Microsoft Stumbles in Its Bid to Rule the Set-Top Cable Box
Back in May 1999, Microsoft appeared to have bought itself victory in the new world of interactive television.
The software giant had announced a $5-billion investment in AT&T; for the right to install its software inside millions of cable TV set-top boxes.
“The day that news came out, I was happy I wasn’t on top of a five-story building,” recalled Hal Krisbergh, chief executive of the competing interactive TV company WorldGate Communications.
Many people in the cable and software industries believed Microsoft would dominate the TV of the future as ruthlessly as it did the desktop personal computer. The digital boxes that would allow TV viewers to order movies on demand, play live “Jeopardy” and surf the Internet from the comfort of their living rooms would run Windows, just like their PCs.
But that fear has passed. To the more than 30,000 cable, entertainment and software industry professionals arriving for today’s opening at the Los Angeles Convention Center of the California Cable Television Assn.’s annual Western Show, Microsoft’s foray into advanced TV is looking less like a preordained triumph than a Waterloo.
The company has missed countless deadlines set by its cable customers for rolling out a workable system; where Microsoft was once expected to have an advanced program in trial use last spring, no such trial has yet been scheduled and none is likely to take place until sometime next year at best.
“The [cable] industry handed Microsoft the business and they, frankly, choked on delivery,” said Michael Harris, a cable industry analyst at the consulting firm Kinetic Strategies.
Microsoft rivals were not shy about exploiting its missteps.
“We went in and said our stuff’s ready and we can go now,” said David A. Limp, senior vice president for corporate development at Liberate Technologies in San Carlos, Calif., which also develops software for advanced TV services.
Embarrassingly, AT&T; and other cable companies that received billions of dollars from Microsoft have since taken Liberate up on its offer over the last few months. These include United Pan-Europe Communications, a Belgium-based cable operator of which Microsoft owns 8%; Comcast, a U.S. cable operator in which Microsoft took a much-publicized $1-billion stake in 1997; and Canada’s Rogers Cable, in which Microsoft invested $400 million last year. All expect to begin consumer trials of Liberate’s interactive TV software within a few months.
Microsoft’s inability to produce on schedule a promised “platform” of interactive TV technology has underscored something that its competitors in the software industry have known for years: Outside Microsoft’s core business of desktop PC software, the company is less than a domineering force.
Among the many problems that Microsoft engineers and executives have run into are the fundamental differences between computers and televisions as consumer devices, and between software development and cable service as businesses.
“This is not a market where Microsoft has a lot of leverage,” said James Penhume, a media analyst with the Yankee Group. “If Windows 98 [software] doesn’t come out till ‘99, people will wait. But [cable companies] are more focused on making things happen. Microsoft spent a lot of money on the cable industry, but that’s no substitute for delivering the product on time.”
Cable executives have been openly surprised and irritated at the company’s inability to meet deadlines, not to mention the consistently low caliber of the Microsoft programming that has arrived.
“Deadlines would come and go and they’d say this or that had slipped by” and several months would pass, said one former technical executive at a major cable system that had pledged to install Microsoft technology in millions of set-top boxes--assuming it worked. “They couldn’t deliver software without thousands of bugs.”
At the heart of this battle for the television viewer are a raft of novel services that cable companies hope to provide subscribers via a new generation of set-top boxes. These include video-on-demand, which will allow viewers to order any of thousands of movies and archived shows and to pause, fast-forward, and rewind the programs as they would a videotape; Web surfing and e-mail; and electronic transactions ranging from ordering a pizza to booking a vacation by pointing a remote-control unit at the TV display. Some companies, such as AT&T;, also hope to provide telephone services via the cable TV connection.
The very first versions of these services arrived as cable companies began to roll out the first digital set-top boxes--the DCT-2000 from General Instrument (now owned by Motorola), and the Explorer 2000 from rival Scientific-Atlanta. In 1997, these began to replace low-tech analog cable TV boxes that were essentially channel tuners with circuitry to decode scrambled signals from premium channels such as HBO and Showtime. Today the 30 million set-top boxes in American homes are divided roughly equally between analog and digital boxes, which also improve reception and allow the display of schedule grids that can be clicked on by remote control.
The cable operators long believed that truly advanced interactive TV services would require an even newer generation of set-top boxes, designated the DCT-5000 by Motorola and the Explorer 6000 by Scientific-Atlanta, carrying such powerful memory and processing power they would resemble miniature computers.
Several companies strived to produce software systems to power those boxes, which many believed would supersede the desktop PC as the household computing and Web-surfing appliance. Microsoft’s billions of dollars in cable investments were aimed at securing a beachhead for Windows in the new world.
Microsoft acknowledges that unexpected technical problems delayed the roll-out of its “Microsoft TV” platform by months. “We did have a schedule slip,” said Jon DeVaan, senior vice president of the television division, “and we’ve spent a lot of time making sure we’ll have the technology in place.”
He said Microsoft always anticipated that its cable customers would have alternate suppliers of advanced TV technology and is not dismayed at its competitors’ inroads. “We think we’re past the point of dealing with technical issues we didn’t foresee,” he said.
DeVaan also argued that Microsoft’s high-profile cable investments were designed in part to place interactive TV on the creative community’s radar screen. “Somewhere out there, the George Lucas of interactive TV is working on something right now,” he said.
But others say the company’s credibility in the cable industry has been dealt a traumatic blow.
“They have a long way to go to show they can deliver on their promises,” said Josh Bernoff, a cable analyst at Boston-based Forrester Research.
When Microsoft began its push into cable TV software, its usual hauteur was much in evidence. Chairman Bill Gates hinted to cable executives that the company was planning to charge vigorish on every e-commerce transaction executed over a Microsoft-powered cable box.
Subsequent developments have wiped that smirk off its corporate face, however. Not only has its programming come up short, but the delay has given cable operators the opportunity to discover that many of the most lucrative services may be deliverable through the existing digital boxes--of which some 14 million are already installed.
“The cable companies realized they could do a lot more with the 2000-type boxes,” said Krisbergh, whose WorldGate has contracted to provide video-on-demand, Web surfing and e-mail, and other interactive services to customers of five leading U.S. cable systems via existing boxes.
Microsoft apparently recognizes the threat that cable systems may not feel the need to deploy with any haste the advanced boxes for which its own software is being designed. In February, it acquired the Israeli company Peach Networks, a developer of interactive TV applications that would be centralized at the cable TV office, rather than in the subscriber’s home box.
And yet few in the interactive TV industry are willing to fully count Microsoft out. AT&T;, among other cable operators, insists that the 5000-type set-top box is still at the center of its consumer strategy and will begin to replace current boxes as early as next year.
Others observe that Microsoft has the money to survive a temporary setback and come back with a more compelling product.
“Microsoft is the Freddy Krueger of software,” said Mitchell Kertzman, Liberate’s chief executive, referring to the relentless villain of the “Nightmare on Elm Street” films. “We fully expect that they’ll get their act together and will be our most formidable competitor.”
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POINT AND CLICK
The latest innovations at cable’s Western Show give potatoes even less reason to leave couch. F1
