When Microsoft last month agreed to
supply various technologies to cable giant
Tele-Communications Inc. for its next-generation,
Internet-ready set-top cable boxes, many industry
observers began forecasting the end of WebTV.
After all, Microsoft gave away some of WebTV's
most impressive tricks. But recent retail trends, as
well as a realistic look at the pace of cable set-top
rollouts, suggest that reports of the Internet-TV
category's demise have been greatly exaggerated
-- or at least accelerated.
It's called Solo. Named after a German
shepherd owned by WebTV co-founder Steve Perlman, Solo
is a custom-designed yet inexpensive chip that accomplishes
many of WebTV's most impressive tricks: non-flickering
Internet images, for example, elegant zooming techniques and
a picture-in-picture feature that provides for simultaneous
channel surfing and Web surfing.
(Microsoft (MSFT) is a partner in MSNBC, and MSNBC is one
of many content partners of WebTV.)
In the wake of the deal struck between Microsoft CEO
Bill Gates and TCI chief John Malone over a multimillion-unit
order of computer-like set-top boxes by TCI, Microsoft's
Windows CE operating system drew most of the attention.
CE, it was agreed, would be inserted into 5 million boxes,
which will provide services such as e-mail, Internet access
and video-on-demand to cable subscribers.
But in retrospect, there was another lynchpin in the
negotiations as well: the Solo chip (and bargaining chip).
Now, it appears, a new generation of cable set-tops built by a
smorgasbord of companies -- General Instrument, Sony, Sun
and others -- will enter the market as early as late this year
with WebTV's vaunted Solo technology.
So will WebTV itself, the company that emerged from
nowhere to be bought last year by Microsoft for $425 million,
simply fade away once those cable boxes enter the market?
That's certainly the impression one could draw from
Mike Conte, group product manager in the company's
digital-television operations, calls WebTV "a huge retail
success. We can't make them fast enough." But at the same
time, he notes that WebTV has "served as the inspiration for
where these other set-top boxes will go." Listen carefully,
and one even notices generous use of the past tense.
"They were quite important," he says, "partly as a proof
of concept" -- especially as Microsoft was selling its wares
to TCI. (TCI didn't order WebTV boxes largely because it
favors open technological standards and it doesn't dare give
that much clout to one technology provider).
So if even Microsoft hints that WebTV already may
have served its grandest purpose, what are consumers
supposed to think?
The answer: It depends on the time frame. Despite the
showy claims of cable operators, who promise delivery of
millions of set-top boxes over the next few years, most U.S.
consumers won't be able to sign up for basic e-mail service
through their cable operators before the century ends.
Corp., estimates that
appliances will gain
acceptance in this
country. But even at
that, their installed
base won't crack the
5 million mark (or
about 5 percent of
U.S. households) until
Meanwhile, distribution is likely to be uneven. In order to
sign up for a new-fangled set-top box, a customer will have
to be served by a cable operator that actually has the boxes
on hand (most won't during the next two or three years).
Further, only those customers served by upgraded, two-way
cable lines will be able to get maximum use out of the boxes.
That means consumers who are looking for interactive
entertainment, e-mail service and Internet browsing but who
don't own personal computers have only a handful of choices
today. And the cable industry can't be expected to expand
that menu for most viewers for several years.
Therefore, even though WebTV is being cherry picked
for its best features, the short-term prospects for it and its
rivals, including Internet-screen-phones and other low-cost
appliances, remains reasonably strong.
And longer term, WebTV may offer a more robust
computing experience than its narrower cable set-top-box
cousins. With an infrared keyboard, a printer port, a full suite
of Web surfing tools and more WebTV may well evolve into
Microsoft's "network computer" play. After all,
NC-evangelist Oracle is pouring many of its network
computer hopes into Network Computer Inc., whose
partnership with NetChannel and RCA offers the most direct
competition to WebTV.
Indeed, demand for Internet appliances -- a category
WebTV invented a year-and-a-half ago -- is growing
quickly. Both WebTV and its leading competitor, the
NetChannel service on RCA's network computer, say they
sold out all inventory over last year's holiday selling season.
WebTV's subscriber base now tops 250,000. Sales and
orders for RCA boxes hit about 50,000 -- though the
company was able to deliver less than half of those last year.
In the grand scheme of the consumer-products world,
those aren't large numbers. But thanks to a paucity of
competing technologies right now, those numbers may get
significant soon. Perlman, for instance, forecasts that
WebTV will exceed 1 million subscribers by year-end.
That's why one NetChannel official says she expects
NetChannel and WebTV to have a lot more company in the
Internet-TV business soon. "Over the course of the next six
months," the official says, "we'll see more brand name
players step out."