Gates said the jointly developed product will likely incorporate video-on-demand and online shopping, according to reports from Tokyo, where the Microsoft chief is visiting this week. Analysts speculate that the two companies will likely introduce a cable set-top box for next-generation digital television sets.
Michael Harris, analyst at Kinetic Strategies, cited Sony's partnership with General Instrument, one of the leading set-top box manufacturers, as a sure indicator of a future Sony-branded cable set-top box running Microsoft's Windows CE operating system.
"Sony has an investment in General Instrument, who is TCI's cable set-top box vendor," Harris said. "TCI has selected CE for the operating system environment. Sony is going to fulfill the order with some GI components and Microsoft will provide the software architecture."
The two companies have worked together in the past to bring the "convergence" of PC and TV technology into the home. In April the two companies announced an alliance to promote home networking using Windows CE devices. Additionally, Sony was one of the first to manufacture Microsoft's WebTV product.
"It's accurate to say that Sony's covering all the bases," in TV-PC convergence, Harris said. Besides WebTV, Sony's efforts include cable modems and a new line of PCs introduced in Europe today. "There are different ways you can get to the end game of TV Internet connectivity," Harris said.
Microsoft, for its part, has made no bones about its interest in dominating set-top box software. The Redmond, Washington, company recently picked up a 10 percent stake in the Time Warner and Media One property Road Runner, which provides high-speed cable access to the Internet. The company previously covered its cable bets with investments and alliances with cable operators Comcast and a deal to put Windows CE on set-top boxes from TCI.
"Microsoft wants to have the software on the box," Harris said. "It's like Microsoft having a partnership with Gateway or Compaq-- you want to align with the strongest hardware players. And [in the consumer electronics space] Sony is one of the strongest, if not the strongest players."