To establish the PC as a home entertainment device, Microsoft is pursuing a multipoint strategy:

• Creating and improving digital media interfaces within Windows to make the PC an effective device for creating, acquiring, editing, storing, organizing, and playing digital audio and video, while minimizing avenues for piracy
• Building devices (such as the Xbox 360) or working with partners to design devices (such as portable digital media players) that let users play PC-based digital media away from the PC
• Working with partners to create content sources for use on the PC and compatible devices
• Developing and improving its own Windows Media platform for encoding and protecting digital media content.

(For an illustration showing the components of Microsoft’s home entertainment strategy, see “Putting the Pieces Together“.)

PC-centric Stance Softening?

Microsoft’s home entertainment strategy underwent a subtle but important change toward the end of 2005. Until then, Microsoft’s home entertainment strategy positioned the PC as the home entertainment “hub”-the single device through which all digital media content would pass on its way to other devices that would act as nodes or “spokes.”

To establish the PC as the center of home entertainment, Microsoft is pursuing a four-point strategy:

• Creating and improving digital media interfaces within Windows to make the PC a media “hub”-the most effective device for creating, acquiring, editing, storing, and organizing digital audio and video
• Working with partners to develop “spoke” hardware products (such as portable audio/video players) that enable users to use PC-based digital media while away from their PCs
• Creating or promoting content sources such as online music stores that rely on a PC hub for storage and distribution
• Developing and improving its own software platform-the Windows Media platform-for encoding and protecting digital media content.

(For a graphical overview of the strategy, see the illustration “Putting the Pieces Together“.)

The company’s strategy faces competition from a wide range of companies that disagree with its technology choices, its overall strategy, or both.

Development and marketing of Microsoft’s digital media products and technologies is concentrated in the Windows Client business unit, which is headed by Senior Vice President Will Poole. (For an organizational overview, see the illustration “Who’s Driving Microsoft’s Home Entertainment Strategy?“.)