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April 06, 2005

Jupiter Research and Microsoft MCE

A few weeks ago, Michael Gartenberg of Jupiter Research created a "blog with us" program allowing a few bloggers access to a Jupiter Research report and asked them to post their feedback. Along with Thomas Hawk (his take on the report here), I asked to take a look at an intriguing report entitled "PC and Standalone Digital Video Recorders, Strategies to cope with an Uncertain Market". After reading the report, I understand why Jupiter Research is a household name to marketers and why their reports are so popular. I'm very thankful to have the opportunity to read this report in particular.

The bottom line of the report, after slicing and dicing the demographics and industry trends of the DVR market, is that there will be significant growth in the DVR market primarily coming from cable and satellite operators who have significant advantages in the marketplace. It's hard to argue against their logic and data, but I have a feeling one company would undoubtedly like to make them look wrong.

By 2009, the report reckons that 80% of DVRs will come from MSOs (cable and satellite operators), 7% from standalone DVRs like Tivo, and 13% from PC-based DVRs like Snapstream's BeyondTV and Microsoft MCE. The question I would ask if I were Bill Gates would be: how many MS executive heads will need to roll before I find a manager who can get me more than 13% of the market?

There is no doubt that as the home becomes more digital, the guys in Redmond cannot be satisfied being a bit player in that market. The DVR is not the only component of the digital home, but it is certainly one of high value. People spend a lot of time in front of their televisions and while how they use the television may change, I don't see any trends that significantly change the amount of time they spend in front of the tube. Many companies have a stake in controlling that viewing experience and the big advertising dollars behind it, so it won't be decided without a fight.

Microsoft already has a multi-pronged approach to become part of the DVR equation. They are working with Comcast and others to provide a platform for set-top boxes. MCE continues to evolve as part of home OS strategy. They invest heavily in DRM technologies as well as other technologies to help move media between devices. Still, I doubt the MSOs will greet Microsoft with open arms and skip merrily down the path together as partners. No company likes a single supplier, particularly one with the muscle of Microsoft.

If you aren't satisfied with the status quo, and 13% isn't very satisfying, what would you do to change the dynamics? Here's what I'd consider:

  • Continue to increase the stability MCE 2005 is definitely more stable than its predecessor but it still falls short compared to Tivo. Unlike Tivo which is a closed platform and control the hardware specs, MCE rests on top of Windows and is dependent on the quality of every other installed software and hardware component.
  • Give it away for free There is no better deal for a consumer than free, and when competing with cheap cable DVRs, there isn't much room to navigate anyway. In many ways, the DVR is the web browser of the digital home and the interface you use to navigate through your media. Why would Microsoft give away Internet Explorer and Windows Media Player, but hold on tight to MCE? A free download of MCE, if given the right marketing position, would stimulate sales and technology advances for capture cards, perhaps to the point where they would be regularly integrated right into the motherboard of new computers.
  • Sub $100 MCE Extenders While I'm sure some people love the purr of a home computer fan, the best solution is to keep your computer out of your living room and have a silent device connected to each of your televisions to communicate with it over a network. With a free MCE download and a $79-$99 MCE extender, you've got a compelling cost effective solution to compete with the MSOs.
  • Expand MCE certified devices Installing a PCI video capture card isn't very difficult but USB devices like the Plextor ConvertX are even easier for consumers. A crucial step for transforming MCE from an OEM-only technology into a free download is making it easy to add capture devices, and adding USB driven devices into the mix definitely makes it easier. On the other end of the spectrum, expanding the "PlaysForSure" certification to new devices like the PSP would continue to give Microsoft a leg up on the competition.

The Jupiter Research report was amazingly thorough except for one aspect which I believe will grow over over time. I suspect that my own experience is not unique that as soon as you see the value of a DVR, you want to expand that functionality throughout the house. The Tivo model assumes you'll put a Tivo in each room, something which is great for Tivo but not all that useful for the average household. Multiple MSO set-top boxes also increase cost and complexity for the very same reason.

A better model is to have a single centralized system where everything is recorded and stored and have multiple thin clients connected to each television. My viewing habits don't change when I go from one television to the next, and I don't want to have to look through several DVR boxes to find the programming I want to watch. The MCE / MCE Extender technology is much more in tune with my own needs, and given the extendability of the modern PC where I can throw an additional 200Gig disk or capture card at a reasonable cost, it can expand as my needs increase. While not dramatically changing the dynamics of the market, this multiple DVR scenario changes the cost/benefit calculus over time.

For Microsoft to "own" the digital living room, it needs to have its techology integrated into the DVR. I would assume it would be happy licensing its technology to MSOs or companies like Scientific Atlanta that provide such technologies, but to make the decision easier, it will have try hard to get the adoption rate up and become the de facto standard. Like it's strategy to win on the internet by giving away the browser (albeit with some litigation costs involved), it would have an easier time giving away the MCE technology to anyone willing to use it. It's current OEM strategy doesn't get it there, and while bundling or integrating it into a future version of the OS like Longhorn would be a good reason to upgrade from XP, only God and Bill Gates knows when that will happen. In the meantime, a free download builds momentum, helps get complementary products into the market, and moves MS into the digital home more quickly. Or you could be satisfied with 13%, having Linux the standard for the living room, and be late to the party.

In the next couple days, I'll look at the Gartenberg report from Tivo's perspective, which at the predicted standalone DVR predicted to be 7% of the market, isn't any prettier.

Posted on April 06, 2005

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