Microsoft's Consumer Electronics Endgame


Ever play a game of chess and your opponent makes a move and you realize the game is over? Nothing dramatic like taking your queen, just a simple strategic move where, after you look at it for a second you think "oh-oh," and from that moment on you're basically just looking for your opponent to make a mistake because otherwise they're obviously going to win.

Well, I've been watching Microsoft's moves over the past few weeks and I can pretty much say that it's game over for a lot of Microsoft competitors, though they may not realize it yet. To me the decisive move was their MSN Video announcement which included deals with MTV as well as TiVo to make sure that TiVo To Go recordings play on Microsoft Mobile devices. That's when I saw the big picture: Microsoft's DRM strategy and Windows Media WMA codec are going to allow them to have a massive advantage in the consumer electronics market, which includes everything from MP3 players, to mobile phones to your set-top box, to a host of other converged devices.

Obviously, I'm mostly concerned about the mobile phone market, so it's come as a real shock to me the integration and forsight that Microsoft has applied to this area when it comes to music and video. Very soon anything you're able to record on your TiVo will be playable on your Windows Mobile device, the new MSN Video Downloads service (among others) will allow you to see television and movies, and the variety of integrated music stores will allow you to buy and play music. There's no competitor to this breadth of mobile media offerings right now or that I can see in the near future.

It doesn't matter that Microsoft doesn't lead in music downloads right now, though if you combined all the different WMA music stores, it might come close to Apple's iTunes. What's important is that Microsoft *owns* the alternative to Apple and is already branching out to areas like movies and home-recorded content. It's amazing to see history repeating itself, no? Apple lost the PC desktop because it refused to license its Graphical User Interface and now they're going to lose the Consumer Electronics market because they've failed to license their FairPlay DRM technology.

Everyone was laughing at Bill Gates' gaffs this week at the CES. The bluescreen of death, etc. But did you *see* what they were showing off? They have set top boxes, mobile phones, PDAs, portable video players, game consoles and more all running Microsoft software, and most importantly, all supporting the same Windows Media codec and DRM. The final piece of the puzzle was the TiVo To Go announcement. Now it's not just content you buy, it's your personal content as well.

It was when I bought my Creative Labs MuVo 100 that I realized how far Microsoft has gone to penetrate the CE market. I've been hearing about WMA being pushed on a bunch of platforms including even the new HD disc formats, but it wasn't until I was shopping for an audio player that I grokked what was going on. Every audio player (besides the Apple iPod), no matter how inexpensive - supported WMA. I was outside the Microsoft Media ecosystem until just recently. I own a TiVo as my PVR, a Nokia as my smart phone and a iPod as my music player. I did, however, like 98% of the population use a Windows PC. But then I needed a new music player for myself and chose a WMA device because it was inexpensive. Now suddenly I find myself downloading the Windows Media Player 10 and checking out the content on the MSN Music Store and realize, "Hey, that's not a bad looking site." Then I notice all the other sites that use Windows Media including CinemaNow, Napster, MusicNow, MLB, Atom Films and Wal-Mart Music.

Sure, some of those sites support Real's encodings. And some sites have their own encoding like Audible, which only work on a subset of devices. And some players support more than just WMA. And there's new specs coming out all the time like OMA's recent DRM 2.0 announcement which is supported by big players like Vodafone. But none of these guys are *working together*! The TiVos of the world aren't talking to the iTunes which don't talk to the Nokias which may not talk to the Vodafones. But the WMA devices of the world do talk to each other, and all of them rely on Microsoft providing the middleware to work together seamlessly. See it now?

We're already starting to see the synergistic effects of this process. In addition to TiVo capitulating to the Borg, Cingular just announced more Microsoft SmartPhones in addition to their Audiovox SMT5600 model, and even before that, AT&T Wireless had online music store (powered by Loudeye, which uses WMA as their DRM), which of course only works on Windows Mobile phones.

Motorola, Samsung and others have Windows Mobile devices, so they get to play in this sandbox. But if you're Nokia which has based its smart phone around an alternative OS, how do you compete with this? The answer is "you don't" you just end up licensing WMA like Real did so at least you're not on the outside. Sony Ericsson could try to make a play to control the DRM space using Sony's Magic Gate DRM. Or maybe all these players could hope that the various DRM Standards bodies come up with some sort of universal DRM interop spec that everyone adopts to save them. Or they could try to do what Real is doing with their Harmony tech and re-encode everything into device-supported formats - the problem with this is that re-encoding sucks, not only do you lose quality, but companies like Apple can just flip some switches and turn off iTunes compatibility.

So while all these competitors mess around with alternatives specs, Microsoft is going to blanket the Earth with PlaysForSure devices.

Say you're technologically agnostic (i.e. a "dumb consumer"). First, you immediately notice the Microsoft logo on any consumer product you're about to buy and since you have a Windows PC at home, you immediately think "ooh, good that'll work." Now you bring it home - maybe it's an music player or a video player or what have you. As soon as you grok that PlaysForSure logo, the *next* consumer device you buy for yourself or friends or family, is going to have that logo on it as well, just to make sure. The first time you buy a device that's outside the WMA world, you will do nothing but bitch about it to all your friends. As soon as you buy something which does allow you to move content around, you'll proudly *show* all your friends, "Hey look, here's last night's 24, on my phone!" It's a classic vicious or virtuous cycle. As consumers get more intwined with Microsoft DRM content, they will start to migrate towards more Microsoft OS devices: set-top boxes, smart phones, video gadgets, etc. Just like in the PC world, Microsoft will sit back and collect royalties on all this software, while the device manufacturers compete tooth and nail and survive on insanely-low margins.

Okay, now that I've raised the alarm, what is there to do? Well, first there needs to be a competing consortium of device manufacturers lead by Apple. Apple needs to license FairPlay soon and as widely as possible. If they're going to be a leader in the consumer electronics space not just in music players, they're going to need to buddy up. The first step with Motorola was a good one. Now reach out to the TiVos and Nokias and Samsungs and start creating an alternative DRM ecosystem immediately. Otherwise, I'm afraid the only other option is to become a ever-smaller niche player or generic device manufacturer. Really, what's the difference between a Nokia and a Samsung if they're both running Windows Mobile?

This solution, however, I doubt is going to happen. And if I can't start easily playing my personal media on my mobile phone pretty damn quick, it looks like I might actually be buying a Microsoft handset soon myself. Can you imagine?


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