Microsoft's Mediaroom Tests the Grounds Beyond IPTV's 'Walled Garden'

Video over the Internet is one more major market where Microsoft finds itself a major player but not the only player, and certainly where the entrenched players are very wary about its capability to muscle in and potentially control key segments. But Microsoft's recent successes in the IPTV field have thus far failed to guarantee its seat in that market, especially in Europe where digital video is far more widely deployed.

So this morning's announcement of Microsoft's new brand for IPTV services - now called Mediaroom, its fourth sixth brand to date after "WebTV," "UltimateTV", "Microsoft TV," "TV2," and "Microsoft IPTV" - is undoubtedly being dissected in Europe, with every sentence being re-examined to glean any hint of the company's long-term plans.

Telecommunications companies, cable TV providers, and content providers all want to be seen as the key presenter of new-wave digital TV services to consumers. None are particularly keen on the idea of ceding the center throne to a software company, but all of them may end up being dependent upon that software company at some point.

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At issue is how far Microsoft really wants to go with this project, and whether the company is willing to break through the so-called "walled garden" through which telcos traditionally provide their IPTV services to customers. In a telco-based IPTV system, the Internet does indeed provide the backbone for transmission, but the receiving point is a set-top box that customers lease from telcos (or from competing systems where available).

Microsoft is already a major provider of IPTV software for set-top boxes, including Cisco, Motorola, Philips, and Tatung. But while Microsoft has a presence in the garden, it has intentionally refrained in recent months from overwhelming the fragrance, if you will, of the STB providers' and telcos' carefully designed floral arrangements.

The very fact that Microsoft is attaching a new name to its IPTV initiative is a signal that it doesn't want to go unnoticed by consumers any more, even though it already provides much of the client-end software. But the only reason for Microsoft to want to be noticed more by consumers, some fear, is so it can lead them to where it wants to go today.

Evidence that Microsoft has a destination in mind came from its scripted Q&A this morning from its corporate vice president for what's still called the "Microsoft TV Division," Enrique Rodriguez: "There are several reasons why we felt a new brand is instrumental to our success and the success of our customers. With personal media sharing and new Web-based applications, Microsoft brings the consumer television experience to a new level that goes beyond the TV set. With Microsoft Mediaroom, consumers get the best in TV plus all their media in one place, for a truly personalized multimedia experience. With the capability for more connected entertainment experiences, we felt the time was right to introduce a brand that reflected this next generation of television."

With the extent of care Microsoft places in tweaking these scripted interviews, the underscored phraseology above could not have been accidental. Microsoft apparently wants to give consumers the option of adopting services that lead to PCs and/or TVs.

From a company that's already declared its interest in upsetting the current order of business in the voice and video communications industry with Unified Communications, this could be a very dangerous proclamation.

Further evidence comes from a statement a Microsoft TV spokesperson made to the broadband industry trade magazine ScreenPlays. In explaining how and why the new Mediaroom delivery model uses XHTML on the client side, the company's Jim Brady let it slip that one purpose for using a browser-oriented model was to open up the applications market for IPTV to developers, developers, developers.

"It's very similar to the Windows model. We're basically turning over the keys to [telcos and service providers] and to third parties to develop the applications, Brady told ScreenPlays. "Some new apps will be driven by passions and social networking and recommendation. We just don't know what's going to happen."

Microsoft also made it very clear at CES 2007 last January that it intends to market the Xbox 360 game console as a destination platform for Internet TV services. That would put a very popular game console in direct competition with set-top boxes - devices which aren't very appealing or romantic pieces of equipment in themselves, and whose existence as tag-alongs many consumers wouldn't mind doing without.

During BetaNews' CES coverage that month, Info-Tech Research analyst Carmi Levy predicted Microsoft's plans for its Internet TV technology...which so far seems pretty accurate.

STB manufacturers, Levy told us, "should very clearly be looking at Microsoft as a threat. Microsoft is doing an end-run around them. It has not gotten the answers that it has wanted from the set-top vendors, and Microsoft has a homogeneous penetration of consumer living rooms."

"And Microsoft has the heft to make that happen," Levy continued. "They've done it on the PC side where they drive hardware with the operating system. They are now going to do exactly the same thing; they'll introduce new services on top of Xbox 360 and, in fact, build a larger value proposition for what was formerly seen only as a game machine. Now, what they're going to do is, they're going to try to trump the set-top box vendors at their own game...This way, Microsoft does not have to partner with anybody. They will own a much larger percentage of that ecosystem than they would have if they partnered with the telcos right from the start. This way, they shut out the telcos and they can compete directly against the telcos, and they come in as a stronger competitor instead of simply a partner learning their way."

Buried in today's news is the fact that Mediaroom is being expanded to support the Digital Terrestrial Television (DTT) standard, in which STBs take their signals not through a cable but over the air. This will make Microsoft's take on Internet TV more palatable to service provider customers in Britain, where DTT has the highest penetration levels, and where there are already multiple competing service providers.

It's this versatility that Microsoft's trying to build into the system that is the reason for so much skepticism. Last March, many of Europe's major players in services and manufacturing of IPTV equipment formed the Open IPTV Forum, whose goal is to provide an "end-to-end specification" for IPTV service. Think of this as the "wall" around the garden, and note that Microsoft is most notably not a member of this forum.

Also notably absent from that membership list is Alcatel, one of Europe's leading IPTV service providers, and up until recently a major Microsoft partner in this field. But mergers and acquisitions over the past few years have worked against Microsoft's goals, especially with Alcatel having acquired Lucent, and the newly combined entity being the recipient of a tremendous $1.5 billion patent infringement verdict on MP3 technology, originally brought forth by Lucent on behalf of old AT&T patents.

Also, it was SBC which delivered the US' most extensive rollout of Microsoft-based IPTV services starting in 2004, with results that were initially less than stellar. That service has since been rolled into the U-verse IPTV system delivered by SBC's successor company, AT&T, in seven US states. It still uses the Microsoft platform, and is likely to continue to do so. But AT&T is also a principal member of the Open IPTV Forum, which may give it a stake in an alternative to Mediaroom should it ever find itself needing one.

If competition with Microsoft rather than cooperation with it becomes necessary, the Forum may be the best way for manufacturers and telcos to go about it, Carmi Levy told us, especially under the auspices of "openness." This way, they may have the luxury of building that "end-to-end" alternative while still taking advantage of the fact that Microsoft's the only player in the software space with the muscle to actually achieve their functionality objectives.

"Either they figure out a way to partner and build that [competitive] brand, or they find some place to parallel-compete against Microsoft," he said, "so they don't have to face the full onslaught of Microsoft's penetration into the set-top market."

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