Microsoft on your telly: a history of the company's Internet TV strategy

This is the first article by Mack D. Male, in a two part series, exploring Microsoft’s Internet TV strategy. Mack is the author of Windows Media Blog and mastermaq.

Microsoft on your telly: a history of the company’s Internet TV strategyTelevision over the Internet, better known as IPTV, is a small but growing segment of the very large market for television products and services. Gartner predicts the number of IPTV subscribers will grow from 3 million in 2005 to 50 million in 2010, creating huge opportunities for technology vendors. However, there’s more to the story than simply moving the signal from traditional broadcast and cable networks to Internet networks.

The two biggest factors contributing to the growth of IPTV are interactivity and convergence. Interactivity is all about putting the user in control, and moving beyond simply watching TV. Think: looking up statistics while watching a sports game, or changing the camera angle. Convergence is about making things work together. Displaying photos from your computer on your TV, for example, or on-screen caller ID. For all of these things to work, you need more than just hardware. IPTV makes software an extremely important piece of the television services puzzle.

Enter Microsoft

There may not be another company as well-positioned to take advantage of the growth in IPTV as Microsoft. Despite being primarily a software company, Microsoft has long had a passion for television. The company launched the 24-hour cable news channel MSNBC in July of 1996 in a joint venture with NBC. Just less than a year later, Microsoft purchased WebTV, one of the first products to marry television and the Internet. In 2000 they acquired Israel-based Peach Networks, a provider of technology for digital television. The late nineties also saw a number of television-related investments by Microsoft, in companies such as AT&T, @Home, Comcast, and Rogers.

While the 1990s were a period of heavy investment in television companies (including a number of acquisitions), the 2000s have so far been much more about Microsoft developing television-related technology. It is on the resulting products and services that we now focus our attention.

WebTV

WebTVTarget: Consumers
History: Founded by Steve Perlman in 1995, acquired by Microsoft two years later.
Released: September 1996
Technology: Set-top box with online service.
Pricing: $325 for the set-top box, $20/mo for service

WebTV was the first major product and service offering to combine television and Internet access. It got off to a very good start, and sold well in the early years. Microsoft noticed, and made a bid for the company that was challenged by Sun Microsystems, among others. Eventually the deal was approved, and WebTV became a wholly owned subsidiary of Microsoft. The product was later rebranded as MSN TV. As more and more people ditched dialup for broadband, MSN TV lost many subscribers.

UltimateTV

UltimateTVTarget: Consumers
History: Second Microsoft product to integrate television and Internet access.
Released: January 2001
Technology: Set-top box with integrated DirecTV receiver and DVR.
Pricing: $9.95/mo or $14.95/mo (for ISP access)

UltimateTV was a joint venture with DirecTV, and essentially aimed to combine television with Internet access. It accomplished this by borrowing heavily from WebTV’s software. At the time, UltimateTV was the only satellite receiver to support picture-in-picture. The product failed to catch on with consumers, however, and was taken off the market in 2003. It is still supported by DirecTV.

Windows Media Center

Windows Media CenterTarget: Consumers
History: First released as a special Windows XP SKU, included in some Windows Vista SKUs.
Released: September 2002
Technology: Application supporting TV tuner cards built on top of Windows.
Pricing: Windows Vista Home Premium MSRP $239

Windows Media Center is an application that runs atop Windows XP or Windows Vista designed to act as a central access point for home entertainment. Local and networked photos, music, and video are all indexed and made available, and if the computer has a TV tuner then live television is also available. Windows Media Center also acts a sort of network hub, and allows streaming of media to Windows Media Center Extenders such as the Xbox 360.

Microsoft TV Foundation Edition

Microsoft TV Foundation EditionTarget: Cable network operators
History: Microsoft’s first major attempt at a software platform for television.
Released: June 2003
Technology: Software platform integrating video-on-demand, DVR, HDTV, live TV, and an interactive program guide.
Pricing: N/A

Foundation Edition is quite similar to Mediaroom (or IPTV Edition) except for the fact that it is focused on the cable market, rather than the Internet one. DVR and HDTV technologies are the main focus of the product. Comcast was the first and only major cable operator in the US to deploy Foundation Edition, back in 2004, though they recently announced they were dropping support for the product. Microsoft definitely seems more focused on IPTV and Mediaroom – Foundation Edition receives only a cursory mention on the Microsoft TV site.

