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Home > Samples > Update > July 2007 |
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By Matt Rosoff [bio] The following is the full text of an article 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. Changing market conditions and company priorities have reduced the strategic importance of the Windows Media platform to Microsoft. The company once believed that a single platform for encoding and copy-protecting digital media (audio and video) would put the PC at the center of home entertainment and earn additional revenue from technology licensing and server sales. But Microsoft is now taking a market-driven approach, with different technologies and strategies for mobile digital media, home entertainment, and content owners and distributors. As Microsoft expends less effort improving and promoting the Windows Media platform, current Windows Media partners will need to consider alternatives. One Platform to Rule Them All Until recently, Microsoft approached customers and partners with a single Windows Media platform that included all the software required to deliver digital audio and video to users on Windows. That strategy was meant to protect Windows PCs from competitive threats in digital media and to promote the then-emerging Windows Server for digital media delivery. Platform Includes Format, Delivery, Clients Depending on how it's defined, the Windows Media platform stretches all the way back to 1990, when Microsoft released Windows 3.0 with Multimedia Extensions 1.0, which enabled a Windows PC to support sound cards and play audio. The current Windows Media platform started to come together in 1999, when Microsoft released Windows Media Technologies 4.0, a set of server software and associated tools for creating digital audio and video for streaming over the Internet or other networks. Since then, the platform has included the following components: Codecs (coder/decoders), which compress and decompress content to meet bandwidth and storage space requirements. Digital rights management (DRM) technology, which gives content owners a way to define what end users may do with a particular piece of content (e.g., copy it a certain number of times) and enforces these restrictions across applications and devices. The Windows Media Format, a common way to package content so that it can be understood by different applications and devices. Tools that enable content owners, application developers, and hardware manufacturers to support the platform in their products. Over the next several years, the Windows Media platform found its way into many of Microsoft's most important products. The Windows Media Player, bundled with most versions of the desktop OS since Windows 95, supported advances in the Windows Media platform while excluding or offering limited support for some competing platforms. Beginning with Windows 2000, every version of Windows Server shipped with Windows Media Services, used for hosting and streaming Windows Media files. Microsoft enthusiastically promoted the platform to content owners, ISVs, device makers, and consumer electronics companies. One measure of the Windows Media platform's importance to the company: at the 2002 launch of the Windows Media 9 Series platform, Chief Software Architect Bill Gates estimated that the company had spent about US$500 million developing the platform over the previous two years. (Note that the platform skipped from version 4 to version 7 in 2000—for a recent historical overview, see the chart "Windows Media Platform History".) Protecting Windows in Digital Media Microsoft justified this investment by explaining that it wanted to make the Windows PC the best possible choice for using digital media. However, Microsoft could have accomplished this goal by enthusiastically supporting other digital media platforms, particularly the widely used MPEG platform. Instead, the company built, improved, and promoted the Windows Media platform for several business reasons:
A Market-Driven Approach Because of market changes and shifting company priorities, a single digital media platform is no longer necessary or sufficient to achieve Microsoft's business goals. Rather, Microsoft's digital media strategy has split across three key markets:
In each of the three markets, Microsoft is using some elements of the Windows Media technology, but it has stopped pushing the Windows Media platform. Instead, it is taking a more tactical approach and in some cases is adopting competing digital media technologies. Portable Digital Media Microsoft promoted Windows Media as an open platform on which third parties could build portable devices and online stores, creating price competition and abundant choices for customers (e.g., different form factors for devices or a choice of per-download or subscription-based pricing for music stores). In 2004, the company updated Windows Media DRM to support subscription-based content on portable devices and created a logo program, PlaysForSure, to help consumers identify compatible stores and players. However, the runaway success of Apple's iPod and its associated iTunes software and download store showed that consumers prefer an elegant device and straightforward end-to-end experience over a mixture of competing products that don't necessarily work well together. Now, Apple threatens to extend