When Microsoft announced in April of this year that it was paying $425 million for Web TV Networks, a company with 56,000 customers that had made a few small inroads selling a cheap machine to surf the Internet without owning a computer, many commentators saw it as one more shot in the personal computer war with Microsoft placing a side bet on WebTV. With rivals like Netscape, Sun and Oracle lining up behind "network computers," Web TV looked to be a nice piece of hardware to outflank them on accessing the Net cheaply. At one level that was true, but the advantages for Microsoft go much deeper than that.
Microsoft's main goal is to merge WebTV's access standards and technology with its own stripped down version of Windows called Windows CE. Microsoft had previously targeted Windows CE for handheld computers but was now making a large push to make CE the operating system of the whole consumer electronics world, from cable set-top boxes to DVD music players to Internet telephones. With WebTV adopting Windows CE, the consumer electronics companies that build the hardware for WebTV, like Phillips and Sony, would be encouraged to adopt Windows CE as a general multi-purpose operating system for all their consumer goods - a potential market far larger than the personal computer market.
With Microsoft supplying the development tools, new "smart" consumer goods would become cheaper and easier to make while ensuring that machines could communicate with each other - more and more important over time - only on platforms controlled by Microsoft. Microsoft also recently invested in Navitel, the maker of an Internet telephone which has adopted CE as its standard and could be integrated into WebTV. Creating a beachhead in the projected Internet-governed phone system of the future thereby becomes a major possibility for Microsoft.
Of course, the primary consumer item Microsoft wants to have Windows CE set the standard for is the cable set-top box that many people expect will control high-speed access to the Internet from homes across the country. Cable connections to the home are expected to be more than twenty times as fast as the fastest modems today - a speed that will suddenly make all the investments Microsoft has made in interactive 3D graphics incredibly valuable to the whole media industry.
But to accomplish that, Microsoft wants to control the software in the cable box - thus its $1 billion investment (an 11.5% stake) in Comcast Corp., the fourth largest cable company in the country, and its negotiations with US West, Time Warner, Telecommunications Inc. (TCI) and Cox Cable for possible investments of similar magnitudes. With these major cable investments, Microsoft is seeking a commitment by them to support the WebTV/Windows CE standards for connecting cable set-top boxes to the Internet. This commitment by Comcast and other cable companies is crucial since there are moves by a consortium of cable companies called Cable Labs to adopt open standards for all cable set-top boxes--a development anathema to Microsoft. With deals that are likely to include the Microsoft Network as well, Microsoft may be about to see all its investments come together in a highly profitable alignment. Even if Microsoft is not able to control the exact standards adopted initially, it is leveraging itself into a position to control even "open standards" in much the way it has been able to "embrace and extend" other standards like Java.
The next step is Microsoft's effort to have television broadcasters adopt digital TV standards promoted by Microsoft, Intel and Compaq that would allow the bundling of interactive content with any television show as long as the viewer has the proper operating software (meaning Microsoft's). Microsoft is already demonstrating a version of "enhanced television" this fall that depends on its new Windows98 operating system and special digital circuitry. UPN's "Moesha," the WB's "F/X," and USA Network's "Pacific Blue" have all agreed to broadcast with the new system that allows the specially equipped computers to view cast biographies, chat with other viewers and even buy knockoffs of stars' clothes as they watch the show. Combined with WebTV/CE standards, Microsoft is building a recipe for the complete convergence of computers, TV and Internet commerce.
But Microsoft's control of the standards for Internet access over cable is apparently not enough; Bill Gates has personal plans to own a worldwide system of satellites beaming Internet access to homes anywhere in the world. Rather than Microsoft encircling the world, Bill Gates is investing out of his own pocket in a project called Teledesic, a plan to launch 288 low-orbit satellites that will relay Internet traffic to any point on the earth. Gates and fellow billionaire Bill McCaw (who made his fortune early in the cellular phone industry) are the primary partners in this $9 billion venture, with AT&T and Boeing each receiving a smaller stake for their contracting role in the operation.
The revolutionary part of Teledesic's approach is that traditional stationary satellites are so high up that delays in transmission make them less useful for high-bandwidth transmission like the Internet, so Teledesic will have to coordinate low-orbit satellites careening 435 miles above the earth at 16,740 miles per hour. Using government-financed technology left over from Star Wars experiments, Boeing is helping them solve the problem and get their satellites launched by 2002. That is when the partners want to start service to anyone with a satellite dish (that need be no larger than a dessert plate).
The irony is that this plan to create a massive worldwide Internet access service controlled by two of the richest men in the world has been assisted by the U.S. government with a complex give-away of radio spectrum that amounts to twice the total spectrum controlled by all of the country's radio and television stations put together--without the government being paid a cent for this favor. In fact, the government lobbied hard at the World Radio Conference, the world governing board for operating such a satellite system, to help Gates and McCaw get approval for their venture.
So with government-financed research and free radio spectrum courtesy of U.S. taxpayers, Bill Gates will be adding the final touch to his computer network domination with the most comprehensive broadband Internet access system in the world--an access system that will no doubt enhance Microsoft's monopoly in the computing world.
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