The big picture behind Google, Microsoft, Yahoo, AOL, Real, and Sun deal-o-mania

The big picture behind Google, Microsoft, Yahoo, AOL, Real, and Sun deal-o-mania

Summary: Maybe I'm crazy.   But if you ask me, there's a super big picture that's begining to form when you start to look at all of this week's announcements, or maybe-announcements involving Google, AOL, Real, Microsoft, Apple, Yahoo, Sun and more.

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TOPICS: Microsoft
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Maybe I'm crazy.   But if you ask me, there's a super big picture that's begining to form when you start to look at all of this week's announcements, or maybe-announcements involving Google, AOL, Real, Microsoft, Apple, Yahoo, Sun and more.  If I'm not mistaken, just about everyone is taking sides in preparation for what appears to be a two-way show down with an odd-man out.  

Let's start with Microsoft and Yahoo.  What most people aren't aware of is that the two were already chums on the entertainment front where Yahoo's music store only sells music that runs on devices that are compatible with Microsoft's PlaysForSure (that should really be "PlaysForSuren't") digital restrictions management (DRM) technology.  So, with every music subscription that Yahoo sells, it's just feeding the Microsoft beast because in order to play that music, you have to buy a device from a manufacturer that licenses its playback and DRM technologies from Microsoft (follow the money).  

As it turns out, in true enemy-of-my-enemy-is-my-friend fashion, Yahoo and Microsoft have a mutual problem in Google.  It's apparently only a matter of time before Google, who also in enemy-of-my-enemy-is-my-friend fashion recently teamed up with Microsoft foe Sun, turns on some sort of firehose that realizes Sun's "the network is the computer" dream and aims it at Microsoft's Windows and Office.  Those latter two products are both getting major upgrades and are going to require more hardware, not less. Meanwhile, with their demonstrabley thinner technologies and applications, Sun and Google have the power to go in the opposite direction.  So, Microsoft has issues with Google on that front in addition to the issues that Microsoft and Yahoo could already have with Google on the search engine, instant messanging and Voice over IP fronts (Google recently launched GoogleTalk).  Given that Yahoo and Microsoft were already chummy with each other on the multimedia front, why not merge their walled gardens to increase the utility of both in hopes of heading off any more defectors (end users) from taking in oodles and oodles of Google (at the expense of everyone else).   So, it should come as no surprise that the two finally made their instant messenging services compatible with each other.

Meanwhile, while the Microsoft/Yahoo camp begins to take shape, Google can't possibly lie down and let that truck run it over.  So, why not join forces with Comcast and the 800 lb. gorilla of instant messaging: AOL (should we call it GoogAOLe?).  By the way, that's the same AOL that just released a $99 PC through CompUSA .  Picture applications and services flowing from Google and AOL, through Comcast, to a dirt cheap AOL PC).  A harbinger of things to come (especially since Sun is involved)?  There forms the nucleus of our two camps. 

Now comes the question of who is going to join the fun.  Well, let's check out Real. Pretty much everybody in the digital music business has had their lunch eaten by Apple and its iTunes software and its iPods.  Now that every record label feels the need to keep music lovers from actually listening to the music they're buying, the labels are pretty much going with the biggest DRM names in town: Microsoft's PlaysForSure and/or Apple's FairPlay.  Real's ecosystem really doesn't really have much of a chance against those two gorillas and Apple, despite the name of it's DRM technology, isn't really playing fair.  It's not sharing it's technology with every Tom, Dick, and Harry like Microsoft is.  So, naturally, it makes more sense for Real to settle up and join ranks with Microsoft.  Part of the Real deal is that RealNetworks will promote Microsoft's Windows Media technoloiges (a.k.a. the playback and DRM technologies) in its Rhapsody-to-Go service for mobile entertainment.  So, now Microsoft and Real are hooked up against Apple.

So, where are we?  Microsoft/Yahoo/Real vs. Google/Sun/AOL/Comcast.

Meanwhile, Apple, the odd man out currently because it's not in either of the two aforementioned camps launches its video iPod.  Most people are worried about what the video is going to look like on that tiny display.  What they should really be worried about is how much video content is going to get shoved into the market that's wrapped up in Apple's DRM Fairplay technology.   In the past, I've likened Microsoft and Apples's war of the playback/DRM technologies as something like the tortoise and the hare.  Since the iPod first hit the market, Apple has been racing to sell as much FairPlay-DRMed music into the market has it possibly can.  Why? Because it ensures the future of the company.  As I said earlier, except for the new iTunes phone from Motorola, if you want to play that music, who do you have to go to to play it?  That's right. Apple.  

