Pontifications on Microsoft and the Tech Industry

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#CES Exhibits to Microsoft: Watch Your Back

As an avid Microsoft observer and dedicated partner, I find special excitement in attending the annual Consumer Electronics Show (CES) in Las Vegas.  Redmond delivers the event’s night-before keynote, and it has a large booth immediately  adjacent to one of the Las Vegas Convention Center’s Central Hall entrances.  Beyond that, attendees are genuinely interested in what Redmond has to say about the Consumer Electronics Industry.  It’s a place where Microsoft can shine, outside of the hardcore IT world.

But this was a tough year for Microsoft at CES.  Not only was Steve Ballmer’s keynote (covered in my prior post) disappointing, but walking around the trade show floor, I saw a number of threats to Microsoft and Windows.  I thought it wise to enumerate some of these here:


The Ubiquity of Android

Google’s Linux-based operating system, Android, seemed to me to be the star of CES.  It appeared on numerous mobile phones from heretofore close Microsoft partners like Motorola, Samsung and HTC.  But various computing devices shown at CES were running it as well.  These included special purpose kiosk prototypes, but also portable media devices and netbooks.  I swear I even saw Android running on one netbook that had a Windows key on its keyboard.


The Irrelevance of Zune

Zune HD is a wonderful device.  But whereas the iPhone commands an entire third party product subsection at CES, I only saw Microsoft’s media player at the company’s own booth and at the pavilion set up by the HD Radio group.  The latter is hardly a technology market leader.  And I’m afraid that makes apparent Zune’s comparable position.


The Mainstream Growth of Blu Ray and Introduction of Blu Ray 3D

Microsoft backed the wrong horse, HD-DVD, in the high def video disc wars.  I liked Toshiba’s HD-DVD format better than Sony’s Blu Ray, but when HD-DVD lost, it lost.  Microsoft seems to have had trouble admitting this. It has refused to offer a Blu Ray player for Xbox 360, and has also failed to integrate the disc format into its Windows Media Center product, leaving third parties to fill the gap.

Microsoft insists that streaming and downloaded HD content will make Blu Ray irrelevant before it can reach a critical mass in the marketplace.  But this CES made it clear, to me at least, that this forecast is a bad one.  While HD movies are available on Xbox 360, through the Zune Video Marketplace and Netflix, the selection of new releases is still lousy and the availability of titles with multi-channel surround audio is even worse. 

Meanwhile, Blu Ray’s reaching mainstream adoption.  Holiday sales of players and discs were huge, and Walmart now sells a Magnavox Blu Ray player for less than $100.  Studios are rapidly reducing the delta in price between DVD and Blu Ray releases, and with Blu Ray titles they are increasingly including DVD and digital file copies, assuring portability and even enabling non-Blu Ray player owners to buy the discs in advance of their player purchases.

Then there’s the matter of 3D, which was a huge story at CES, and the announcement of a Blu Ray 3D standard.  The latter, to be supported by numerous standalone players and by existing PlayStation 3 units (via a firmware upgrade), further buttresses the importance of Blu Ray and of physical media in general.  It also further impugns Microsoft’s decision to make the Xbox 360 console Blu Ray-averse.


Growth of Connected TVs and Blu Ray Players

A byproduct of Blu Ray’s growth is an interesting one, because it has little to do with the Blu Ray format itself.  Since virtually all Blu Ray players feature Internet connectivity, the vast majority of them now include connectivity to the very streaming content Microsoft said would trump Blu Ray discs in the first place.  Owners of many new-generation Blu Ray players can connect to the likes of Netflix, YouTube, Hulu, Blockbuster and other streaming content sources.  And more and more HDTVs are including similar capabilities themselves, so that a Blu Ray player isn’t even required.

Why is this a threat to Microsoft?  After all, Xbox 360 and Windows Media Center both offer integrated clients for Netflix, and Windows 7 Media Center’s Internet TV feature offers access to an array of streaming content from broadcast and cable networks.  The problem is that neither Xbox nor Media Center offer as much content as many Blu Ray players and HDTVs do (most Media Center Internet TV content is from CBS), and so these consumer electronics devices are making the PC, and even Xbox, less important and less necessary devices in the living room and home theater.


