IPUrbia

Microsoft’s latest move into the video market is definitely going to make things interesting over the next few years. Recent CES announcements included an (expected) upcoming addition to the Xbox 360 platform that allows for it to be used as an IPTV set top box. As they already do a significant portion of the backend infrastructure for AT&T’s IPTV offering, this gives them an end-to-end solution to take to cable and telco’s to compete with Scientific Atlanta and Motorola, who more or less own that portion of the market.

If this was anyone other than Microsoft, then I would expect it to fizzle sooner rather than later. The set-top box is traditionally supplied with the service and cable companies, at least, try to limit the range of platforms that they have to support for both technical and customer service reasons; it is not traditionally a BYOB (bring your own box) sort of affair. I am interested to see how the economics of this will work out as, in terms of set top boxes, $500 is well above market and definitely limits this rollout to current owners of the Xbox 360 platform. Still, I would assume that they already have some sort of partnership lined up, probably with AT&T, to roll this out in a reasonably big fashion who would be happy to avoid bearing the financial burden of supplying set-top boxes to their customers.

Still, I think that the telcos and cable companies would be well advised to not integrate this into their offering. The first (and relatively minor) reason is user interface: television has a beautiful user interface (up and down for channels, etc…) that is universally familiar and elegant in its simplicity. Microsoft’s history of user interfaces is less than stellar and tends to have a great love of complexity; the Xbox 360’s existing interface is difficult to master for occasional gamers as it is, being geared towards the more hard-core gamer who will buy dozens of games over the life of the platform. Even for current owners of 360’s, I am unconvinced that this is an attractive offering: set-top boxes are already bundled in with service or available for a measly $5 monthly fee, making a platform upgrade a financially unattractive position. There are also the practical problems of a bundled, all-in-one platform. Can you record a show while playing a game? What happens to your DVR when you grab your Xbox 360 to go to a gaming party? Integration is not a technical panacea that it is often made out to be.

The second (and critically important) reason is that this offering is the mother of all Trojan horses to cable companies and telcos. Microsoft is notorious for its black-widow style industry partnerships. The Xbox 360 already has mechanisms for Internet-based content delivery; if this becomes an industry-standard mechanism (price and user interface guarantee that it won’t become the sole standard anytime soon), look for Microsoft to leverage it as a platform for video on demand, bypassing cable company offerings. This would be disastrous for cable companies, for whom it is difficult to over-exaggerate the financial importance of their video on demand platforms. Microsoft’s IPTV platform is intentionally benign to cable companies at this point, but I think that one would have to be both naive and ignorant of Microsoft’s historical business practices to believe that it will stay that way.