Meanwhile Microsoft has a competing technology for music, but it's not doing nearly as well as Apple's.  At least not yet.  It's busy licensing it's playback and DRM technologies to as many licensees as it can to create the same sort of feeding frenzy around its PlaysForSure ecosystem has it did with system vendors for the Windows ecosystem (much to the chagrin of Apple).  It's even giving away its DRM technology until the end of the year just to stimulate interest. By the time 2009 rolls around, when analysts think MP3-player demand will spike, I suspect the balance of power in the audio market will have shifted substantially towards the direction of the Microsoft PlaysForSure ecoysystem.

On the other hand, between all the computers, handhelds and telcos that are in the Microsoft video camp (and there are very many), Microsoft's video ecosystem makes all other comers -- including Apple -- look puny by comparision.  Today, Microsoft controls the video.  Apple controls the audio.  Neither is happy with the situation because it forces them to divide and conquer the market with their incompatible playback technologies when both (and their shareholders) would be better off having the entire market to themselves.  But before Apple can try to slow the Microsoft media juggernaut down, it needs to do what Microsoft has already done -- mobilize it's video technologies.  Enter the video iPod.  Now, much the same way it has been driving FairPlay-DRMed audio into the market, expect it to do the same with video.

Am I missing anything? Maybe my meds?

Topic: Microsoft

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39 comments
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  • A few possible missing elements

    1) Where are the GooglePlex on media? Isn't it a bit hard to swallow that they're ignoring the whole subject?

    2) Where are the independents? Maybe they don't see a need to take sides, but some of them have been trying on the tin-foil-hat theory that once someone "owns" media channels [b]everyone[/b] will have to pay to join.

    3) And, of course, what of the public? This sounds too much like a bunch of slavers arguing over captives: the largest group has the greatest interest and the least say.
    Yagotta B. Kidding
    • On three.

      What of the public?

      One... Two... Three!

      The public supplies the money.


      Thought I'd put some variety into the comment.


      Google can match free offerings as often as they choose. The company's significant move will occur when the company decides to sell something besides search ads. Until then we're reading speculation and wishful thinking.

      On your other comments, of course everyone will have to pay to join the media content sales game. Given Apple's insistence on remaining in its own niche, they'll be paying Microsoft.
      And there will be only two operating systems capable of legally playing media.

      The DRM nonsense is having a substantial impact.
      Anton Philidor
  • MacroAdobe and EbaySkype

    Great article! I'd love to see you extrapolate a little further on the
    implications of MacroAdobe Flash 8 as a potential emerging video
    standard, plus the implications of EbaySkype's impending vSkype or
    Festoon video VIOP as a possible content delivery platform.
    Handset manufacturers and XM will be launching mobile platforms
    also. Please take your analysis to the next level by including these
    elements in the mix. Thanks.
    hbnickcarter
    • And no mention of MPEG

      "Microsoft's video ecosystem makes all other comers ?
      including Apple ? look puny by comparision."

      Sure if you leave out MPEG. Millions (Billions?) of DVD players,
      set-top-boxes (DVB-S-C-T-IP), mp3 players, and a required
      codec for both Bluray and HD-DVD.

      MS has VC-1 (draft), and MWP. Pretty sad.

      "Today, Microsoft controls the video."

      They do? LOL - with what WMP? Just the annual sales of DVD
      players would be an order of magnitude higher than total
      windows desktop installed base. Add revenue from digital
      television broadcasts and DVD disc sales and its clear how
      ridiculous this statement is.

      "Apple controls the audio."

      Apple controls the iPod, and through it 80% of the portal music
      player market and as high a portion of legal download music
      sales. However, again other forms of audio revenue dwarf this
      market.

      MS has identified DRM as a way to control these markets. As you
      quite rightly point out it has learnt from experience what a
      barrier of entry to a market is worth. The problem is DRM is
      incredibly unpopular with consumers as it is a big step back
      from where they are today.

