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Microsoft Sharpens Up Its Elbows


Microsoft is on the move again. As it has in the past, the software giant is trying to elbow aside rivals who have pioneered new markets. Within a space of three days, Microsoft Corp. (MSFT) announced strategies for taking on two companies so identified with their markets that their names have become synonymous with the services they provide: TiVo (TIVO) in digital-video recording, and Google (GOOG) in Web searching. On Nov. 8, Microsoft announced a deal with Comcast Corp. (CMCSK), the nation's top cable provider, to offer new digital cable set-top boxes loaded with Microsoft software. And on Nov. 11, the company was set to launch a test version of its new Web search engine.

Initially, neither push looks like it will add much to Microsoft's growth. Yet both are strategic efforts by Microsoft to stake ground in important growth markets. Microsoft leaders know that the days of consumers shopping and communicating through TVs as well as PCs are nearing. And they're also eager to get a piece of the Web search-engine action -- a fast-growing market with enormous potential.

Of course, Microsoft has been down these paths before -- with little to show for its efforts. For a decade, the software giant has tried mightily to wedge its way into the digital-TV market, failing at every turn. Remember WebTV? Or UltimateTV? All told, Microsoft has spent more than $10 billion since 1994 on TV projects and cable investments. And Microsoft's MSN site has offered search since 1998, but it outsourced the technology to partners such as Yahoo. As a result, its me-too search service is a distant third, handling just 14% of U.S. Web searches in October, vs. 49% for Google, according to the Web analytics firm WebSideStory.

This time, though, the company is convinced it can make inroads. Take Microsoft's set-top box technology, which Comcast will initially offer to 1.1 million Seattle area homes. Analysts say it approaches the elegance of TiVo's pioneering digital video recorder (DVR), giving it an advantage over the slapdash TiVo wannabes currently on the market from cable providers. The service offers an electronic programming guide that lets users find shows up to two weeks in advance. Users who opt for the digital recorder can copy shows to a 120-gigabyte hard drive, large enough to store 90 hours of programming. "Finally, this is the real deal, and we can take Microsoft's role seriously in set-top-box software," says senior analyst Greg Ireland of researcher IDC.

DIRECT QUESTIONS

Microsoft is attempting to do with DVR software what it has done with PC software: create a product that's good enough and cheap enough to lure users away from more expensive, and often more compelling, rivals. Comcast's digital cable customers pay $10 a month on top of their cable bills for the DVR service. That's $3 less per month than TiVo, and cable customers don't have to buy a separate box that can cost several hundred dollars as they do with TiVo.

The plan for Web search is similar. Microsoft has invested in technology that it hopes will trump Google. The service, available in 26 markets and 11 languages, offers a handful of features not available at the search leader. Web surfers, for instance, can type direct questions, such as: "What is the capital of Turkey?" and get the answer, "Ankara," from Microsoft's Encarta encyclopedia at the top of their search results.

Yet Microsoft's inroads in DVRs and search may be limited. Comcast is its only big U.S. set-top-box customer so far, and the cable company has agreed to roll out only 5 million boxes with Microsoft's software. With search, Microsoft must convince users that results from MSN search are more relevant than Google's. That will be no small feat, given Google's strong branding. Still, don't underestimate Microsoft. It has never been known for giving up the fight.

By Jay Greene in Seattle with bureau reports


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