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OCTOBER 13, 2004
By Jay Greene Microsoft Takes Aim at Everything A slew of new partners and products signal Redmond's intent to dominate digital music and video. Target No. 1: Apple Long ago, Microsoft (MSFT ) conquered the office -- its Windows operating system is on an estimated 500 million computers around the world. More recently, the software behemoth entered the front door into the American household, selling 15 million Xbox game consoles in the last three years. Now, Microsoft is setting its sights on going just about everywhere its customers go. Bill Gates & Co. took to the stage at Los Angeles' famed Shrine Auditorium on Oct. 12 to lay out plans for Windows in your bedroom, your kitchen, your car, or in your pocket on the subway. Microsoft showed off dozens of music and video devices from partners such as Creative Labs, Dell (DELL ), Samsung, and Hewlett-Packard (HPQ ). It displayed its new online music service, MSN Music, and announced new digital-media partners such as music retailer FYE and broadcaster National Public Radio. "It's not something one company can do alone," Gates says. "NOT A NICHE." The strategy relies heavily on the latest revision of its Windows XP Media Center. That's the operating system designed specifically to connect to a TV and stereo so users can simply and easily store and play digital audio and video. When PCs first started shipping with the Media Center software two years ago, Gates predicted it would eventually become the most-used consumer operating system. So far, Microsoft and its partners have sold about 1 million Media Center machines. Gates believes Microsoft will sell 4 million to 5 million in the next year, which would approach 20% of worldwide consumer PC sales. Says Gates: "We're going to take Media Center into the mainstream." One way he's getting there: dropping the requirement that hardware makers include a TV tuner in Media Center PCs. Users won't be able to watch and record programs with the scaled-back versions. But companies such as Dell will offer machines for as little as $600 to lure cost-conscious shoppers put off by Media Centers that start at $1,000. "This is not a niche, high-end offering," says Jim Totton, Dell's vice-president for software. "It's something we want to bring to all our customers." GETTING CLOSER. Microsoft's vision for the Media Center moves beyond the office and living room. Two partners -- HP and Linksys -- launched devices called Media Center Extenders that let users pull audio and video wirelessly from Media Center computers for playing on any TV or stereo around the house. That way dad can watch a recorded version of The Late Show with David Letterman over breakfast on the TV in the kitchen, while Junior catches a recorded TV version of Spongebob Squarepants in his bedroom, all at the same time. Perhaps the biggest challenge for Microsoft is digital music, where Apple Computer (AAPL ) reigns supreme with its wildly successful iPod music device and iTunes Music Store. Microsoft's partners have struggled to come up with devices to rival the sleek iPod and with services that match the elegance of iTunes. But Redmond's new batch of devices are starting to come close, and there's no question Gates & Co. have the iPod market in their sights. Take Creative's Zen Micro, a jazzy iPod minirival that uses a touch interface. It comes in a rainbow of colors and stores 25% more music than an iPod. Gates also demonstrated a new mobile phone from Audiovox (VOXX ) that includes Microsoft's Windows Media 10 software, giving users the ability to listen to high-fidelity tunes through headphones on the sort of device most folks already carry with them. NERD FACTOR. And Microsoft now has several partners, including Napster, Wal-Mart (WMT ), and MusicMatch, that let users buy tunes online and access their digital-music libraries in one click, just like iTunes. Gates & Co. still must overcome one big challenge -- a heavy dose of geekiness. While the Media Center devices resemble somewhat stylish stereo components that could fit easily into a home-entertainment system, they still require home networking that's on the sophisticated side. What's more, some of the new products, such as HP's slick-looking Digital Entertainment Center, have a clunky interface where users will store some music with Microsoft's Windows Media software and other songs in the HP Tunes program that uses Apple's digital-media technology. And the Audiovox phone requires users to remove the battery in order to swap the media-storage card with a different selection of tunes. Microsoft wants its software in every corner of your home. Many of the new initiatives show promise. But conquering this new frontier is going to take some time.  Greene is BusinessWeek's Seattle bureau chief
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