Why Microsoft Can Win the Living Room

on May 22, 2013

As Ben Bajarin pointed out in his post here yesterday, Microsoft’s Xbox One is a whole lot more than a game console. Of course, the Xbox has long been the leading edge of Microsoft’s effort to dominate digital home entertainment. But a combination of clever new hardware and Microsoft’s unique positioning with respect to the entertainment industry could propel it to victory–and reverse in faltering fortunes in consumer businesses.

Of course, the hardware still has a lot to prove. The ultimate goal of the digital living room is a single box that can deliver all your entertainment desires. On paper, at least, the Xbox One comes closer than anything we have seen before. But features on paper, or even in a demo, are one thing and real life is another. Even Google TV looked sort of good in a demo before flopping with consumers.

The biggest challenge facing the Xbox One is the promised integration with cable set top boxes. Success will depend on the new Xbox’s ability to control the set top box through an easily set up HDMI connection. It needs to banish the cable box to irrelevancy for everything except accessing and decoding content, ultimately becoming your DVR and your gateway to video on demand. That would make it a huge breakthrough. But if it needs IR blasters to control cable, it will go the way of Google TV. Microsoft is so far silent on which boxes from which cable operators the Xbox will integrate with.

It also remains to be seen how well the gesture and voice control will work to replace traditional remotes or controllers. Again, these are technologies that often demo better than they work, but successful elimination of the need to use hardware to control the box would also be a huge step forward.

So it looks like Microsoft will have a hardware edge when the Xbox One ships “later this year.” The real challenge is to build on what already appears to be a slim lead in the availability of content. Here Microsoft can built on two advantages. One is that it has been a technology partner of both studios and and cable and satellite operators for years. For example, AT&T U-verse service runs on Mediaroom IPTV technology developed by Microsoft (the division was recently sold to Ericsson.)[pullquote]If Apple ever announces that unicorn of tech unicorns, an Apple television, it will have to get over a bar that has been raised by Microsoft. It’s been a long time since we could say that about any product.[/pullquote]

But a more important reason, and an odd one given Microsoft’s history as the big bully of the tech industry, is that Microsoft is the company that Hollywood is not afraid of. Microsoft’s leading rivals in the living room are Apple, Amazon, and Google (Sony could claw back into contention, but it has fallen a long way behind.) Each of these competitors inspires fear and loathing in the studios. Apple is the company that ate the music business. Amazon is the company that seems to destroy value in every market it enters–good for consumers, but torture for producers. And Google is a company whose ambitious are scarily unbounded. Apple and Google TV effort has been hobbled by lack of cooperation from content owners and distributors’ Google so far has restricted itself to selling and streaming downloads to other companies’ devices, though it is rumored to be contemplating a set top box of its own. In this company, Microsoft can position itself as an honest broker, a neutral player with no dog in the fight.

The only entertainment content deal that Microsoft announced at the Xbox launch was an exclusive with the National Football League that will bring a lot of “second screen” content, such as stats and highlights, while watching a game on your Xbox. But there was no word about making the games available outside of the NFL’s existing deals with CBS, Fox, NBC, and ESPN. (Microsoft will also get branding on the hoods of replay stations; let’s hope that works out better for them than Motorola branding on coaches’ intercom systems.)

In the end, it is Microsoft’s ability to strike content deals with studios, networks, and sports leagues and getting cable operators to support deep integration of Xbox with their services that will determine success in the living room. At a minimum, though, it seems that if Apple ever announces that unicorn of tech unicorns, an Apple television, it will have to get over a bar that has been raised by Microsoft. It’s been a long time since we could say that about any product.