BW Online | January 9, 2003 | Gates Has Designs on Your Wrist

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JANUARY 9, 2003

NEWS ANALYSIS

Gates Has Designs on Your Wrist
Microsoft's "Spot" is about smart technology and goofy gizmos. Will consumers pay $99 a year for info beamed to a watch?

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It was 2 a.m. a year ago, and Microsoft (MSFT ) Chairman William H. Gates III was still banging out e-mail. That's nothing strange, but instead of operating systems or game consoles, he was focusing on technology of a smaller and humbler order: refrigerator magnets, watches, and key chains. Gates was prodding his developers to turn scads of such gadgets into tiny information devices. He shot them ideas such as how users could get horoscopes and lottery numbers transmitted to their watches.

Not all of Gates's ideas made the cut. But on Jan. 8, he unveiled prototypes of a host of new smart devices at the Consumer Electronics Show in Las Vegas. Microsoft's idea is to equip all sorts of gear to receive gobs of information via FM radio waves.

The first gizmo: a new take on a Dick Tracy-like watch that can be set to track such things as stocks and traffic snarls. Other items in the lab are refrigerator magnets that display up-to-the-minute sports scores, and alarm clocks that ring extra early when commuter traffic is a mess. Some of the ideas sound downright silly, but Gates insists the possibilities of the technology are "just mind-blowing."

TOO STEEP? The technology that makes this possible is Spot (Smart Personal Objects Technology). The breakthrough uses a chip developed by Microsoft and National Semiconductor (NSM ). The plan is to create a host of information services and transmit them to a growing galaxy of smart devices. "Our goal is to get these things so inexpensive that you can put them anywhere," says Richard F. Rashid, senior vice-president for research at Microsoft.

But before Spot runs, Microsoft faces stiff challenges. The toughest: creating services so appealing and convenient that people will pay for them. For years, watchmakers and tech companies have trumpeted computer watches, only to wait for consumers to buy them. They'll have another chance in September, when watchmakers Fossil, Citizen, and Suunto, a Finnish sports-watch company, will introduce Spot watches for $120 to $300. While Microsoft hasn't yet priced the service, Gates expects it will be "on the order of $99 a year" -- a price that is too steep, says Michael Gartenberg, research director of Jupiter Research.

For Microsoft, the financial risk is minimal. The software giant has spent a mere $50 million on Spot -- pocket change for a company with $40 billion in cash. For Microsoft to break even, 500,000 consumers must buy the service. But, in truth, Spot's bottom line matters far less than the technology and lessons that Microsoft draws from the venture. This is Microsoft's step into so-called ubiquitous computing, a Holy Grail for the tech intelligentsia. For years, companies have toiled to develop technology to pack computing smarts into all sorts of devices.

"READY, FIRE, AIM." The ideas, often utopian, feature legions of machines communicating with each other, and streams of information following customers nearly every step of their lives. Most have fallen short. One is Jini software, developed by Sun Microsystems (SUNW ) to make it easier for consumer devices -- from refrigerators to cars -- to connect to the Web so their operations could be monitored. But four years after its launch, Jini is still struggling to catch on.

Microsoft's own track record launching new consumer businesses is, well, spotty. It has long labored to get interactive-television software out of its labs. Digital stereo speakers and PC-connected phones each lasted less than a year. "Spot has all the signs of a Microsoft launch of 'ready, fire, aim,'" says Gartenberg.

One trouble is that most of Microsoft's potential customers already lug around ubiquitous information devices: cell phones, pagers, and handheld computers. New mobile-phone services, for example, provide lottery numbers, traffic reports, and storm alerts. Smart watches "are going to be nothing more than a novelty item unless they offer something you can't get from the other devices," says Todd D. Slater, a retail analyst with Lazard Freres & Co.

TINY AND CHEAP. Gates is convinced he has something unique to offer. With Spot, users can get up-to-the-minute information without ever having to dial their phone or find a Web connection to use their handheld. The technology is well-suited, he says, for one-way instant messages.

Microsoft launched work on Spot in 1999. First, the company needed to come up with a chip to process data and receive radio transmissions. It had to be tiny and cheap. Microsoft gave basic design ideas to chipmaker National Semiconductor, which takes custom orders. National ginned up the new chip for about $10 each.

To transmit the data to the devices, Microsoft researchers looked to a little-used portion of the FM radio band. The information will be sent by satellite or Internet to radio stations, which in turn will broadcast the data to the FM receivers in each gadget. Microsoft inked deals with six broadcasting companies for coverage in every major city in North America. It plans to offer Spot in Europe and Asia but has yet to sign on any broadcast partners there.

For all of Microsoft's clever technology, though, the success of the Spot wristwatch and other devices will come down to whether Gates & Co. can persuade consumers to pay for data delivered to everyday devices. Otherwise, it may not amount to much more than a spot on the technology horizon.

By Jay Greene in Seattle, with Jim Kerstetter in San Mateo

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