MSN TV2

MSN TV 2Target: Consumers
History: MSN TV is an evolution of the WebTV product Microsoft acquired.
Released: October 2004 (MSN TV2)
Technology: Set-top box supported by an online service.
Pricing: $99 USD/year (not including hardware)

MSN TV2 was introduced largely to capture customers moving to broadband Internet access. The box runs Windows CE and supports many popular applications such as Windows Media Player. It also supports file sharing with Windows computers.

Xbox Live Video Marketplace

XBox Live MarketplaceTarget: Consumers
History: Evolution of the Xbox Live service.
Released: November 2006
Technology: Internet service accessed via Xbox 360 consoles.
Pricing: 240 Microsoft Points per HDTV episode, 160 Microsoft Points per SDTV episode

The Video Marketplace on Xbox Live allows users to purchase TV shows and movies using their Xbox 360 gaming console.

On the first day of the 2007 Electronic Entertainment Expo (E3), Jeff Bell, Microsoft’s VP of Marketing for the Xbox, announced that Xbox Live has more than 7 million members, and that $125 million of content has been sold via the Video Marketplace. He also announced that the US-only service will finally be launched in Canada and Europe by the end of the year.

The Video Marketplace (and Xbox Live in general) has a lot of momentum right now, and looks to be an important part of Microsoft’s strategy moving forward.

Microsoft Media RoomMicrosoft Mediaroom

Target: Broadband service providers
History: Formerly known as Microsoft TV IPTV Edition.
Released: June 2007 (Mediaroom re-branding)
Technology: Software platform integrating video-on-demand, DVR, HDTV, live TV, and interactive programming guide. Intended for use with IPTV networks.
Pricing: N/A

Mediaroom is the newest offering from Microsoft, and arguably the most exciting. More than just a simple re-branding, Mediaroom has the potential to be the television platform Microsoft has always wanted. It also brings about two major shifts in the company’s strategy.

The first is related to branding — previous products, such as IPTV Edition or Foundation Edition, were very rarely known about by the end consumer. Microsoft intends to change this with Mediaroom, hoping the brand will come to be recognized and in fact requested by consumers.

The second shift is related to third-party development — quite simply, Microsoft is finally planning to make it possible. Unlike with previous products, developers will be able to create applications that work with the Mediaroom platform. And that’s what Mediaroom is really about – creating a platform. It’s what Microsoft does best, after all.

Next Up: Integration

Perhaps the strongest reason to deploy Microsoft solutions, media-related or otherwise, is the integration story. If you have two components and they are both from Microsoft, chances are they will work very well together. That wasn’t the case for Microsoft’s early television software efforts, but integration is increasingly the focus. And integration is what could give Microsoft the edge over competitors.

In part two we’ll look at how Mediaroom, Windows Media Center, the Xbox 360, and some other Microsoft products work together to make the experience of sharing media in the home much simpler and more enjoyable than it is today.

Part two: Microsoft’s Internet TV strategy: today and in the future

last100 is edited by Steve O'Hear. Aside from founding last100, Steve is co-founder and CEO of Beepl and a freelance journalist who has written for numerous publications, including TechCrunch, The Guardian, ZDNet, ReadWriteWeb and Macworld, and also wrote and directed the Silicon Valley documentary, In Search of the Valley. See his full profile and disclosure of his industry affiliations.

29 Responses to “Microsoft on your telly: a history of the company's Internet TV strategy”

  1. Watch TV says:

    They definitely had earlier predicted that moving into the living room would be a smarter move for them to secure a foothold in the future, but I think they may be overstepping their comfort zone because Microsoft is already on the down slope with more people migrating to Apple thanks to the IPod’s success, and Firefox and Google have seen to it that people are now going with more viable alternatives – I think it’s too little too late for them to be delving into user experience so late in the game. Apple released Apple TV, Joost is offering p2p for shows, Torrents already are a platform to distribute media – which leaves little room and headway for Microsoft to peak through. They’d need to act fast and offer something very very unique.