      They battle for DRM is still to be played out. The battle for media
      format supremacy has a clear leader - and the winner is MPEG.
      Richard Flude
      • note to self : use reply to story (nt)

        nt
        Richard Flude
      • Don't forget QuickTime

        The QT technology has superior video scalability from cell phones
        to HD big screen and will play mp3 audio, as well as FairPlay
        licenced formats.
        distantrhythm
  • AOL's role is more ambiguous.

    AOL is part of a major media provider company. I believe Time Warner prefers Microsoft to Apple as a partner.

    AOL is in IM talks with Microsoft. There's a reasonable possibilitity an agreement could extend to search.
    Remember that this is the same company that bought Netscape and still uses that spavined version of IE.

    Mr. Berlind wrote:
    Meanwhile, while the Microsoft/Yahoo camp begins to take shape, Google can't possibly lie down and let that truck run it over. So, why not join forces with Comcast and the 800 lb. gorilla of instant messaging: AOL (should we call it GoogAOLe?). By the way, that's the same AOL that just released a $99 PC through CompUSA . Picture applications and services flowing from Google and AOL, through Comcast, to a dirt cheap AOL PC).

    Google is not a DRM producer.

    Google has not begun to produce "applications and services", and if Google did, why should a content and internet access company want to be involved? Particularly when success is far from guaranteed.

    If Google allied with Comcast, which has content company ambitions (remember Disney), why should AOL want to join with a major cable competitor to deliver a third party's products?

    AOL has a history of agreements with Microsoft, and more advantages from a Microsoft deal, possibly including free DRM for a longer period.
    The results of the current negotiations should give a better indication.

    Please don't let antipathy to Microsoft affect your judgement of business advantages.
    Anton Philidor
    • Nothing is impossible dept.

      Though I think the arguments above are still the most reasonable, a story on USAToday says:


      A possible joint bid from Comcast and Google for a minority stake in AOL is the latest scenario Time Warner is considering, according to two people with knowledge of the talks. Both emphasized the talks are preliminary and might not bring a deal.

      http://www.usatoday.com/money/industries/technology/2005-10-12-google-comcast_x.htm
      Anton Philidor
    • Great questions, some answers:

      The whole ecosystem is keeping close watch on who and where the strangleholds exist. By virtue of a recent decision to classify internet provision as an information service rather than a traditional telephony service, companies like AOL could lose their right of way to be in the broadband ISP business. Meanwhile, that decision clears the way for the Baby Bells to keep all their government protected bandwidth (fiber) on the street to themselves. A fraction of it (about 1 percent) is going to get used to high speed internet (15 mbps or more). The rest will be for the content you speak of. Comcast is fortunate enough to have the other pipe. Meanwhile AOL has something both Google and Comcast could always stand to add to their business: significant reach (particularly given the number of users of AOL IM).

      db
      dberlind
      • Please clarify.

        From the linked article:

        Google and Comcast are talking about a stake in AOL's ad-supported free portal and its instant-messaging service ? not AOL's dial-up service, said one of the people. Comcast, which has 21.5 million cable subscribers, and Google would both gain additional Internet content, such as AOL's concerts.

        Still odd to me that a part of Time Warner, a content and cable company, would want to increase content on Comcast.

        Google would want a portal and IM connection to AIM because these are ways to sell ads, so that at least makes sense.
        They also wouldn't mind keeping Microsoft from taking away AOL's search.

        But I'm not sure how this fits in with what you said.


        On your comments, I'm not certain where the Bells are relevant. Both Comcast and Time Warner are cable suppliers. AOL (and MSN) have announced plans to be suppliers not of broadband connections, but of content to be used on all broadband connections.

        So I'm not sure what you mean when you comment:

        By virtue of a recent decision to classify internet provision as an information service rather than a traditional telephony service, companies like AOL could lose their right of way to be in the broadband ISP business.

        Does this mean you thought AOL would buy space on the Bells to act as a broadband non-cable ISP?


        I was also confused about this comment:

        A fraction of it (about 1 percent) [the Bells' fiber] is going to get used to high speed internet (15 mbps or more). The rest will be for the content you speak of.

        Isn't the content being delivered over high speed internet?

        Thanks for taking the time to respond and, in advance, to explain.
        Anton Philidor
  • Why must Apple's strategy remain static?