Flash’s Increasing Momentum

The cross-platform compatibility of Adobe’s Flash format, its huge momentum in the market and its impending availability on mobile phones, presents a multi-faceted threat to Microsoft.  Flash’s strength continues to prove a formidable challenge to Silverlight’s growth, and it makes direct support for Windows less important.  Case in point: EchoStar’s SlingBox.  This product, which allows consumers to view their video device (cable set top box, DVR, DVD player, etc.) remotely over the Internet, at one time offered software clients exclusively for Windows and Windows Mobile.  But at their booth this year, Slingbox displayed their new browser/Flash-based client, as well as clients for BlackBerry and iPhone.  The company also told me they are working at breakneck speed on an Android client.  The Windows client will continue to be available and supported, but no longer enhanced.  The WinMo client was nowhere to be seen.  Stuff like this should make Microsoft afraid…very afraid.  It should also make them respond with something innovative.  But no such innovation was in evidence at CES this week.


There were probably other threats to Microsoft in evidence at this year’s CES. But the ones I have enumerated here should prove the point.  Microsoft is failing, on both offense and defense, to command relevance with consumers and inspire their passions.  In so doing, it increasingly relegates itself and Windows to the business market, and especially the enterprise market.  The business market is certainly nothing to sneeze at, of course.  But, Microsoft should not concede the consumer market; it’s an important source of revenue and is today where tech influencers are most influenced.  MIcrosoft needs to fight back this year, and wow the CES audience next year.



Feedback

# re: #CES Exhibits to Microsoft: Watch Your Back

I agree that on a long enough time line, digital delivery will obsolete Blu-Ray, but the question is what the time line is going to be. Microsoft's guessing two years and I'm thinking more like five to ten years. In the meanwhile, the price point for an entry-level Blu-Ray player is now $150, so not providing one is an embarrassment. 1/10/2010 10:33 PM | Jeffrey McManus

# re: #CES Exhibits to Microsoft: Watch Your Back

I once thought BluRay was going no where with the advent of online HD content. However, I've realized that is not going to happen anytime soon as long the content providers (MPAA, etc) are in control of distribution.

They will hold onto, and squeeze every dollar they can out of a physical media format before moving to 100% online distribution.

I look at the recent Netflix deal with Warner Bros as an example of this. Yes, I think online streaming will get better... but only as a second class citizen to physical media (in this case, BluRay.) 1/10/2010 11:39 PM | Peter Laudati

# re: #CES Exhibits to Microsoft: Watch Your Back

I agree with both of you. In fact, I called out a number of these same issues with online content delivery in a post 18 months ago 1/13/2010 12:40 PM | Andrew Brust

# re: #CES Exhibits to Microsoft: Watch Your Back

I won't purchase any digital content when it comes with DRM, that's just insane. Like throwing money out the window. Sure, it's fine for movie rental when the prices are pretty low, but not the movie-purchase where you are restricted in the use.

Investing in Blu-ray movies is valueable, I can share them with friends, give them away as gifts, I can even sell them. Try that with your digital content!

The industry wants everyone to pay for all the content every single time you experience it, that's how they can make extra business. We've never purchased content with any property rights, all we get is a license to watch.

Microsoft missed out bigtime by excluding Blu-ray from the Xbox 360, it has cost them marketshare for sure. Remember, PS2 was the most sold DVD player ever and PS3 is the best selling Blu-ray device (I think). 1/14/2010 8:39 PM | SondreB

# re: #CES Exhibits to Microsoft: Watch Your Back

Sondre: I agree with you about DRM. Unfortuantely what the consumer electronics industry is trying to do is create a new DRM scheme that, in theory, most devices (including disc players, PCs and game consoles) would recognize, this letting you store all your DRM license in a "digital locker" that would supposedly provide for portability.

My guess is that scheme, even if adopted, won't work reliably, and will be therefore just as bad and marlet-limiting as current DRM is today. It's too bad...the industry goes through this cycle over and over...it started with VHS cassettes and continues today. And every time the DRM goes away, consumers come in and adopt the technology en masse, creating a much bigger market.

The MPAA and RIAA need to learn that being more liberal will also allow them to be more financially successful. 1/18/2010 10:22 PM | Andrew Brust