From...

by Alex Lash

(IDG) -- WebTV's once-simple proposition – e-mail and Web surfing over the boob tube – has morphed into an embarrassment of multimedia riches. Its latest challenge: fending off a flood of competition in the interactive television market.

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WebTV now offers digital recording, live pause, e-mail, Web surfing, program guides, interactive games, reminders and more – all bundled in various combinations. Some features are available only with cable service, others with satellite receivers.

"WebTV is a difficult product to explain in 30 seconds," says Joe Poletto, Microsoft's VP of network media.

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Microsoft bought WebTV Networks in 1997 for $425 million. Since then, it has fought to move beyond the service's original positioning (read: e-mail for the grandparents) and bring down the average age (41) of its subscribers, which now number more than 900,000. A breakthrough came this fall, when Microsoft announced that Jeopardy and Wheel of Fortune were interactive and available through WebTV. But with such a small customer base, Microsoft has to provide extra ads and other incentives, which Poletto calls "barter-in-kind."

While market analysts are bullish on interactive TV, it remains to be seen which form factors will attract users. Competitors like TiVo, which makes a digital recording device that plugs into a cable subscriber's TV, say simple is better. Microsoft contends TiVo's capabilities should be part of a broader product. "Everyone will start including it in their product line, and it will become a commodity, just a feature," says WebTV cofounder Phil Goldman, who now oversees Microsoft's TV technology development.

Even if WebTV never becomes a smash hit, Microsoft will use it as a test bed for underlying Windows technology as computing moves beyond the PC. The software giant urgently needs to find new markets for Windows; digital TV boxes and other Net appliances are a prime target. So far, Microsoft has bought its way into cable boxes. All of the big licensing deals for Windows CE have also involved significant Microsoft investment – the biggest being a $5 billion deal with AT&T, now the largest U.S. cable company.

In the end, Microsoft might be happy doing what it claims it does best: providing the underlying technology for others to build digital applications.

SERVICE	COST	FEATURES
WebTV Classic	$99 for set-top box, $15 a month for service	E-mail, Web access, browser-within-TV window
WebTV Plus	$199 for set-top box, $25 a month for service	Standard features plus interactive TV, two-day program guide, VCR programming
WebTV PersonalTV (available in December)	$200-$300 for EchoStar satellite receiver, $10 a month for service*	Eight to 12 hours of video recording, seven-day program guide, VCR programming, games, live pause, instant replay, personalized news; no Net connection

* For $30 a month, EchoStar customers can get the WebTV personal and plus services