market was depressed, Adamik said. In an attempt to make its software as ubiquitous as possible, the company was looking to penetrate new vertical markets that it didn't have a foothold in before.
"Microsoft planted the seeds and a little fertilizer. Now AT&T is providing the sun and the water and these things are growing," Adamik said. "As AT&T continues to validate cable, Microsoft wins."
The two companies plan to deploy a high-speed network to deliver voice, video, and data services to customers in the United Kingdom and Ireland. NTL, a relatively new player in Britain's telecommunications market, has more than 1.4 million combined cable TV, phone, and Internet customers.
Microsoft's play with UPC and NTL amount to the company taking its interactive television plans overseas, analysts said.
"[The European deals are] an extension of their ambitions in the U.S.," said David Simons, managing director of Digital Video Investments, an institutional research firm. "If you look at their investments in interactive TV?it far outweighs their total in the Internet per se."
Simons said that in order to keep up with high expectations for revenue growth, Microsoft must seek out future opportunities. About 98 million U.S. households own a television set and more than 65 million U.S. homes subscribe to cable television--making investments in cable operators and direct broadcast satellite companies a wise choice, he said.
"What Microsoft appears to be saying is the interactive TV space, whatever that means, is going to be where the big money is," Simons said. "That's not to say it will supplant the Internet, but it will be the biggest money maker."
Covering its bases
Microsoft has made several other interactive TV and broadband alliances in recent years to find new markets for its Windows NT operating system, a set software that has been hampered by questions concerning its reliability.
The partnership gives Microsoft an avenue for high-speed delivery of data to its WebTV Networks subscribers. WebTV subscribers currently can attain only dial-up speeds.
Separately, Microsoft founder Bill Gates is a major investor in Teledesic, which is building a satellite-based data network.
With the Qwest deal, both companies will work together to offer advanced data services to corporate customers and small to mid-sized businesses.
Microsoft had hoped to take a larger stake in the Road Runner venture but Time Warner, the high-speed Internet service's largest stakeholder, balked at the time, Simons said.
The company also has announced its intentions to make versions of its Windows NT software available to cable companies and other broadband bandwidth providers.
"I think Microsoft has invested in broadband for the same reasons as Intel and Compaq, and that is to push the capabilities of the PC. Any takeoff in that space is a win for them because it helps their core business," said Michael Harris, president of broadband research firm Kinetic Strategies.
"But in terms of actual measurable figures of NT server deployments or people using NetShow [Microsoft's streaming media technology], I don't think the returns are as far along as they would have liked," he added.
News.com's Ben Heskett contributed to this report.