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Microsoft eyes lucrative home networking market

The software giant is still developing its overall strategy for the home networking market, but observers believe Microsoft will become a major force in the nascent market.

Microsoft is going domestic.

As high-speed Internet access becomes a staple in the home and PCs give way to new Web-based handheld gadgets, Microsoft--like its rivals--envisions a future where every electronic device can communicate.

While the software giant is still developing its overall strategy for the home networking market, company executives, analysts, and even competitors believe Microsoft will easily become a major force with its vast collection of software technology, investments, and partnerships.

The fledgling market could mean big profits--from the sale of new handheld devices and their operating systems to the sale of expensive back-end server technology.

Microsoft has collected a motley group of technologies that fits into its home networking strategy. Standing in Microsoft's way, however, are some familiar names. Sun Microsystems, IBM, and Oracle, as well as Motorola, Sony, and Philips, have gathered to form a networking consortium. Analysts say the goal of the group is to ensure Microsoft doesn't dominate the soon-to-be lucrative market.

"Microsoft has a lot of the pieces to the puzzle. To tie them into one and have an overall strategy is going to take some work," said analyst Michael Wolf, of the research firm Cahners In-Stat Group. "But they bring a lot of resources to attack the market. And they can leverage their strengths today to ensure they can continue to sell in the growth markets."

Up for grabs
At issue is a new home appliance--called a "residential gateway"--that will serve as the control center to link home appliances, PCs, and phone services in a home to the high-speed Net.

The consortium, called the Open Services Gateway Initiative (OSGI), is building a software model based on Sun's Java programming language that will help cable companies and telecommunications carriers provide new home networking services, such as security and entertainment.

The residential gateway is important because it has the potential to connect devices within the home to networks at large. For companies like Microsoft, Sun, IBM, or Cisco Systems, the fledgling market provides them with an opportunity to sell their back-end equipment--such as powerful servers, routers, and databases--required to deliver the new services, such as video-on-demand.

Microsoft, which is mired in a lawsuit with Sun over its use of Java, does not support the group's efforts, even though OSGI says it will support Microsoft's Universal Plug and Play. Microsoft considers Java a proprietary standard because Sun has final say over the technology.

Alec Saunders, group planning manager for Microsoft's intelligent appliance division, said Microsoft hasn't figured out its strategy for a residential gateway but says the company's own software model could be a contender.

But in the short-term, PCs, WebTV terminals, and set-top boxes could serve as residential gateways, said Craig Mundie, Microsoft's senior vice president of consumer strategy. "All those things could essentially be the gateway, rather than creating a new box," he said.

Here comes Redmond
At the heart of Microsoft's home networking strategy is new technology called Universal Plug and Play, which uses Internet communications protocols to automatically connect devices, such as digital cameras and printers, without the need for computers.

With its partnership with 3Com, Microsoft is building a simple networking kit that will allow users to connect their PCs and peripherals to share Internet connections and files. Microsoft's Windows desktop operating system includes new software that lets PCs share a single Internet connection.

The software giant also owns WebTV and Web content, including the MSN Internet access service and the Hotmail free email service. The company invested $5 billion in AT&T, which will include its Windows CE operating system into at least 10 million cable set-top boxes.

Microsoft and partners will soon introduce a Windows server appliance that lets small businesses and households network up to 25 personal computers.

Mary Walker, general manager of IBM's home networking division, said residential gateway makers like Motorola and other telecommunications carriers will ultimately decide who wins the war: Microsoft or its rivals. For example, Sun has a technology called Jini that rivals Microsoft's Universal Plug and Play.

The consortium hopes to come out with a specification early next year and expects the first residential gateways using its software model to be introduced in mid-2000. CableLabs, a consortium of cable television operators, has also begun to look at creating a specification for residential gateways, said Cahners In-Stat's Wolf.