GigaOM Pro

From the acquisition of WebTV in 1997 to the more recent launch of its innovative interface technology in Kinect, Microsoft has spent the last fifteen years throwing a whole bunch of spaghetti against our living room walls. The reason it’s important to look at the mess in a historical context is that it sheds light on Microsoft’s future stake in the digital home.

The company’s past efforts are part of a larger attempt to establish Microsoft as a force in the digital home. While the general perception is that Microsoft has missed on most efforts, a few of its innovations have actually stuck. Below is a breakdown of the company’s major living room initiatives over the past 15 years, ranked both on innovation and market execution (with one being lowest, five being highest).

Source: GigaOM Pro

As you can see, when Microsoft fails in the living room, it isn’t because its ideas aren’t innovative. It’s more due to a lack of execution. In fact, many products are years ahead of the general market, but Microsoft often wastes the opportunity for a head-start by tripping over its own feet, confusing the market with arbitrary product moves and being tone-deaf on consumer-messaging.

Media Center is a good example of this. The product was extremely forward-looking for  its time when it launched: Microsoft anticipated the need for an innovative living room-centric UI for Internet content and media, and with the release of Media Center Extenders, saw the need for whole-home media distribution. The product never really caught on. Microsoft never found a product message that resonated, and there was a lack of compelling streaming content and confusing OEM requirements.

Microsoft also had a vision problem for much of the past decade: It saw the PC as the center of the connected home, when clearly the evolution path follows smart, connected devices that get their content life-blood from Internet streamed content. This was partly the reason for Media Center’s lack of success and part of the issue with Windows Home Server.

But as I’ve said, some spaghetti has stuck, and in a fairly big way. The Xbox 360 has been a success as a gaming console, and Microsoft continues to push the box towards becoming a OTT set-top. And now the Kinect is, for all intents and purposes, a legitimate hit.

Most see Apple and Google eventually surpassing Microsoft due to the relative lumbering nature of the Redmond, Wash.-based software giant. But if Microsoft takes the following steps, it can remain relevant — and be fairly dominant — in the new age of the connected living room:

Make Xbox 360/Live an OEM Platform. Microsoft needs to think beyond just consoles in the living room (as it has with Xbox on Winphone 7) and push 360/Live DNA into other devices, such as connected TVs. While it may not be possible to create an Xbox 360 gaming TV (or maybe it is), there are no doubt elements, such as Xbox Live extensions and services, that could be ported to TVs through OEMs as a counter to Google TV.

Execute and Extend Interface Momentum. Microsoft has already indicated it is looking to extend the Kinect technology beyond the 360. It should do so fast. New interfaces and inputs are one of the major innovation battlegrounds of the next decade, and Microsoft has an early start.

Become a Virtual Carrier. Quit the half-hearted content efforts and just do it already. While Microsoft hasn’t quite come out and indicated it will go down this path, with 42 million Xbox 360s (a number which is growing fast), the company could become one of the largest video operators in the U.S., with just 25 percent uptake on a bundled video subscription package.

Price Drop the 360 to $99. (Now!) Microsoft floated subsidies early in the 360 cycle. Now — with a huge momentum builder with Kinect and visions of becoming a virtual cable operator — it needs to drop a price bomb on the market by pushing the 360 to $99. Microsoft could set itself up for the next decade by selling tens of millions of new boxes if it went to this price now.

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