its iPod dominance to mobile phones with its forthcoming iPhone, which is due at the end of June 2007 and could threaten the expansion of Microsoft's Windows Mobile platform into the consumer market. Consequently, Microsoft's approach to mobile entertainment has changed significantly. Zune To compete in the market for dedicated digital media players, Microsoft launched its Zune product line in fall 2006. Like Apple's products, the Zune line includes a portable player with a hard drive (with flash memory-based players probably on the way by the end of 2007), dedicated PC client software for managing and transferring content, and an online store that sells audio (and eventually video) files. Although Zune uses the Windows Media platform, it's not compatible with prior products from partners—Zune is not designed to play content from PlaysForSure stores, and Zune Marketplace content is not meant to be played on PlaysForSure devices. (These scenarios might be technically possible in some cases, but are not supported by Microsoft.) Moreover, Zune natively supports the Active Audio Coding (AAC) audio format used by Apple's iTunes software—an unprecedented move that was necessary to encourage iPod users to switch to Zune by allowing them to bring their iTunes libraries into the new device. (Apple does not license its DRM technology, however, so Zune devices cannot play DRM-protected downloads from the iTunes Store.) PlayReady To compete in the market for entertainment on mobile phones, Microsoft has built a new DRM platform, PlayReady, which it will license to mobile operators and handset makers beginning later in 2007. (Pricing and licensing terms have not yet been announced.) PlayReady was created by the former Windows Digital Media Division (renamed the Consumer Media Technology group in fall 2006), but is completely independent of the Windows Media platform: it will be able to protect any form of digital media content, and even other downloadable content, such as games. Implications for Partners Portable device manufacturers and the component suppliers who serve them should understand that while Microsoft will continue to support and (perhaps) periodically update the Windows Media platform, it will probably be slower to respond to requests for technical assistance or platform updates that serve new market needs (e.g., updates to DRM to support new business models). Comarketing opportunities—for example, the opportunity to appear with Microsoft at trade shows in exchange for supporting the Windows Media platform in a particular device—will also be rare or nonexistent. For cellular carriers, Microsoft promises that the PlayReady DRM system will be fully backward-compatible with Windows Media DRM 10, so companies that already use the Windows Media platform to deliver downloads to mobile customers need not fear incompatibilities if they move to PlayReady. However, comarketing opportunities will probably shift from the Windows Media Platform to PlayReady or other format-agnostic technologies. Home Entertainment Microsoft promoted the Windows Media platform as a way for ISVs and device manufacturers (including consumer electronics companies) to create a wide array of applications and devices that could play content that was created or stored on a PC, while still honoring the usage restrictions demanded by content owners. Microsoft also built various other interfaces and technologies for the PC that were meant to position the PC as a home entertainment hub—the device through which all content flowed on the way to various other devices in the home. This strategy faced numerous problems. First, many consumers didn't understand the benefits of using a PC as a home entertainment hub. Dedicated consumer electronics devices are often less expensive and easier to use. Second, despite Microsoft's efforts to promote the Windows Media Format, a wide variety of other formats have remained popular. The success of the iPod has created traction for AAC and H.264 (a video standard based on MPEG-4), and the broader compatibility of MP3 audio and MPEG-2 video have kept those formats popular. Most high-definition TV broadcasts are encoded in MPEG-2 rather than the Windows Media Format. All HD DVD and Blu-ray players must be able to read content encoded in a standardized version of the Windows Media Video codec, VC-1, but content can also be encoded in H.264 or MPEG-2. Finally, in a 2004 ruling, European antitrust regulators found that Microsoft had illegally used its monopoly on desktop OSs to compete in the market for digital media. The penalty was ineffective—it required Microsoft to offer a version of Windows without the Media Player, but allowed it to charge the same price as the full version of Windows, leading to virtually no sales of the Player-less version. Nonetheless, European authorities suggested that they would punish further attempts by Microsoft to extend its dominant position in PC OSs to the digital media market, which could hamper the company's efforts to build its strategy around the Windows PC as hub. (Microsoft is appealing the European ruling, and the first appeals court verdict is expected in fall 2007.) As a result of these problems, Microsoft's home entertainment strategy is shifting. Xbox in the Living Room The Xbox 360 game console is gradually being expanded into a full-featured home entertainment device: users