The software titan's cable software will be offered to more than 500,000 customers in the company's hometown.
The announcement follows up on a pledge earlier this year by the two companies to broadly deploy the software maker's Microsoft TV Foundation Edition software. Comcast has taken a license to use Microsoft's software in 5 million homes.
"Today marks an important milestone in the overall partnership between Microsoft and Comcast," said Moshe Lichtman, a corporate vice president in the Microsoft TV unit. "It's also the first large-scale deployment of our software in the U.S. market."
Analysts have said the Comcast effort could be critical to Microsoft's future in the U.S. cable market. Lichtman agreed that the Comcast effort will be important and that others will be watching.
Microsoft has been pursuing TV dreams for years, at least since its 1997 purchase of WebTV. But the company has largely scaled back its ambitions of offering PC-like services such as e-mail and Web surfing via the television. The Microsoft TV unit now focuses primarily on delivering video on demand and other television services that cable operators want to bring to their mainstream subscribers.
Microsoft has invested billions in the cable companies as part of its television efforts, including $1 billion in Comcast.
"Comcast is a leader in cable," Lichtman said in a conference call announcing the deal. "So obviously any decisions such as this with regards to our software are very fundamental and will influence other operators."
The primary feature of the Microsoft software is an advanced program guide that can power digital video recording and video-on-demand services. The software also allows the display of some news and information content as well as basic gaming. Some simple games are included, with more planned for early next year.
Later this month, Comcast said, it plans to offer the software to those with new high-end set-top boxes that have a built-in dual-tuner digital video recorder. Next it will offer the software to its high-definition television customers. Then, in the new year, it will roll out the software to all of its digital cable customers in the Seattle area.
Comcast has more than 1 million subscribers in the Seattle area, but almost half of them have basic cable connections rather than the digital cable set-top boxes required to run the Microsoft software.
Not the only game in town
Microsoft is still competing for Comcast's business with iGuide software developed jointly by Comcast with Gemstar-TV Guide.
"We are launching the iGuide in other markets as we speak," said Mark Hess, senior vice president of digital television for Comcast. "We have always had a strategy of working with multiple technology partners. We think it is good for us and it is good for innovation and competition."
The two companies are also working jointly to add features to future versions of the Microsoft software and are also looking at collaborating beyond the set-top box.
Future efforts could take advantage of the high-speed Internet connection that many cable customers have coming in. Hess said customers might find it easier to search for a movie by typing on their PC and would like a way to make a choice and send it to their television . Or an alert on the PC could remind customers of an upcoming television show they want to see.
"There's a lot of things we've thought about, nothing that's really concrete," Hess said.Although today the television services from cable and satellite are very similar, analysts say that the two-way, high-speed connection could afford cable a key advantage.
"If they do it well, the cable side of the business will have a substantial advantage because of the two-way pipe that cable offers," said Jimmy Schaeffler, analyst with The Carmel Group, said. Schaeffler added that additional services could help cable operators to beef up their offerings to subscribers and finally take advantage of a key part of its arsenal, the potential for viewers to interact with the cable service.CNET News.com's Richard Shim contributed to this report.