[Am-info] Battle for control

[Gene Gaines]

The battle for control.
Not for your operating system.
Not for your desktop.
Not for content.
Rather, a battle for control of your home.

See story below.

Gene Gaines
gene.gaines@gainesgroup.com


http://news.com.com/2009-1043-5114058.html?tag=sr.toc

Players: Clash of the titans

By David Becker Staff Writer, CNET News.com
December 10, 2003,
4:00 AM PT

To the consumer, a video game console is just a conduit to beat
the daylights out of some poor electronic slob in "Madden NFL
Football." But for Sony and Microsoft, game machines are key
weapons in a battle for control of the digital home.

The design and functionality decisions underlying Microsoft's Xbox
and Sony's PlayStation 2 reflect the differing strategies of their
makers for controlling the flow of digital content through the
home. Microsoft maintains a computing-centric vision of the
universe, while Sony remains committed to digital evolution
through consumer electronics.

"If you look at the overall company strategy, Microsoft views the
PC as the center of the home, and Sony views the TV as the
center," said Schelley Olhava, an analyst at research firm IDC.

The distinction has sharpened, as the two powerhouses compete head
to head in the game market, where they are taking strides toward
digital convergence--the combination of diverse multimedia and
communications technologies in one device.

There are important consequences to the development of PlayStation
and Xbox that transcend the game businesses of both companies, as
they map out broader strategies at critical junctures in their
corporate histories. And because Sony and Microsoft are leaders in
their respective fields, analysts and competitors are monitoring
the rivalry for clues to the future of consumer technology.

"If you draw a map of the connected home, the PC industry's
version--and that includes Microsoft--has a PC in the middle of
it, with content flowing to multiple devices for consumption,"
said P.J. McNealy, an analyst for American Technology Research.
"That could be a game console, a handheld--take your pick. The
Sony version is very much electronics-focused, with no PC
required."

Sony is facing its most dire financial difficulties in years,
recently announcing that it will cut 20,000 jobs amid a drop in
worldwide demand for traditional consumer electronics. That is a
far cry from the brash company of the 1980s that expanded into
movie studios and music labels in a bid to control content, from
its creation to the hardware that would play it. The company has
identified convergence projects that capitalize on its
consistently profitable game business as a key element of its
turnaround strategy.

Microsoft, meanwhile, has encountered its own problems in trying
to fit content and media into its software empire. Some analysts
speculate that the company, which has largely returned to its
computing roots under CEO Steve Ballmer, may eventually withdraw
from the costly business of making game consoles, once the Xbox
has established itself--a move that would be consistent with the
Microsoft philosophy of licensing its software to other companies
that make the hardware.

The move toward convergence is still in the early stages in the
game industry, but Sony says the PlayStation 2 is already
succeeding in its new role because the company has made a
conscious decision to use a design flexible enough to accommodate
emerging consumer needs.

"What we've been able to do with the PS2 in the last year or two
has shown how a sensible strategy toward convergence can lead
customers into these new activities," said Andrew House, an
executive vice president at Sony Computer Entertainment America.
"We haven't relied solely on software to motivate customers. The
key difference this time around is adopting an evolving hardware
strategy."

Sony is keeping everything in the same box with the PSX, its first
attempt at a multipurpose PlayStation device. Just plug the PSX
into a TV signal, and the box provides everything needed for video
recording, game playing and media playback.

Microsoft, not surprisingly, views the PC as the logical
centerpiece for any digital entertainment experience. "We look at
it as the PC being the hub of the digital lifestyle, and it's
great for that," said Cameron Ferroni, general manager of
Microsoft's Xbox Live online service. "It's got tons of storage.
It's very flexible."

In that vision, the Xbox is just part of a network of consumer
devices that can shift content to wherever people want to consume
it, with Microsoft technology ensuring that everything works
together. "We want to be in the business of creating protocols and
standards to make it easy to move stuff around the house," Ferroni
said.

Roping in Longhorn

A larger part of that strategy will emerge with the company's next
iteration of the Windows operating system. Code-named Longhorn,
the software will include a new search-and-storage system intended
to make it easier to find any digital content stored on individual
PCs or across a network.

The exact role that Longhorn will play on the Xbox is unclear, but
Microsoft is expected to revise its software so that the game
console can be linked into a larger home network, in what
Microsoft terms the "Longhorn time frame" of 2005 or 2006.
Microsoft Chairman Bill Gates told CNET News.com recently that
"every group at Microsoft is talking about the Longhorn wave."

Analysts say that schedule is particularly important because home
networking is on the cusp of mass-market acceptance. Today's
network technologies, whether wired or Wi-Fi, often have spotty
connections and are too complex for most consumers, they say--but
that will change soon.

"Microsoft and the PC industry have a two-to-three-year window to
simplify home networking and moving content around the home,"
American Technology Research's McNealy said. "After that, you'll
see a real wave of reasonably priced consumer electronics devices
doing the same thing."

Microsoft recently showed how Xbox can fit into a PC-based home
network with its first nongame application, the Music Mixer. The
technology allows Xbox to be used as a karaoke machine but also
includes more-advanced functions--such as loading digital photos
to run slide shows on a TV set--that require a computer
connection.

To that end, many industry veterans believe that Microsoft got
into the console business to ensure that PC technologies would
have a lasting role in the game industry.

"I can't see Microsoft continuing to be interested in a hardware
battle with Sony," said Matt Rosoff, an analyst for research firm
Directions on Microsoft. "What's more important to them is that
everything supports a format that guarantees the PC won't be
locked out, and they've done that with Xbox."

Rosoff said there's a good chance Microsoft will license the
specifications for the Xbox hardware at some point, as it's done
with the Tablet PC and other devices. Such a move would help
popularize the game console's format by allowing electronics
manufacturers to build support for Xbox games into DVD players,
video recorders and other devices. At the same time, it would
allow Microsoft to cut hardware-related financial losses.

"Microsoft likes to be a software company and a platform company,"
Rosoff said. "They want to sell the software. They're not
particularly interested in selling the boxes at a loss. If they
can find some way to release Xbox technology as a platform, that
would be a very Microsoft approach."

Xbox executive Ferroni acknowledged the obvious bottom-line appeal
of leaving the hardware business, but he said licensing the
console's design to multiple manufacturers would undercut one of
its strengths.

"The games space is obviously where most of the money is made, so
it sounds great on paper to just license the design. But as soon
as you get into the reality of it, you lose the magic of the
console--the fact that it always works," he said. "By having a
platform with a single manufacturer--that allows you to guarantee
that it always, always works."

If Microsoft's approach to the game business is defined by its PC
orientation, Sony might reasonably be expected to exploit its dual
role as a producer both of entertainment content and of the
devices that play or broadcast that content. Yet to date, Sony's
extensive entertainment portfolio has had little apparent effect
on the PlayStation business.

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