can play audio CDs and video DVDs on it, buy a US$200 attachment to play HD DVDs, download high-definition TV programs and movies from the Xbox Live Marketplace, and attach portable media players (including the iPod) to it in order to play music. Eventually, the console will be able to receive television signals (and presumably allow users to record programs) from providers that use Microsoft's Internet Protocol TV (IPTV) platform, which is being deployed by AT&T in the United States and several other telephone companies in Europe. It's also possible that Microsoft could expand the Xbox 360 or release a new version to support CableCARD, which would allow users to tune into and record cable TV programs, including high-definition programming. Another possibility would be to build a dedicated digital video recording device, akin to TiVo, but probably with a TV guide and interface adapted from Windows Media Center (a user interface for digital media playback introduced in Windows XP Media Center Edition and included in high-end consumer versions of Windows Vista). As with Zune, Microsoft will use the Windows Media platform for some purposes—for example, to encode high-definition downloads in the Xbox Live Marketplace—but will also support other formats where necessary, such as the video codecs mandated by the HD DVD specification. Vista and Digital Media Microsoft has not entirely given up on the idea of positioning the PC as a home entertainment hub—Vista includes a new version of the Windows Media Player and high-end versions come with an updated version of the Media Center interface. However, many of the new digital media technologies in Windows Vista are not tied to the Windows Media platform. For example, Vista includes Protected Video Path (PVP), a new content-protection system for high-definition video that's format-agnostic and works at a lower level of the OS than Windows Media DRM. Moreover, despite the new version of the Windows Media Player, the company barely updated the underlying platform, adding only one new codec (which had been introduced in Jan. 2006) and a handful of new tools for building applications atop the new Player. Instead, the company is encouraging ISVs and device makers to use a new Media Foundation SDK to build digital media applications and peripherals that can take advantage of PVP and other Vista advances (such as DirectX Video Acceleration). Implications for Partners While Microsoft will certainly continue to support the Windows Media platform on PCs, the company's reduced interest in the platform could mean fewer updates, less support, and greater popularity for other platforms. PC OEMs might find it wise to bundle digital media applications supporting a wider variety of digital media platforms. For example, the forthcoming Windows Home Server, a dedicated backup device, comes with support for a protocol called Windows Media Connect, which allows it to stream Windows Media files (and some other file types, such as MP3 and MPEG-2 video) to compatible devices. However, OEMs should consider also bundling software that supports the Digital Living Network Alliance (DLNA) streaming technologies, which support a broader range of media formats (including MPEG-4) and are supported on more devices, such as Sony's PlayStation 3. (One Home Server OEM, Medion, has announced plans to bundle PacketVideo Connect software, which supports streaming to recent DLNA-compliant devices.) Consumer electronics companies, including the creators of dedicated digital media receivers, could still benefit from supporting the Windows Media platform—some users might have significant libraries of Windows Media content on their PCs and will probably want to use this content on other devices. At the same time, the increasing home entertainment role of the Xbox 360 could mean more direct competition from Microsoft. Content Creators and Distributors Attracting content owners and distributors to the Windows Media platform was an important goal for Microsoft. Microsoft promoted the benefits of the platform, such as compact file size and robust but flexible DRM, and then bundled the necessary enabling technologies into Windows Server or gave them away for free (as in the case of the Windows Media Encoder). However, a number of changes have made this strategy obsolete. In the case of audio, downloads have proven to be far more popular than streaming, as demonstrated by the success of Apple's iTunes Music Store (which has sold more than 1 billion songs) and podcasts (which are essentially self-downloading audio files). Any Web server can be used to offer downloads, eliminating any special advantage of the Windows Media server platform. Moreover, audio content owners are beginning to experiment with DRM-free tracks—EMI, one of the four big record companies, has offered its entire catalog without DRM on iTunes and other sources. Removing DRM eliminates another justification for proprietary formats, as demonstrated by Amazon.com's recently announced plan to sell MP3 files, which are more broadly compatible than Windows Media or AAC files. In the case of video, streaming is still more popular than downloading, but the sudden popularity of YouTube and MySpace has given a huge boost to Adobe's Flash technology. Flash works with a wide variety of browsers and OSs, is nearly ubiquitous on client computers (more than 98% of Web