Getting the ball rolling, Microsoft/WebTV deal sparks Internet TV market

Microsoft's recent decision to acquire WebTV Networks has provided many industry members and watchers with proof of what they already knew: Internet TV appliances will be big business.

In the wake of the Microsoft announcement, Menlo Park, Calif.-based software developer Diba has begun licensing its software for Internet set-top boxes. Diba is marketing its Internet set-top manufacturers' kit - including the Diba Information Appliance Suite software, hardware reference design and documentation - to consumer electronics manufacturers, who will then build the products and sell them to Internet service providers and in retail outlets.

Working with consumer electronics companies to create products for the ISP market is a new tack for the software company, said Joe Gillach, vice president of marketing at Diba.

"We have traditionally been working with our consumer electronics partners to bring products to the consumer retail market," Gillach said. "This represents an additional strategy which says there are a number of ISPs out there that are interested in either capturing new households without PCs or households that want a second access point to the Internet.

Diba's Internet set-top box partners, which thus far include Taiwan-based DynaLab and Sampo, will price the boxes somewhere in the $250 to $400 range, Gillach said.

Consumer electronics company Curtis Mathes has also thrown its hat into the Internet TV ring, introducing its uniView set-top box, which delivers Internet access via the company's Xpressway on-line service, telephony with caller ID and speakerphone capability, a credit card reader for on-line purchases, and e-mail - all over the TV set.

"We've kept in mind that the TV viewer is probably not a computer person," said Pat Custer, chairman and chief executive officer of Curtis Mathes. "Our target market is someone who doesn't own a computer but wants additional features on his television.

The uniView box has a price tag of $399, plus $19.95 a month. In addition, Curtis Mathes will begin selling 36-inch Internet-enabled TVs for around $1900 this summer.

The average TV viewer is not satisfied with a product that does only Web surfing, Custer said.

However, that's what WebTV is banking on. WebTV will bridge the gap between computer users and television watchers by mixing Web surfing with TV functionality, said Matthew Cone, business development manager for Microsoft Corp.

"You're getting to a point where these two technologies are at the crossroads," Cone said, pointing to predictions from industry experts that computer and television devices will be nearly identical within the next few years.

However, industry watchers expect the Internet TV of the fututre to be very different from today's product. While the current generation of Internet TV requires the viewer to switch between broadcast or cable television and the Internet, the next generation product will enable the user to view the Web and television simultaneously. At a Microsoft lab in Redmond, Wash., the company has an interactive home PC theater, including a high-end Windows NT server with surround sound as well as interactive video.

"I wouldn't even call today's WebTV a pilot," said Daniel Briere, president of TeleChoice. "Microsoft's stated goal is to have a $50 chip you would plug into a digital TV to get Internet access.

Microsoft is already working to bring the PC further into the WebTV mode and vice versa. The next version of its Internet Explorer browser will support "push" technology that will enable Web content to be broadcast to the consumer at different times during the day.

But the Internet TV appliance market will really take off once manufacturers and service providers take advantage of the cable infrastructure, one analyst believes.

"Internet TV works better over the cable infrastructure because of the higher speeds and because there's no delay in starting the service up as there is with dial-up access," said John Aronsohn, senior analyst with The Yankee Group.