Will the Microsoft Xbox win the living room wars over Apple, Google?

A new report says the Xbox is the most popular Internet device for TVs. Can Microsoft continue to capitalize on this advantage?
Written by Sean Portnoy, Contributor

If you follow start-up culture, you know that the ability to "pivot" -- to change your business model on a dime -- can be the difference between failure and major success. But sometimes established companies -- even those often derided as dinosaurs -- can reap the benefits of pivoting as well.

That appears to be the case with Microsoft and its Xbox 360. Designed to compete with the PlayStation 3 and Nintendo Wii for gamers' hearts and minds, it's become something much more valuable -- the most popular conduit to the Internet in the living room. According to a new report from market research firm Forrester, the Xbox is the leader in the "connected TV" platform wars, bigger than Apple, Google, and any manufacturer's "smart TV" offerings.

About half of the 70 million Xboxes in use are connected to the Internet, and that install base has led companies from Comcast and HBO to Hulu and Netflix to offer streaming apps for their video services. Sensing that it has laid a golden egg with its Xbox Live subscription service, Microsoft has recently rolled out a wrinkle in its pricing strategy, selling a package (as a pilot program) that includes an Xbox 360 (with Kinect) for $99 with a two-year subscription to Xbox Live for $14.99 per month. The lower console price will get more units into homes as the company works on its follow-up Xbox.

While Microsoft has managed to establish pole position in the race to connect TVs to the Internet, its lead is by no means safe. It's been lucky that Apple has thus far treated its Apple TV device as a "hobby" and that Google TV has been a dud. But an Apple television -- when and if it arrives -- could alter that equation, especially since it could unleash the iTunes App Store in a way that Apple TV hasn't to date.

Speaking of app stores, Forrester analyst James McQuivey tells the New York Times that Microsoft could be leaving itself vulnerable to competitors by not opening up its app store further. It may be paying off developers to build apps for its Windows Phones, but it shouldn't have to be so desperate with 30+ million Xbox users who are connected to the Internet.

Do you think Microsoft will be able to hold on to its lead in the living room? If not, who will emerge as the winner? Let us know your thoughts in the Comments section below.

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