Redmond Diary

By Andrew J. Brust

Blog archive

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, ensuring 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.

Posted on 01/11/2010

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