    ---By the time 2009 rolls around, when analysts think MP3-
    player demand will spike, I suspect the balance of power in the
    audio market will have shifted substantially towards the
    direction of the Microsoft PlaysForSure ecoysystem---

    Personally, I see Apple continuing to ride the iPod wave until it
    peters out. At any time, they can switch strategies, and start
    licensing FairPlay to every single electronics manufacturer who
    wants it. Right now, it's to their advantage to keep it to
    themselves, as iPod/iTunes sales are still dwarfing the amount
    they'd receive from licensing. At some point, that balance will
    tip the other way, and we'll see FairPlay For Sure on every
    company's mp3 player.
    tic swayback
    • PlaysForSure... on an iPod?

      Is this possible? Apple could seemingly go on forever dominating
      the device segment if it played all formats; at 7? a song, that's
      where the cash is for them right now, the devices.
      distantrhythm
      • Easily done

        From what I've read, the iPods are already capable of playing
        WMA files, but that capability is turned off. Of course, they'd
        have to license the DRM from Microsoft to use songs from any of
        the (failing) stores.

        ---Apple could seemingly go on forever dominating
        the device segment if it played all formats---

        Right now they're dominating both the device segment, and the
        music store segment (and soon, the video segment). Why give
        all of that up? Why not make everyone else come to you?
        tic swayback
    • A FairPlay protected wma?

      Steve Jobs will have his own "hurts my eyes" moment(s).
      Anton Philidor
      • Why bother with WMA at that point?

        Electronics companies can license AAC rather than WMA, and
        probably under more favorable terms since it is an open standard.
        Once you're going to license Fairplay, why would you stick with the
        arguably inferior WMA format?
        tic swayback
        • Inertia counts.

          Once the cosmos was expected to be slowing down, so that eventually all matter and energy could be captured by gravity and brought back to the site of the Big Bang for the Big Scrunch.
          Now that the expansion seems to be accelerating, the prediction is that the matter and energy will keep covering a wider and wider area until everything loses sight of everything else, and the cosmos ends up in a slow fade to black when the vigor runs out.

          This latter assumption is based on the idea that the cosmos will keep doing what it's doing, never changing course.

          This is a metaphor for the content companies, whch will stick with the products they've been using even with other alternatives.
          The entire universe has been called as a witness because it's Friday.

          --------------------- :-) ----------------------
          Anton Philidor
          • If they stick with what's currently selling....

            ...then they'll certainly dump WMA for AAC, since it comprises 80%
            of the market. That format has all of the inertia in the world
            behind it, as opposed to WMA, which is apparently only used by
            non-profitable companies who are soon to go under.

            The nice thing is that many of the players already in existence
            could be upgraded to use AAC through a fairly simple firmware
            update. Then again, the electronics companies may instead prefer
            to use this a chance to re-sell to the same customers.
            tic swayback
          • But Apple is associated with AAC...

            ... and detestation for Apple will only grow.

            Apple demonstrated that music sales on the internet can be successful. That's why Apple is hated.

            Inertia means continuing where you were going, even if that's standing still. (Zeno would like that one.)

            More directly, if they're selling wma's, they're going to keep on selling wma's.

            And if Microsoft provides its DRM better on wma's, expect the industry insist Apple move to wma.
            Anton Philidor
          • Wait, now only previous inertia counts?

            ---... and detestation for Apple will only grow.---

            But without Apple and iPod users, this market ceases to exist.
            Or do you want 80% of digital music buyers to instead turn to
            non-RIAA music? Is that a gamble the RIAA wants to take, that
            Apple's marketing, and the established means of buying music
            online won't create hits for non-RIAA companies after the RIAA
            pulls out?

            ---Inertia means continuing where you were going, even if that's
            standing still. ---

            But the inertia of standing still has already been overcome, and
            it's all going Apple's way now. Or does only the inertia the RIAA
            wants actually count (even if it no longer exists)?

            ---More directly, if they're selling wma's, they're going to keep
            on selling wma's---

            And since no one is selling wma's, and the only thing selling is
            AAC's, they're going to keep on selling AAC's.

            ---And if Microsoft provides its DRM better on wma's, expect
            the industry insist Apple move to wma.---

            And if Apple proves they're the only ones capable of selling
            downloaded music, the industry may not have that choice.
            tic swayback
  • History says, no big deal.

    This has happened many times in the past in other industries when the current market dries up new markets are sought and there is consolidation of the players. The funny thing about it is that quite ofter billions of dollars are spent in the consolidation and "deals" only to find it disn't work out or that long time competitors can't agree to work together.

    Much ado about nothing...
    No_Ax_to_Grind