Fearless Microsoft Hunters

As attorneys general bicker, competition breaks out.

Don't look now, Microsoft bashers, but you just got your most fervent wish. No, Iowa Attorney General Tom Miller and his band of crusading AGs haven't won criminal indictments on the Balmer Gang. This is something that could actually help consumers.

AOL Time Warner and Sony have all but declared war on Redmond. In announcing their intent to team up to bring people-friendly digital entertainment to the masses, the two behemoths have drawn a big fat target on Microsoft's business strategy in a way consent decrees and lawsuits never could.

America's living rooms are the rich, nougaty center of Bill Gates' current profit recipe. With PC sales leveling off, operating-systems evolution topped off for the moment with WinXP, and early-adopters flush with all the gizmos their Dockers tech-pants can hold, delivering bits and pixels to millions of culture-munching families is a growth opportunity that Gates cannot ignore. Microsoft's $300 gaming console, the Xbox, is hitting store shelves right now amid heavy promotion. It's supposed to be the company's platform for the pure entertainment zone.

"We've been very successful in changing the way people work from 9 to 5," J. Allard, general manager for Microsoft's Xbox platform recently told the San Jose Mercury-News. "Now we have the way to change the way people play from 5 to 9."

But Microsoft is running smack into entrenched players such as Sony, which has sold 20 million PlayStation2 systems worldwide. This is one reason Sony thinks an alliance with AOL Time Warner makes sense. If Microsoft is going to horn in on Sony's market share, why not doubleback and take on Redmond in the world of online services and digital media?

This aspect of Microsoft's relentless move into new areas consistently escapes the notice of the Microsoft-will-rule-the-world crowd. By launching itself into new business ventures, Gates and Co. makes itself vulnerable, at least in the short term, to other well-run competitors. More important, when those competitors move to meet Microsoft, consumers win.

Unlike many of the high-margin Unix vendors who failed to respond quickly to Redmond's foray into corporate computing during the '90s, both AOL Time Warner and Sony seem to qualify as well-run and attuned to customers.

Steve Case has repeatedly turned America Online on a dime to take advantage of strategic opportunities (acquiring Netscape is one example) while relentlessly branding AOL as the easiest, if not the best, way to get online. The result is a clientele of 31 million customers that is a marketer's dream. Since the absorption of Time Warner, a good bit of the company's energy has been taken up with how best to drive AOLers to Time Warner content or vice versa.

That is where Sony comes in. Like AOL, Sony is a worldwide brand with its own stable of music and video content. Sony is also the technology company, especially on the hardware end, that AOL has never been. Moreover, Sony expertise is spread across desktops, laptops, handhelds, stereos, TVs, game consoles–the works. Clearly, the idea is for AOL to be the common carrier of Sony and Time Warner content across all those devices.

Microsoft, apart from its MSNBC venture, various MSN alliances, and its PC-game builders, has very little content–and certainly nothing like major motion picture studios and record labels. Gates sees content as outside a software company's job description, and he more often than not has been right about that.

But already the Xbox has run up against the criticism that its smokin' hardware–basically a streamlined, purpose-built PC–is paired with less than stellar games. It takes time for game developers to write for a new platform and new titles are in the pipeline, but so is a new Nintendo machine, which will provide yet another competitor. So it is that Microsoft again finds itself vulnerable in a new market, at least in the short-term.

Whether that's enough time for AOL and Sony to crank out really neat combos of hardware and content before Redmond finds its living room stance is the question. One thing is for certain: Unless the fruits of the new AOL-Sony alliance are user-friendly–meaning ease-of-use comes before copy protection in the design specs–they will not appeal to the largely techno-phobic target audience.

Steve Case likely knows this and it will be up to him to convince his own corporate hierarchy–and that of Sony–that the surest way to a big market share and a steady stream of new revenue is via content pricing so low illicit copying is a waste of time.

Consumers, in the mean time, can sit back and enjoy three of the world's most powerful companies knocking their brains out over how best to entertain couch potatoes. The competition is almost certain to spin off badly needed advances in home networking and digital media, reaffirming that customers' needs–not the demands of lawyers and politicians–drive the technology marketplace.