users in the United States have installed it, according to Adobe), and uses no Windows Media technology whatsoever. In addition, the threat once posed by RealNetworks, which offered streaming technology that could run from any server platform, has receded—RealNetworks now gets most of its revenue from its Rhapsody online music service (which uses Windows Media) and gaming services. As a result of these changes, Microsoft is taking the following steps. Silverlight Microsoft believes that the popularity of Flash could eventually threaten its core businesses, as Flash-based Web applications take the place of thick-client desktop software. Consequently, Microsoft has created its own platform, Silverlight, for creating Rich Internet Applications (RIAs). The first version of that product has a single function: to embed video content in Web pages, similar to how Flash is used on MySpace and YouTube today. Silverlight does use the VC-1 codec (the standardized version of a Windows Media video codec), but otherwise has no relationship to the Windows Media platform. Most notably, Silverlight videos can be hosted on any type of Web server—not just Windows Server. Becoming a Major Distributor While still interested in selling platform technologies to content distributors, Microsoft will also act as a content distributor where it serves other business goals. Examples include the Zune Marketplace, which launched with more than 2 million songs and is meant to help Microsoft sell Zune devices; the Xbox Live Marketplace, which is the first online source for high-definition video downloads and is meant to help position the Xbox as a general-purpose home entertainment device; and MSN Video, which offers free streaming videos to consumers and earns money by selling advertisements. Microsoft may sometimes bypass the Windows Media platform in its own distribution efforts—for example, in order to reach the widest possible audience, MSN Video was revamped in Apr. 2007 to use Flash instead of an embedded version of the Windows Media Player. (Oddly, MSN Video chose not to support Silverlight.) Selling Solutions Instead of selling the Windows Media platform to content owners, Microsoft is increasingly selling broader-purpose solutions that can use, but don't require, the Windows Media platform. Examples include its IPTV platform, which allows telephone providers to deliver TV broadcasts over dedicated IP networks, and the Interactive Media Manager, a solution for content producers (such as television production studios) to manage digital assets. With these solutions, Microsoft is still able to sell significant quantities of its platform software, such as Windows Server, but doesn't have to rely on the Windows Media platform to do so. Separating Streaming from Windows Server For the first time since Windows 2000, Microsoft will not bundle Windows Media Services—the technology for streaming Windows Media files—with Windows Server 2008 (formerly code-named Longhorn). Rather, companies that want to use Windows Server for this purpose will have to download and install the necessary components separately. This decision may partly stem from a 2005 antitrust ruling by the Korean Federal Trade Commission that ordered Microsoft to stop shipping Windows Media Services with Windows Server. Then again, Microsoft could have responded simply by offering a separate version of Windows Server 2008 in Korea; the fact that it chose not to do so suggests the diminished importance of promoting the Windows Media platform for content distribution. Implications for Partners Previously, Microsoft's message to content owners and distributors was fairly simple: use the Windows Media platform and your content will be easily accessible and copy-protected on Windows PCs and associated devices. Now, however, Microsoft is targeting specific subsets of the content industry with a variety of different products. Content owners could benefit: new Microsoft technologies will help them manage, distribute, and protect digital media content without locking them into the Windows Media platform, and Microsoft itself is increasingly becoming a broad-reach distribution channel. However, companies that aggregate digital media content for distribution, such as online music stores, will face more direct competition from Microsoft and should not expect frequent improvements to the Windows Media platform. Resources Microsoft's Windows Media Web site is at www.microsoft.com/windows/windowsmedia. Zune and its implications for Windows Media partners are detailed in "Zune Portable Media Player Unveiled" on page 12 of the Oct. 2006 Update. PlayReady is covered in "New DRM System Targets Mobile Phones" on page 29 of the Apr. 2007 Update. Recent coverage of the Xbox 360 can be found in "Xbox 360 Hardware Updated" on page 23 of the May 2007 Update. Vista and digital media are covered in "Digital Media Advances in Vista " on page 17 of the Apr. 2007 Update. Interactive Media Manager is described in "Solution for Digital Media Management" on page 32 of the June 2007 Update. How to install streaming media capabilities in Windows Server 2008 is described in a Knowledge Base article at support.microsoft.com/kb/934518. Directions on Microsoft is seeking a developer platforms guru to join our team of computing technology experts. Click here for details.
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