InformationWeek
Defining The Business Value Of Technology
April 24, 2000
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The object of this conflict has been kicking around for years: interactive television, a melding of the TV and the computer. I once described this concept to a Microsoft product manager as "trying to mate a dog and a cat." Marshall McLuhan saw TV as "a hot medium with low definition," meaning that users come to it passively. The computer, on the other hand, is more like a book, which means it takes a concerted effort to use it; McLuhan called it "a cold medium with high definition."
Despite the failure of Microsoft's initial interactive TV venture in 1994, the company hasn't given up. It has kept going after the set-top box market and has bought WebTV, neither of which has taken off. Microsoft execs still say interactive TV will become a player, and have invested billions in cable companies here and abroad. They also still say that some sort of convergence between TV and the Internet is inevitable.
So, last month, Microsoft announced it is getting into the game-console business with the so-called X-box. Bill Gates promised that the X-box would be 300% faster than Sony's PlayStation2, which was an immediate hit in Japan and promises to be just as popular when it's released here. Why would Microsoft want to go up against Sony, a mammoth company that's firmly entrenched in the games market? Well, games are software after all, but it's a broader question than that.
Look at the specs for the X-box. It will have a 650-MHz Pentium III processor, 64 Mbytes of RAM, an 8-Gbyte hard disk, a DVD player capable of showing movies, and a Fast Ethernet network adapter, as well as a special graphics chip capable of 1 trillion calculations per second. It will also run a stripped-down version of Windows 2000. The company asked PC manufacturers to build and sell it, but were turned down because the profit in the games market is in the games--the consoles are a loss leader. So Microsoft will sell the box itself.
But the computer makers aren't oblivious to what's going on. Just add a keyboard and a mouse to this unit, and you've got a pretty powerful PC. Microsoft, however, is apparently ignoring the X-box's cost to manufacture--even 18 months from now, when it's set to ship, 650-MHz Pentium IIIs will still cost as much as an entire PlayStation2 at retail. It's also ignoring the traditional customer base for game consoles--teens and twentysomethings who generally have little cash to throw around.
If you take a look at all the other businesses Microsoft has gotten into in the past few years, the X-box starts to make more sense. The company owns Web-content providers such as CarPoint, Encarta Online, Expedia, and the Microsoft Network. It has partnership deals with tax-preparation and bill-paying services, and with many banks. It also has money-management software. The X-box thus starts to look like more than a simple game machine--in fact, it's a Trojan horse designed to become the cornerstone of convergence in the home. It's a game console that functions as an Internet appliance and, eventually, as a set-top box for interactive enhanced-definition TV.
Microsoft's competitors, however, aren't fooled by this ploy. J.P. Morgan, for instance, will provide home banking services via PlayStation2. When you look inside the belly of the beast, it's all a pure business-to-consumer play: convergence as a key to the Internet economy.
I'm still skeptical that Microsoft can win this battle. Whether or not Microsoft ships the X-box, Sony is going after the same consumers through the same channel. For business-to-consumer companies that want to participate in all aspects of the Internet economy, this is yet another opportunity to watch. It may turn out to be a dead end, but in any case, IT professionals will have to decide if convergence is the right way to remain competitive in the global marketplace. Imagine this scenario: "I'm sorry, son, but you'll have to stop playing that online game. Daddy needs to use the X-box right now. There's a hot stock he's got to buy."
Stuart J. Johnston has covered Microsoft for more than 12 years. He can be reached at stuartj@halcyon.com.
ince just about every commentator on the planet has voiced an opinion on this month's ruling that Microsoft is a monopoly, I've decided to save my observations for another venue. Instead, I'd like to focus on another battle Microsoft has entered, this one in the burgeoning business-to-consumer space. The battleground? Your living room and the living room of every consumer your business might want to reach, and it's looking like another job for information technology.
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