Growth through play

By PETER GRIFFIN

Software giant Microsoft is gearing up for a larger slice of the lucrative consumer market, pouring billions into the development of mobile, gaming and television set-top box products designed to lessen the company's reliance on the depressed PC industry for growth.

On Friday, as Microsoft chiefs showcased internally developed technology aimed at the mobile and entertainment markets, analyst group IDC was lowering forecasts for PC industry revenue growth for 2001 and 2002.

The research company now expects worldwide unit shipments of 130 million this year, a decline of 1.6 per cent.

It is also forecasting a drop in global revenues of 10.8 per cent, largely attributed to a PC price war in the US between manufacturers such as Dell and Compaq.

Sales of Microsoft's operating systems have always been closely linked to both consumer and corporate PC sales, both of which have slowed dramatically as high PC penetration and poor economic conditions combine to end a decade of continuous growth in the global PC market.

Microsoft Research's senior vice-president, Rick Rashid, said the division, which invested $5 billion in research annually, was driving to "break down barriers between people and computers".

"Our job in research is to make sure there's still a Microsoft in 10 years," he said, standing beneath a screen displaying his own face drawn with prototype face mapping software.

"If we're not pushing state of the art, we're not going to be able to progress Microsoft long term."

While Microsoft is looking at a strong uptake of Windows XP, its new operating system due for release on October 25, it is expecting to attract widespread interest with Pocket PC 2002, software which will be used to challenge the dominance of Palm in handheld operating systems.

A preview of features of the new software codenamed "Merlin" was left to New Zealander Craig Dewar, marketing manager at Microsoft's mobility division, who showed journalists at a Microsoft Research event in Seattle glimpses of the revamped software, including a user interface similar in style to the soon-to-be-released Windows XP.

In development since April 2000, Pocket PC 2002 is essentially an update to Microsoft's Pocket PC operating system used with handhelds such as Compaq's Ipaq.

The platform will have better security features for sending files and e-mails across a virtual private network, an improved media player allowing video streaming and an instant messaging application.

"Terminal Server" capabilities also allow IT managers to access desktops and servers wirelessly from their handhelds.

A string of new announcements about devices running on Merlin is expected on October 4, with Hewlett-Packard already revealing that its new Jornada 565 and 568 handhelds will carry the software.

Mr Dewar also showcased a Microsoft-developed mobile phone dubbed the "Stinger Smartphone", which lets users browse websites and send and read Outlook Express e-mail.

Microsoft's group vice-president of business productivity, Jeff Raikes, said that despite Microsoft's development work on mobile devices - including the Tablet PC, a wireless, touch-screen notepad that can integrate handwriting into Microsoft software - the company did not plan to mass produce the hardware for them.

"We did the hardware engineering on these products. That IP we'll share with the hardware companies.

"The business model for Microsoft is that there's a royalty per system for the use of the technology."

Mr Raikes claimed the Tablet PC would boast the world's best handwriting recognition program.

But he expected users would not necessarily convert handwritten notes into text, preferring instead to store the handwritten notes as an image file. Five hardware manufacturers will begin production of Tablet PCs next year, including Compaq, Acer and Sony.

But Microsoft will assume the manufacturer's role with the much-anticipated release of Xbox, the games console it expects will rival Sony's PlayStation II. Microsoft demonstrated the Xbox game NFL Fever 2002.

A total of 20 games are expected to be released on the platform this year, including a game version of the hit animated movie Shrek.

Microsoft was also pushing UltimateTV, a combination digital video recorder, DirecTV receiver, and WebTV box that began shipping in March for around $450. Despite a sluggish market for set-top boxes and the slow take-up of interactive TV services, Microsoft claims hard-drive based recorders allowing time-shifting - the ability to watch live programming on demand - will rapidly replace VCRs, creating a huge market for software applications.

Users can record two programmes at the same time and simultaneously watch a previously recorded program using an UltimateTV set-top box, giving it an edge over competing set-top box manufacturers.

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Pocket PC

Ultimate TV

Xbox

* Peter Griffin visited Seattle as a guest of Microsoft.