Cotrim

Love or hate it, interactive TV is has pulled off a very hard thing, something neither the U.S. government nor any other company on earth could do. It got Microsoft to offer a piece of software that has nothing to do with Windows.

Microsoft chose this year's National Cable & Telecommunications Association trade show to announce the unthinkable, by releasing an upgrade to the Gemstar/TV Guide cable electronic program guide that can run on the thinnest possible set-top box.

The software fits in a mere 340 kilobytes of memory and can work on as slow a processor as 13.5 MHz — meaning Microsoft has taken a radical new course in its interactive TV strategy and set up shop square in the middle of the ultra-skinny, yet widely deployed, set-top world.

"Now we can offer this to as many customers who have digital TV, which is about 15 million," says Renaot Cotrim, a sales rep for Brazil at the company who demonstrated the technology for a group of journalists and investors.

The move does what no interactive-TV application has done before: provides a tangible service to a potentially vast number of consumers. That is, a more-fluid and easier to use electronic program guide, which is one of the most popular services offered on cable.

The technology was received favorably by usually skeptical industry analysts. Josh Bernoff, principal analyst at Forrester Research, said the technology was a major advance and that it was a first step in breaking up Gemstar's lock on the development of electronic program guides.

And normally quiet executives were quick to applaud Microsoft's move. 'It's a big step," says Malcolm Miller, CEO of Pace Micro Technology, who rarely gives interviews.

The move very much changes the balance of power among ITV middleware providers.

Microsoft has long sought to port its fat Windows-based operating system over to ITV, both to build new markets as PC sales fizzle and to cut off a route for any attack an insurgent might stage on Microsoft's core business. But it has had a difficult time convincing cable operators to buy the necessary, large system components needed to support its technology. So deployments have been slow.

Even more humbling for Redmond, even when an operator announces a sale, as when Charter Communications said that it had licensed a million copies of Microsoft TV last year, few units actually shipped. Which is a bitter pill for a business that has been developing products for nearly half a decade.

But the program guide quickly changes that dynamic. Now, even the most noncommittal operator can find a use for the new service, and insiders says the like of Comcast and Cox are considering the product. The cable world could see a brand-new beast loose in the market, a legitimate ITV application that could quickly jump into millions of homes, changing not only Microsoft's standing in the industry, but the industry itself.

The "fat middleware is good" strategy has been balanced by other companies like Open TV, Liberate and Canal+ Technologies, which sought to bring thinner, more-flexible ITV clients to the market, but have faced their own challenges.

OpenTV, which has the largest install base of clients worldwide, mostly because of its contracts with EchoStar, has an elegant solution, but the code is mostly proprietary and has had little developer support. Microsoft's move will only deepen that problem, as its upgraded guide will almost certainly be opened to Microsoft's massive developer community; meaning OpenTV will face even more new products that it must compete with.

And the company is being dogged by persistent rumors of a sale. Hal Krisbergh, the CEO of ITV company WorldGate, is reported to have said that OpenTV was for sale and that Liberty Media was a possible buyer.

Liberate Technology will also face tough new competition. Although Microsoft has worked hard to write this code for the most basic of boxes, basic boxes will only get more powerful and offer more opportunity for Microsoft to develop new services.

Executives say hardware prices for set-tops have fallen dramatically, and, therefore, the term "thin client' is no longer appropriate. "Now they are low-cost clients," says Pace's Miller. Low-cost clients now carry a respectable 16 meg of RAM and run at near 85 MHz, meaning Microsoft will have plenty of room to push up against thicker thin-client services from competitors.

Which adds up to a tough new world for everybody but Microsoft.

Copyright © 2002 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.