Microsoft’s non-disruptive disruption

Digital Living Room Microsoft will roll out a major makeover of Xbox Live Tuesday, adding a raft of new OTT video and music services. The update will also deliver a new user interface and enhanced voice-recognition capability for the Xbox Kinect platform, enabling Kinect owners to control their Xbox Live experience through a combination of voice and gesture control.

While Microsoft is hardly the only technology giant looking to plant its flag in the living room its approach is notably different from that of Apple or Google, to name two of the other leading contenders.

The first iteration of Google TV represented a bald attempt to establish browser-based search as primary means of finding and accessing video content. The reason for the emphasis on search was obvious: Google dominates the search business and has a proven and highly efficient engine for monetizing search results through advertising.

While Google claimed it wanted only to complement the existing TV ecosystem, the broadcast networks and pay-TV operators correctly saw the effort as highly disruptive. If successful, it would create a new channel to TV viewers for marketers and the advertising dollars independent of any particular program or network — an obvious threat to the networks’ future revenue. It would also undercut the value of the current pay-TV bundle by making bundled content compete alongside OTT content within the same search results.

The new iteration of Google TV, rolling out now, leans more heavily on Google’s Android platform and Android Marketplace than on search, but the effect (and no doubt the intent) is the same: to interpose Google’s own platform and user interface between viewers and the incumbent pay-TV providers.

Apple’s current Apple TV set-top box, with its limited assortment of apps, is no great disruptive force to trouble the incumbent service providers or the networks. But the late Steve Jobs made it plain as far back is 2010 that the service providers stood between Apple and its ultimate goal for the living room and that Apple was bent on maximum disruption.

“The television industry fundamentally has a subsidized business model that gives everyone a set-top box, and that pretty much undermines innovation in the sector,” Jobs told the D8 conference that year. “The only way this is going to change is if you start from scratch, tear up the box, redesign and get it to the consumer in a way that they want to buy it. But right now, there’s no way to do that.”

Apple is still working on the problem.

The strategy behind Xbox Live, however, is not to disrupt the service providers but to embrace them. Later this month, Xbox owners who subscribe to Verizon FiOS will be able to integrate their IPTV service with Xbox Live, controlling both through Microsoft’s interface. Early next year, Microsoft will add support for Comcast’s Xfinity On Demand service to the platform. Presumably, similar integrations are being discussed with other MSOs and satellite providers.

If it were anyone but Microsoft, I’d call the strategy subtlety itself. By playing nice with the service providers, Microsoft presumably will gain access to their program information and metadata, enabling the Bing search engine included in the new Xbox Live platform to be more comprehensive in the content sources it indexes than Google TV can be working without such cooperation. Microsoft also stands a fair chance of gaining the cooperation of the networks that blocked Google TV by aligning Xbox Live with service providers’ own TV Everywhere plays, still further enhancing the scope of content Bing can easily surface for Xbox Live users.

All that despite Microsoft being one of the largest providers of OTT video content, with over 15 million active Xbox Live users currently in the U.S.

The effect over time could be gradually to reduce traditional pay-TV service to simply one more application that runs on a TV platform owned and operated by Microsoft. Presumably, the Xbox Live and Kinect platforms could eventually be integrated into TV sets directly (minus the Xbox console gaming features) suitable for licensing to third-party OEMs.

I have no idea whether Microsoft is actually thinking along those lines about the future of the Xbox Live platform. Even if it is, it would require a kind of patience and finesse that have not always been Microsoft’s strong suits. But when it comes to conquering the digital living room, the subtle approach could well be more effective than brute force.