By Matt Rosoff [bio]
Posted: Mar. 20, 2006

The following an excerpt of a Research Report published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

To establish the Windows PC as a home entertainment device, Microsoft is building technologies into Windows that improve the PC's ability to work with digital audio and video (digital media). The company and its partners are also creating a wide variety of entertainment products and services, from portable audio players to online music stores, that support the PC in this role. If successful, the strategy will help PC manufacturers, by encouraging consumers to upgrade their PCs more frequently, and content owners, by providing a new, lower-cost distribution channel. For consumer electronics manufacturers, Microsoft's plans offer both an opportunity to sell new types of devices and the threat of commoditization.

However, Microsoft faces consumer resistance to its PC-centric approach as well as stiff competition. As a result, it has begun to hedge its bets by supporting digital media scenarios that do not require a PC but that rely on other Microsoft products, particularly the Xbox 360 game console. This could create new revenue streams for Microsoft, but at the expense of traditional PC partners.

This report will help hardware manufacturers, content owners, and consumer electronics companies understand the threats and opportunities posed by Microsoft's home entertainment strategy, with a particular focus on digital media. It updates the Feb. 2005 Research Report, "Microsoft's Home Entertainment Strategy," with news and strategic shifts that have occurred since that report's publication, explains the underlying technologies and strategic reasoning behind Microsoft's digital media products and services (including Windows Vista and Xbox 360), and identifies likely directions for the future.