  2. Mark Verber says:

    Your history missed the work done in Microsoft Research in the early 1990s which resulted in a trial in Tokyo (and I think Redmond) on 1996. A paper describing some of those experiences can be found at http://research.microsoft.com/~mbj/papers/mitv/tr-97-18.html

  3. Steve O'Hear says:

    Thanks for the link Mark. We’ll look into that.

  4. James says:

    They all have one thing in common, none of them have been profitable.

    “And that’s what Mediaroom is really about – creating a platform. It’s what Microsoft does best, after all.”

    Yes, the Windows monopoly has been a great success. What other successful platforms have they created, um, that were profitable.

    Oh, look a long string of failed Mircosoft platforms…

    •the 1991 Windows for Pen Computing platform
    •the 1992-1994 WinPad vaporware computing platform
    •the 1996 Handheld PC / ‘PC companion’ computing platform
    •the 1998 Palm PC computing platform
    •the 2002 Mira Windows Terminal display computing platform
    •the 2003 Pocket PC computing platform
    •the 2003 Tablet PC computing platform
    •the 2004 Media2Go/Windows Portable Media Center computing platform
    •the 2006 Origami / Ultra Mobile PC computing platform

  5. James says:

    A more accurate title:

    - Microsoft on your telly: a history of the company’s FAILED Internet TV strategy. -

    A long string of horrible failures.

    Lets not forget the unprofitable Xbox360 and Zune.

  6. Mack D. Male says:

    James, as I’m sure you’re aware, when Microsoft commits to a market, they’re in it for the long haul. The Tablet PC and Ultra Mobile PC platforms in particular are still very new, and I wouldn’t say they have failed. In the case of the Tablet PC, most of the extra functionality has been rolled right into Windows.

    I would say that Windows Mobile and Windows XP Embedded have been very successful for the company, and both have built upon the lessons learned from some of the items you’ve mentioned.

    The point is, it’s very hard to look at any one of the items you mentioned in isolation and declare that it has failed. So many of Microsoft’s products are evolutionary, building upon previous trial and error.

  7. Al TV says:

    Another Microsoft TV tale took just before the WebTV deal. Few remember that IPTV was built into Windows 98. If you had a TV card in your PC, you could view interactive content that was sent out on the VBI between each video frame. (This had comparable bandwidth to a 28.8 dial-up connection.)

    Conent was actually created for this system. There were a few interactive episodes of “Gilligan’s Island,” a Brian Williams MSNBC newscast, and a syndicated Canadian police procedural, shot in Toronto, whose name escapes me. In addition, interactive TV ads were created, and tests were run with television stations in the Seattle area and elsewhere.

    At the time, Microsoft had a channel on the DirecTV satellite. The purpose was to see what would happen if you had a lot of bandwidth to play with. Not sure where that all wound up.

    Anyway, Paul Mitchell is still a big part of Microsoft TV, as he was back then, and probably could furnish all the details. It’s exciting to see where this concept has gone in the past decade, and MS should be commended for sticking to it.

  8. whoindatgarden says:

    Well so another one of those blogs or “white papers” etc to hype IPTV and or any other form of Broadband delivery of Video.
    So far all the players in this space are companies with deep pockets. None have shown to have made a profit or even broken even with any of their offerings.
    Until the issues around True High speed Internet connections of sustained 10 plus Mbits/sec is made available, Walmart, Netflix and your favorite local Cable company shall continue to deliver the bulk of the revenue for delivery of Digital Video products.
    As is the case with the desire and the holy grail to Hydrogen Powered cars in probably 15-20 years and in the meantime we have a few Hybrid vehicles right now, yet Toyota is not getting no more than 5% of it’s revenues and they continue to develop newer Gasoline engines and vehicles to go with it..
    Thus to believe that in the case of Television and Video distribution will all take a significant share of the revenues in the next 3 years even is not realistic but more related to the HYPE.
    Will we get to the holy grail sure, but not in the time line laid out by the so called experts who pulled the numbers to begin with from thin air.

