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What Do We Want From Interactive TV?

In fact, expectations about what "interactive" television would be all about have changed drastically over the past few years, say Ireland and other analysts. "In the late 90s, there was talk of the 'triple play' set-top box," which would meld Internet access, TV, and telephony, all coming in from a broadband pipe to the home, says Ireland.

But this vision was dashed against the hard rock of economic reality when, as the Internet bubble burst, AT&T announced it would not roll out new advanced or "fat-client" set-top boxes, he says. Other operators followed suit.

Largely as a consequence, Microsoft failed with Microsoft TV Advanced, which, among other requirements, needed cable operators to deploy costly new fat-client set-top boxes with high processing and memory capabilities, according to Jason Armitage, senior analyst with IDC in Spain.

"The focus on triple-play service wasn't only Microsoft's fault; the cable operators wanted this service and, quite frankly, they still need this service to differentiate themselves from satellite companies," he says.

In a highly publicized move, UPC dumped Microsoft's TV Advanced software--after several months of testing the product--in favor of Liberate, which won NTL and Telewest as customers, as well.

Overseas Example

"If Microsoft is truly serious about getting a foot in the door of the cable market in Europe, and in the U.S. for that matter, then it needs to focus on applications. The middleware market is locked up," says Hellen Omwando, an analyst at the Amsterdam office of Forrester Research.

ITV in Europe is dominated by players offering software that incorporates server functions, client applications, and the middleware that is necessary to run the applications on set-top boxes, each of which has its own operating systems.

The middleware layer is being commoditized, however, with the advent in Europe of the Multimedia Home Protocol, Omwando says.

MHP is a set of open specifications for middleware that incorporate Java and HTML. The specs allow content developers to write their applications in a format capable of running on diverse operating systems for set-top boxes and multimedia PCs, among other devices.

However, despite MHP's many advantages, the technology is not without its drawbacks. Perhaps the biggest is the potential need to retire existing set-top boxes. While officials at the Digital Video Broadcasting project in charge of MHP standardization contend that MHP can be downloaded to existing set-top boxes and can run in parallel with other middleware products, Omwando has her doubts. "The boxes currently deployed in the market lack the capacity to have two middleware systems running in parallel," she says.

Microsoft will support European MHP set-top box standards and the related U.S. Open Cable Application Protocol specification "when they become a reality," says Ed Graczyk, director of marketing for the Microsoft TV unit.

Complete Package

While Microsoft had initially set out to sell operators a complete take-it-or-leave-it package of features, including middleware for advanced set-top boxes, it is changing its approach, according to Gartner's Brancheau and other analysts.

"The software for the advanced platform was an all-in-one type of thing where Microsoft wanted operators to buy everything, e-mail services and all kinds of features," says Brancheau. "Now Microsoft has taken a more component-centric approach, where they are offering different services that the operator can pick and choose."

One task Microsoft TV faces: the need to port its set-top box software to the various devices' operating systems and to deal with different TV-signal standards around the world.

The Connected Home

Meanwhile, Microsoft TV products are part of a bigger picture, "the vision of the 'connected home'," Graczyk says.

"The triple play may still happen, but on different devices," Graczyk says.

In fact, some analysts believe that Microsoft isn't betting on any one technology to control the broadband gateway into the home, but on a number of different technologies--ranging from its PC-based Windows XP Media Center to its game console, the Xbox.

"Microsoft wants to have all elements of technology to sell to the various folks in the delivery chain of content to the home," says Ford Cavallari, senior vice president of broadband and media services at the consultancy Adventis. "The company is putting several chips on the table. It's not clear which chip is going to hit the big number."

With its deep pockets, though, Microsoft can afford to bide its time and invest without an immediate return. That counts for a lot in the current economic climate, with companies like Liberate being delisted from the Nasdaq exchange and UPC undergoing bankruptcy reorganization.

"The winner in the market may be the provider who is in the position to hold its breath the longest," IDC's Ireland says.

"We may not be market-share leader today, but you know, we're not really worried about trying to capture the 2 million set-tops Liberate has," Graczyk says. "We're focused on the bigger opportunity, which is how we bring the services to a much broader population of users around the world. You can't say that the game is lost in the first half of the first inning of a game that will go into overtime."

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