Monday, November 19, 2007

Microsoft’s Plan to Be King of All Media

J Allard: Microsoft’s Plan to Be King of All Media

J Allard of Microsoft. Photo: John Froschauer/Associated Press

In November 1994, I had breakfast with Nathan Myhrvold, then the chief technology officer of Microsoft. He talked about how the soon-to-be-introduced MSN online service would best America Online. Central to his thinking was that MSN would give publishers a higher percentage of the per-minute fee for using the service. This would draw more content and thus more users to Microsoft and allow it to earn a smaller fee on a larger block of minutes.

This strategy was misguided for so many reasons. Most notably, the open standard of the Internet allowed publishers to reach out directly to users, without MSN or AOL as the tollbooth.

That conversation jumped into my head as I talked earlier this week with J Allard, a key force behind the Xbox who is now driving the Zune music player business (and, he said several times, a few other secret product efforts).

We talked about the Zune and Microsoft’s approach to cellphones, about which I’ll post shortly. The most significant thing he talked about was the way the company is building an online service that will be the back end for all sorts of communication and entertainment. Xbox Live, the rather successful online aspect of Microsoft’s video game franchise, uses the same back end as the far less successful online service for Zune. Indeed, users get one account for both.

This service will at some point add more options for video and mobile phones, Mr. Allard said, without offering details. Actually, Microsoft has been quite successful selling video downloads and online movie rentals through the Xbox Live service already.

This seems a bit too much like the initial plan for MSN. This new network would be the switchboard through which all entertainment content and communication flows.

Pretty much everything else in the technology world now is revolving around open systems where the Internet, and some simple standards, are in the middle. The biggest and most interesting exception is Apple’s iTunes, which has a shot at extending its central role in music to video and mobile applications. (I think the odds are against it, but I’m not sure.) But how does it make sense to compete with a market-leading closed system, and the enormous momentum of open systems, with a proposal for a monumental everything-is-better-if-it-goes-through-Microsoft megaservice?

Here is what Mr. Allard said about these plans.

Even though the Zune and Xbox product brands are separate, they are ultimately meant to connect to the same central network.

The Zune guys have to run really fast. The Windows Mobile guys are on a two-year release cycle. The Xbox team now needs to focus on cost reduction, distribution and quality process. Everyone is on their own cadence. The one thing that transcends all this is the network as the nexus.

If you are in an MP3 aisle, we want to be the connected MP3 player. That’s mainly connecting artist and audience together, mostly around the culture of music. Yes, we’ll do video. Yes, we’ll do games. But the heart and soul of that brand is music.

Xbox is the most connected game experience. When you go down the gaming aisle, you’ll see we can do things others can’t do. We keep hitting on the idea of connections.

The online services for Xbox, Zune and future products will merge.

Today we have Xbox live for $50 a year. We have Zune Pass at $15 a month. We don’t have a rationalized premium version yet. Fast forward a little bit, and you can image a menu like DirecTV. There is basic, there is enhanced, there is movie pack and NFL Sunday ticket.

Video will be a key part of this service.

What I want to do at E&D [the entertainment and devices division] is build an entertainment service that can connect, that has a screen and buttons and a speaker, so you can watch what you want, where you want, how you want.

Maybe the business model for you is rental. God bless you. Maybe you want to download and own it. Maybe you are a physical goods guy. You want to prove you have physical goods, and watch on the seatback while you fly to New York. Say you like the phone. Maybe you are a commuter, and what you are all about is ESPN. I’ll give you ESPN your way. You like Formula One, downhill mountain biking and ice hockey, I will show you a SportsCenter designed for you.

Content providers like ESPN, in this vision, will need Microsoft to handle the technical details and marketing of selling their products.

We go in as a platform company and say to ESPN that we can offer preference information so you can curate programs in a way that has never been done before. And you don’t have to worry about multiple formats; we do it all for you on the back end. And you can reach all these eyeballs without lifting a finger.


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