  9. jbelkin says:

    The only reason MS doesn’t give up any business sector is because of arrogant stupidity – harsh but true. They just cannot believe that people don’t line up to buy anything with their name – it worked with MS ’95 but MS doesn’t realize it’s not 1995 anymore.

    Most companies would realize after a couple billion dollars and 10 attempts that people have looked at their offerings and said, NAH but not MS. After all, stockholders and corporations are willing to keep buying their overpriced stuff (yes, when your margins are 90%, you are over-priced) so what do they care. $2-$4 billion down a hole, better sell a few more maintenance contracts.

    That is why EVERY consumer venture has failed including all these and watches, Talking Barney’s, etc … they are excited about launching but like the XBox proves, they have ZERO follow through. Once it’s out, they just expect consumers to buy it but consumers are not as dumb as corporations who will buy anything that fits the specs – doesn’t matter how hard it is to use or the cost of upkeep (another budget) – cosnumers, well, it’s our money and we learned a long time ago, choosing MS is a loser’s bet.

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  11. James says:

    “I would say that Windows Mobile and Windows XP Embedded have been very successful for the company” @Mark

    Let me quote the article again…
    “And that’s what Mediaroom is really about – creating a platform. It’s what Microsoft does best, after all.”

    Lather and repeat…
    Yes, the Windows monopoly has been a great success. What other successful platforms have they created, um, that were profitable?

    Outside of Windows and Office, where they can effectively leverage their monopoly created over a decade ago, they’re a flop.

    If iPhone sales are any indication, Windows Mobile is about to be trumped in marketshare by a complete newcomer to the smartphone space. The iPhone runs OS X.

    The bottom line is that Microsoft is a one trick pony and it depends on its monopoly to keep it that way, because if its not tied to Windows its fails. Unfortunately for Microsoft, this monopoly has failed to be effective in the consumer space, where it doesn’t have an army of IT managers and developers to protect it, since their jobs depend on Microsoft’s dominance.

  12. James says:

    Another list…
    At previous CES shows, Microsoft has dutifully rolled out iterations of product visions that nearly all either ended up as huge failures or never even made it to market:

    •2000 Web TV (dead), Microsoft TV (what’s that?), WinCE smartphones previewed two years early
    •2001 Xbox (billions of dollars in losses), Ultimate TV (gone), “Windows Powered” (more WinCE rebranding)
    •2002 Mira (stillborn), Freestyle (the code name for Media Center)
    •2003 Media Center PC, Tablet PCs, SPOT watches, Media2Go (the iPod Killer; four losers in total)
    •2004 Media Center again, Media2Go re-announced as Portable Media Center (dead)
    •2005 Digital Entertainment Anywhere ramblings
    •2006 Xbox 360 (stuffed into the channel), more Portable Media Center (later sacrificed for the Zune)
    •2007 Vista (cooly received, rejected by Dell), Windows Home Server (still in progress)

  13. noob says:

    Ok, we should now make linux stuff for this tv, like http://zonow.com/78

  14. Mack D. Male says:

    James I see what you’re saying, and no one can dispute that Windows and Office are the company’s main products, but I think they realize it and they’re really trying to branch out. Perhaps the “platform company” idea simply needs to be fleshed out more. In my books, a platform entails more than an announcement. It needs solid design, marketing, partners, and most important of all – developers.

    I would say the Xbox has actually been a very successful platform for Microsoft, one of the few that doesn’t have a lot of developers behind it besides big companies (though that will be changing with Game Studio and XNA). Sure it’s lost a lot of money, but look at the impact it is having on the gaming and entertainment markets. Profits will come, eventually. (Heck, Amazon.com has lost boatloads of money over the years, yet you’d be hard pressed to find someone who calls it a huge failure.)

    Also – maybe it’s as simple as viewing your lists (which are very good btw) not as lists of failures, but lists of lessons. You certainly can’t fault Microsoft for trying things.

  15. Interesting reading. You may want to check out my post on Apple’s Apple TV, comparing it to the strategies of Sony and Toshiba’s next generation DVD players.

    You can find my post at:

    http://www.mathoda.com/archives/168

  16. James says:

    “Also – maybe it’s as simple as viewing your lists (which are very good btw) not as lists of failures, but lists of lessons. You certainly can’t fault Microsoft for trying things.”

