LAS VEGAS--Tele-Communications Incorporated (TCOMA) and Microsoft (MSFT) announced that TCI will use Windows in 5 million interactive TV set-top boxes, a surprise victory for the software giant that countered a deal disclosed only a day earlier with rival Sun Microsystems.
The deal also makes Microsoft a major player overnight in what could be a huge future market, since set-top boxes sit on top of tens of millions of TVs.
The TCI boxes will run a version of Windows CE, Microsoft's operating system for set-top and handhelds devices. They will be advanced machines endowed with many characteristics of a personal computer, a departure from the basic cable boxes that sit atop television sets today.
Just yesterday, in what seemed to be a blow to Microsoft, TCI announced a deal with Sun Microsystems whereby the cable TV giant will also use Sun's PersonalJava software for its future set-top boxes. (See related story)
But John Malone, chairman and chief executive of TCI, is expected to maintain a balance of power, where no one company dominates as Microsoft does today in the PC industry.
Both pieces of software can coexist on one box, according to TCI. On some boxes Windows would serve as the underlying operating software while Sun's Java would reside with Windows as a Java "application management system," according to TCI.
This gives TCI "an operating system that enables high-quality video and sound, as well as new interactive video services," TCI said. This version of Windows CE has been developed for the television environment, with integrated support for Internet content and technology from WebTV Networks, now a subsidiary of Microsoft.
Microsoft and TCI expect that Windows CE will be available for the advanced digital set-top devices that TCI will begin to deploy in late 1998 or early 1999.
"We feel good about our partnership with TCI because we're providing the fundamental technology that enables all the great things that they want to be able to do," Microsoft CEO Bill Gates said at the Consumer Electronics Show here today. Some of the services that TCI envisions adding to cable services include Internet access and the ability to interact with programming and advertising.
Malone said in a conference call this morning that Microsoft was chosen as the operating system because it was the furthest along in developing technology for the convergence between the TV and the Internet.
He noted that, while the agreement is not exclusive, TCI plans to focus on Windows CE for its set-top boxes in the forseeable future. "We have the right to work with another OS, but given the head start that Windows CE gives us, we'll stay with that OS," Malone said.
And he noted that, although TCI's cable operator affiliates may download or work with another operating system for the boxes they use, it's likely they too will chose Windows CE.
Regarding how Windows and Java will interact, Gates's vision is typically Microsoft-centric. "What Sun announced yesterday was that...Java would be included in a subset of these set-top boxes. Even this subset doesn't fit into the 8MB set-top box, and so Windows CE will be in all of them [TCI's set-top boxes] and Java will be in some of them," Gates said.
Software developers will have a choice as to which platform to target, he added.
However, the hardware for the boxes is undetermined. "There will be a hardware decision shortly so we can start making the hardware," Malone said.
Most of the computer's functions will be integrated onto a few pieces of silicon "to make it profitable for the [chip] vendor and affordable for customers," Malone said.
Malone added that the "capital cost" of the box would be about $300, meaning presumably it would be priced higher on the consumer market. The box would include memory--8MB or possibly more--the processor, and cable-modem capability, among other features.
Despite published reports that Microsoft would likely take a sizable investment stake in TCI, Malone said the talks leading up to the deal had always been at arm's length.
"There is no investment being made in TCI or any TCI enterprise," he said. "It was negotiated as a pure technology deal."
However, discussions have been held on how cable operators will pay for the set-top boxes. Some of the ideas to surface include a financing or leasing pool that investors would contribute to and the cable operators could draw from, Malone said.
He added that some software providers may want to promote certain applications and want to participate in the pool, while others may view it as a capital investment in hardware.
"It will be on the merits of the investment and not as an inducement to use a particular technology," he said.