Can Microsoft Beat The Set-Top Box?

Microsoft made it clear at this week's Windows Hardware Engineering Conference that it sees the home network as key to making the Windows PC the family entertainment hub. But the device most likely to pose the biggest challenge is already sitting in many living rooms: the cable TV set-top box.

The star of Microsoft's strategy is Windows Vista, which includes software that simplifies the task of setting up a wireless network and adding devices to it. A demo during Microsoft chairman Bill Gates' opening keynote on Tuesday showed how the technology, called Windows Rally, makes it easy to install a wireless router, a network-attached storage device, and hardware to stream media to a TV or sound system.

Gates also highlighted Microsoft's upcoming Windows Home Server, which is expected to ship in the second half of this year. Based on Windows Server 2003, the new product would provide a simple process for sharing digital content among networked computers, performing automatic daily backups, and monitoring security on each PC to ensure that firewalls and antivirus software are turned on.

Microsoft's focus on simplicity, something that has eluded the PC since its introduction more than 25 years ago, is key if the company eventually wants to distribute TV programming over the home network. For most people, TV watching should only involve a remote control.

On that level, set-top boxes deliver, and are evolving into platforms to do much more. Besides being able to record programming or download movies from service providers, manufacturers such as TiVo and Cisco Systems, which owns set-top box maker Scientific Atlanta, have also added the ability to access the Internet.

Cisco, which also owns home-networking equipment maker Linksys, could become an even bigger challenger to Microsoft if it added the ability to distribute Internet content and TV programming wirelessly to other devices in the home. Cisco could also provide a wireless connection to the Internet for the PC, making it a peripheral to the set-top box.

While Cisco hasn't announced such plans, the company has the pieces it needs to make the set-top box the hub of the digital home. "Cisco has the edge because they have the connection into the TV that Microsoft doesn't have," Ian Lao, analyst for In-Stat, said in an interview. Indeed, Microsoft for years has been trying to gets its TV software and program guide in digital cable boxes in the United States. The company managed to get its TV Foundation Edition software for cable operators in Comcast boxes. This week, however, Comcast said it would no longer carry Microsoft software, opting instead for GuideWorks, a joint venture of Comcast and Gemstar-TV Guide International, the Seattle Post-Intelligencer reported.

Comcast was using Microsoft software only in the latter company's home state of Washington, the newspaper said. GuideWorks was used everyplace else.

Clearly, the home network capable of distributing the most content -- from Web pages and HBO to digital photos -- would have an advantage. In Microsoft's view, any advantage a set-top box has today won't last.

Microsoft believes people will eventually be able to go directly to the Internet for the programming they want, rather than pay a subscription fee to a cable or telephone company that licenses programming from content providers, Steven VanRoekel, product manager for Windows Home Server, told InformationWeek at WinHEC. Some type of billing infrastructure would have to be developed to avoid paying each content provider separately. But his point is there won't be a need for anything more than an Internet connection.

While acknowledging such a scenario is years away, Microsoft is setting the groundwork with Home Server, Vista, and the Xbox video game console, which can play Internet content and high-definition DVDs on a TV.

"All those things are leading indicators of where the future is going and how we plan to foster that direction," VanRoekel said. "It's always crawl, walk, run. We're getting up to the walk stage" in home networking.