    If your a shareholder, which I am not, you certainly could fault them for blowing all those billions. Again, other than Windows, Office, and support services for those products, all of there other initiatives are operating in the red. Why? Because they’ve learned nothing from all of that trying and their behavior remains the same, despite market trends.

    Business may have its hands tied, by the bed they’ve made with Microsoft, but consumers don’t carry that liability of dependence. Consumers want style, simplicity, and easy of use, three traits Microsoft products simply don’t have. There are few if any products that Microsoft sells that were design in house, rather they copy and buy successful ideas or products from others. Unfortunately, like a photocopy it not as good as the original, because the internal culture of the company doesn’t support originality and innovation; those are just marketing buzz words. Just look at their products.

    In many way we should be thankful to Microsoft for creating a near universal computer platform, after the fractured platform market of the 80′s. Commodization of computers established standards, brought prices down to what the average joe could afford, and made computers as common as a phone. But the 90′s are over. Ok, so now everyone has a computer but now we want something better and its not just about numbers anymore, price vs. features, its about style, simplicity, and easy of use, and consumers are ready to pay for it; see iPhone and iPod. Microsoft just has no skill in these areas.

  17. Michael says:

    FYI: There was a pilot trial on Shanghai Telecom China based on so-called “CBox” (a time-to-market Chinese version MSTV-IPTV solution) at about 2003.3.

    Then the CBox was merged into Redmond MSTV project.

  18. Billy says:

    Should we commend Microsoft for continuing to try new avenues into IPTV? They certainly have tried, and have made plenty of errors. But have they learned from these errors? They dont seem to me to have a clear, focused strategy. They just throw stuff against the wall to see if it sticks. This is a horribly costly and time consuming method. Not to mention that it causes serious harm to credibility. Its to the point now, when I hear a new IPTV product announcement from Microsoft, I just yawn and turn the page. I have no confidence in their commitment to Mediaroom, and therefore will not “buy in”.

  19. Ty Graham says:

    Thank you for the simplicity of the message: Interactivity + Convergence = Success
    This is my final post before the big bang, because soon, everyone is going to get blipd!

  20. James says:

    “Should we commend Microsoft for continuing to try new avenues into IPTV? They certainly have tried, and have made plenty of errors. But have they learned from these errors? They don’t seem to me to have a clear, focused strategy. They just throw stuff against the wall to see if it sticks. This is a horribly costly and time consuming method. Not to mention that it causes serious harm to credibility.” @ Billy

    True, but on another note its funny how I could apply this as a metaphor for US strategy, or lack of, in Iraq (now read it again). The bottom-line is that in both situations its the same kind of self-serving thinking that results in these failures, since the agenda of the company or the current presidential administration, creates a solution in search of a problem.

    Before anyone rolls their eyes let me elaborate…

    Many industries and companies, like the RIAA, MPAA, cell phone providers, and Microsoft, create products based primarily on their needs, rather than the needs of consumers. They create a products and use their marketing and monopolistic positions to induce a purchase by limiting free-market competition, instead of looking to fill the needs and wants of consumers.

    Perfect examples can be seen in efforts to sell DRM infected music and movies, subscription services, feature crippled phones, and in Microsoft’s case anything that will strengthen their Windows monopoly, while creating a continuous revenue stream from some kind of subscription service or assurance plan.

    In the case of MediaRoom (or the multiple variations of the same thing that came before it) its a product in search of a market. What is MediaRoom? Its a the re-re-re-re-branding of WebTV and like the Xbox or so many of Microsoft’s new “platforms”, its just a re-branded PC running some flavor of Windows. Goal, strengthen the Windows monopoly and create some kind of subscription stream from its bowels. But no matter how many times it fails, they’ll re-brand and sell it as the next big thing, because it serves their interests; a Windows everywhere strategy. In fact, just about every “platform” Microsoft creates is just PC running Windows, which they now go to great lengths to disguise, as is the case with Microsoft’s “Surface” computing platform.

