The $425 million takeover of WebTV is more than a land grab for television set tops. It's an attempt to control emerging digital TVs and to ensure that the Windows operating system--as well as Microsoft-produced content--plays a major role on such devices.
Although Microsoft has come to virtually dominate the market for desktop operating systems, a relatively small slice of U.S. households has personal computers--roughly 35 percent. WebTV and other companies, such as Diba and Navio Communications, believe that the way to turn the Internet into a truly mass-market phenomenon is through low-cost Internet access devices that work with TV sets.
Should those vendors prove right, Microsoft wants to ensure that its software has a toehold in existing analog TVs and in the digital TVs that will ultimately replace them.
"Microsoft wants to make sure it maintains same sort of control, some influence in the development of these Web/TV devices, just as it does with PCs," said Allen Weiner, an analyst with Dataquest.
Today, Microsoft and WebTV executives provided additional details on how WebTV--a suite of Internet access software and a lightweight operating system for TV set-top boxes--will evolve over time to incorporate Microsoft software. That evolution will include making Windows CE--a version of the Windows 95 OS for handheld and other devices--the basis for WebTV. Microsoft also expects to create a version of Internet Explorer for WebTV.
"Windows CE will be delivered over the course of time to many products, with obviously WebTV being one of those," said Alan Yates, a senior product manager at Microsoft.
Microsoft is also looking ahead to the day when all TV sets are digital. That won't come for several years, considering how firmly analog sets are fixed in the world's living rooms. When it does, Microsoft could make good on its old promise of "Windows everywhere."
"Everyone in the business is trying to figure out what's going to happen when PCs and TVs converge," said Richard Dalton, president of the Keep/Track consultancy and a research affiliate at the Institute for the Future. "Microsoft is in position to play it both ways."
Microsoft's buyout of WebTV gives them proven technology to display digital content on an analog screen. If and when digital TV catches on, that conversion will be obsolete. But by that time, Microsoft hopes to have built an insurmountable lead across the system, from the set-top box to the operating system to the content itself. In addition to a sharper screen picture, digital TV will also deliver data broadcasts to users, such as statistics to complement a baseball game.
Today, Microsoft's Yates said the company sees a close fit between its media holdings, such as Microsoft Network, and WebTV. Preferential treatment of Microsoft-produced content might conflict with WebTV's existing partnerships with information providers like CNN, though.
"This is a clear example of where Microsoft's content ambitions may get in way of trying to attract the widest variety of content partners," said Josh Bernoff, a senior analyst with Forrester Research.