If It's Such a Bad Idea, Why is Microsoft Doing it Too?

By James Brumley - October 18, 2012 | Tickers: AAPL, GOOG, MSFT | 0 Comments

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It's rare that I go back and remake a point I already made; there's usually no benefit in doing so. But sometimes it's a message worth delivering again. This is one of those times, largely because we've seen my point underscored by one of the parties previously involved.   

My original point was simply that technology companies like Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) - rather than cable companies - are increasingly being positioned as television gatekeepers.  Apple has been doing so proactively, via the Apple TV set-top box. Though it's had limited success on the sales front, knowing Apple's penchant for great consumer technology, there's little doubt it's a top-of-the-line device.

Google is also being thrust into the role of the TV gatekeeper, though through no effort of its own. Rather, a startup that was spawned from the seed-capital website Kickstarter was using Google's open-source operating system Android to do the coveted deed Apple has struggled to do: entrench itself right next to all the televisions sitting in the nation's (and the world's) living rooms and bedrooms, serving as the proverbial middleman for whatever was being played on that TV set's screen.

That startup company's device is called an Ouya, and it's so new it's not even available yet; the pre-ordered units won't be shipped until March. It's an interesting device all the same though, not because it's a technical marvel, but because its puts a new twist on an old idea.

Ouya is being billed as a console gaming device, powered by Android, complete with a typical game-playing controller. Though hard-core gamers are stoked that they'll now be able to play games on a 46-inch screen that were only available on a 7-inch screen before, more importantly (for investors) the Ouya device puts Android  on your TV.

That's huge. And just for the record, that is what Apple's been dancing around for a while with Apple TV. LG's been fiddling with the premise too; its Smart TV's bring the 'best of the internet' to television viewers. LG even has its own TV ecosystem, boasting over 100 apps and a proprietary LG operating system for the line. That, however, may be the reason why the Apple or LG television systems have failed to impress, and why the Ouya may get traction. The Ouya is a completely open system; the device's developers want you to hack the hardware and software, and open-source Android is inherently, well, open. That's what makes it revolutionary, and disruptive

For those who read my prior comments on the matter, you'll also know the suggestion went over like a lead balloon. In fact, the words "dumbest", "clueless", and "crap" came up in readers' responses, which is interesting, since I really only wanted to point out the Ouya device as one of the possible ways the digital content business was changing. Indeed, I specifically said the Ouya probably wouldn't be a game-changing device. Instead, it would just serve as a proof-of-concept for something more disruptive down the road.

Care to guess who just unveiled a device that acts and performs surprisingly like the Ouya? It's Microsoft (NASDAQ: MSFT). The next generation of Xboxs - which already plays disc-based games as well as downloadable games, not to mention streams content from Microsoft and Netflix - will be adding a streaming music feature to the Xbox's technical repertoire.

Actually, Microsoft will be adding the streaming music service not just to the Xbox, but to any Windows 8 device, mobile or otherwise. The music can be played while online, or stored and played offline as often as desired. Tunes can also be transferred to and from the Xbox to Windows 8 devices.

More than anything else, absorb this - Microsoft saw fit to continue making its console gaming hardware so much more than 'just gaming hardware.'  The Xbox still isn't an operating system, and certainly not an open operating system. But, if suggesting that Ouya was a disruptive idea was dumb, clueless, or crap, somebody might want to let Microsoft know, because the company isn't far behind with its new Xbox.

The inevitable question investors should be asking is, of course, "so what?"

The first "so what" is that the upgraded Xbox doesn't make Microsoft considerably more investment-worthy than it was before. It's cool, but not game-changing, if only because there's no guarantee gamers and radio listeners are an overlapping target market.

The second "so what" is that the Ouya, as cool as it may be, isn't likely to worry Microsoft—at least not yet. It could pave the way for other hardware that could do a lot more for a television set, however, and Android already does quite a bit.

The third "so what" is that this is another strike against Apple's goal to be a television gatekeeper. Eventually, the open-source Ouya will attract more digital content providers (game designers, studios, music publishers) than Apple's could with its rather closed-end set-top boxes. That tactic may have worked for the iPhone and iPad, but the tactic isn't working as well with TV, simply because competition like the Xbox, the Ouya, and Simple TV are making Apple technology less and less necessary (not to mention less useful) in America's living rooms.

Sure, Apple's still got the iPad, the iPhone, and the massive iTunes ecosystem, and it will likely be able to milk them for years to come. At some point though, Apple's going to have to come up with a new product in a new arena to sustain its growth rate. It doesn't look like television is going to be an easy market to do it in. Problem is, there aren't many consumer-tech markets left to tap into.

Bottom line? Little things can become big when nobody's looking. Remember that, particularly if you're planning on being an Apple owner for the long haul. Just ask the people at MySpace, who dismissed the introduction of Facebook. Change happens.

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