    “More than just a simple re-branding, Mediaroom has the potential to be the television platform Microsoft has always wanted… Microsoft intends to change this with Mediaroom, hoping the brand will come to be recognized and in fact requested by consumers.” (article)

    Its right there in the article, re-brand and hope someone will want it; a solution in search of a problem or need. “Mediaroom has the potential to be the television platform Microsoft has always wanted.” Much like Iraq, an invasion plan in search of a reason to invade, re-branded at every turn, because its what they’ve always wanted. No weapons of mass destruction, not responsible for 9/11, oh, ok, re-brand, now its about freeing the Iraq people.

    Six years of non-conservative policies have allowed industry and government to run amok. Free market principles, unregulated, have allowed companies to become to self-serving at the expense of consumers, while a lack of accountability has allowed our leaders to do the same.

  21. James says:

    Oops, I meant…

    ‘Six years of “neo-conservative” policies…’

  22. Tess says:

    It’s so easy to be the armchair quarterback in all of this…isn’t it? You try being innovative and successful with stockholders, critics, jeolous competitors and bloggers are all over your back. At least they’re out there producing something. What are you all producing besides hot air?

  23. oneup says:

    OMG finally someone with a logical mind..go Tess

  24. Steve O'Hear (editor) says:

    Nice one oneup. :)

  25. As a former WebTV (and later, Microsoft) employee, I have maintained an active interest in Microsoft’s Internet TV efforts. I have been involved with or used almost every technology listed in this article. The current hub of my living room A/V system is a self-built Windows Vista PC running Windows Media Center. I wirelessly stream HD and other content from there to my bedroom TV using an Xbox 360.

    Mostly for my own use, I maintain a little web page that lists all the HD video offerings on Xbox Live Marketplace:

    http://kplusb.org/xbox-360-hd-title.htm

  26. James says:

    “It’s so easy to be the armchair quarterback in all of this…isn’t it? You try being innovative and successful with stockholders, critics, jeolous competitors and bloggers are all over your back. At least they’re out there producing something. What are you all producing besides hot air?”

    The truth about Microsoft.

  27. James says:

    Yet another flop and it will be televised… anyone seeing a pattern?

    Microsoft Meeting: Will Another Demo End Up On YouTube?
    July, 26, 2007
    http://www.cnbc.com/id/19980908

    ‘You’d think after a year, and so many YouTube views, that any new product demo this time around would be bullet-proof, particularly one involving Bill Gates himself. But this morning we got a kind of digital deja vu dispatch from senior executive at an investment firm who says this year’s tech demo was equally disastrous. Says our source who was on hand for this: “Gates’ first demo on that ‘table’ Surface display (the one Microsoft made a big deal about) didn’t work.” (Remember this product, unveiled earlier this year? The coffee-table sized computer that, um, acts as a coffee table?) “Supposed to be a ‘touch screen’ control but Gates touched it and tried to move things on the screen; nothing moved, it was frozen.” Gates’ quote, according to our tipster: “It’s a lot more fun when they work.” He added: “Gates looked kinda embarrassed, but he’s still talking and things going fine now.”

    “He later got it fixed,” our tipster writes, “but it took two tech guys 7 to 8 minutes to fix it.”

    It gets worse. The same analyst says the crowd can’t connect into Microsoft’s own network to view slides on their laptops during the executive presentations: “IT guys running around like crazy here trying to get things fixed…”

  28. James says:

    I’m sorry, I guess it’s a Vista flop… they can’t even get their core business right…

    Windows Vista unreadiness revealed
    July, 26, 2007
    http://www.theregister.co.uk/2007/07/26/windows_vista_drivers/

    ‘Turner joined other senior executives at Microsoft’s annual financial analyst summit to paint a future of Windows running on multiple devices and even inside table tops, with the recently unveiled surface computing – which runs on Windows Vista…

    Getting a first-hand taste of what’s coming down the road from Microsoft, chairman Bill Gates was forced to ad lib during his conference demo, as the surface computing setup failed to work on the first attempt. “It’s turned on… maybe we’ll come back to that. It’s more exciting when it does something – which right now it’s not,” Gates said to a ripple of analyst laugher.’

  29. James says:

    James, nice one oneup. :)