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Forget HomeStation, here comes AdStation

Microsoft whets advertisers interest in its plans for a home entertainment center, but it insists software, not hardware is at the heart of its strategy.

Absence makes the heart grow fonder--not to mention more suspicious.

I speak from experience. My own regular disappearances never fail to fill the old in-box with rumors about my untimely demise, or conspiracy theories that I am actually a committee that periodically reaches a stalemate.

Perish the thought. Every so often--last week for instance--I simply take an unscheduled vacation. Sometimes I spend a few hours at my favorite hideaway; other times I am simply too perplexed by events to put thumb to Blackberry.

I might have been blissfully incommunicado yet, had Skinformants not tracked me to a Tijuana hotel and lured me out with bribes of potable water and tantalizing hints of Microsoft's latest plan for world domination. I went after the story like it was the worm at the bottom of the Tequila bottle.

The tale begins at the swank W Hotel in Seattle, where executives from BMW, Ford, Volvo, Sega and Nike stayed when they met last week to chew over industry trends and peek into Microsoft's future, at the company's annual client schmoozefest.

Among the various presentations, Kevin Eagan, head of Microsoft's new Windows eHome division, talked about plans for a Microsoft-based home entertainment center that would manage music and video files, e-mail and Web surfing capabilities.

The presentation did not involve the much-rumored HomeStation device--something that Microsoft insists is fiction. It seems ad executives merely had a glimpse of Microsoft's FreeStyle software initiative, a plan that will use software and a souped-up PC built by third-party manufacturers, such as Hewlett-Packard.

A spokeswoman for MSN said the gathering was staged mostly to provide information about advertising opportunities on the Web portal. But the meeting, the third annual "Strategic Account Summit," was also used to "share what's possible" by demonstrating Microsoft's future technologies.

"It helps advertisers and agencies think about what's possible to meet their needs," the spokeswoman said. "MSN is a central place. Microsoft is trying to make it the premiere place for advertising."

Advertisers were shown ways to use .Net Alerts, sent via instant messenger or other services, to deliver promotions. For example, MSN runs an alert on local gas prices through MSN's Carpoint. The service takes prices from local stations and sends the lowest figure to interested consumers based on their geography. Such a service could also provide a stage for a major oil company or automaker to promote its products.

In the last year, Microsoft has been an aggressive suitor to advertisers. Last August, MSN announced it would invest $100 million for the year in plugging its new marketing division. In a kind of reverse psychology, the move was essentially designed to butter up advertisers to spend more money with its portal.

Microsoft has also put its money where its mouth is, spending $200 million to market its complex .Net strategy and another $200 million for the company's Windows XP launch.

For now, Microsoft's advertising designs appear limited to the desktop, but they could jump to other devices similar to the much-denied HomeStation. HP, Compaq, Dell and Gateway all are tweaking devices aimed at the home entertainment market, along with WebTV founder Steve Perlman, who recently unveiled Moxi Digital.

By taking aim at the home entertainment market, Microsoft's advertising ambitions suddenly look a lot bigger--and scarier, if it can successfully become the advertising glue in a host of new digital devices invading the living room. Since these devices hook into networks, they potentially offer an enormous marketing gateway that may lead inexorably back to Redmond, Wash.

"We're trying to build MSN as a platform for advertisers," the MSN spokeswoman said. "In this case, it's providing content to the application."

As for HomeStation?

Microsoft once again poured a lake of cold water on long-standing rumors of a beast being forged in the Redmond furnaces. "There's been a (lot of) confusion about HomeStation," a Microsoft spokeswoman said.

Still, Microsoft may have had some hand in helping shape such devices. The company regularly comes up with designs and specifications for hardware devices tweaked to run Microsoft software that it then passes off to often cash-strapped PC manufacturers.

But, with the exception of the Xbox, it never puts its name on its hardware designs.

For years, Microsoft and Intel would publish PC specifications, outlining the technology that would be inside PCs two years down the road. More recently, Microsoft churned out the blueprints for the Tablet PC and for Mira, a reference design for a battery-friendly wireless tablet.

Microsoft won't make either of these products or even market them under their own names. However, manufacturers such as Compaq, Toshiba, HP and a host of Taiwanese contract manufacturers will. Winhec (Windows Hardware Engineering Conference), an annual convention that takes place in Seattle in April, is where a lot of these ideas are scoped out.

According to one Skinformant who spoke with a senior Microsoft product developer, the company's interest in home entertainment is in hardware as a means to sell software. Based on the same model as Microsoft's Pocket PC, which is built by strategic partners, a potential home-networking device may be developed by Microsoft but manufactured by a key partner such as HP.

"They develop the hardware, then it's manufactured by key partners. Then they just ship the software," the source said. "Microsoft will not move away from the model of a software company. The vision it has--to create devices under the eHome division--is to migrate people to an experience at home."

I'm at home this week, so send me your rumors.