Gates’ strategy thin on content

Sony’s announcement that the launch of PlayStation 2 has been put back to next March will delight executives at its hard-pressed rival, Sega. What better Christmas present for its own new product, Dreamcast, than that the market leader should leave the field clear during the main selling period?

But Sega’s joy may be shortlived. Ugly rumours are circulating, unconvincingly denied by their target, that Microsoft is about to make the £10bn computer console market a ménage ÃÂ quatre. The projected Microsoft console would be keenly priced, at about £150; PC and Internet compatible; and appear on the market some time next year. It could deliver a devastating blow to its three rivals.

Microsoft is already one of the world’s largest developers of computer gamesware. What surprises is that the company has taken so long to go it alone. After all, Microsoft exercises a stranglehold over the PC market, which offers an installed base, as well as graphics and processing power superior to any of the games consoles now available.

The fact that Microsoft is closely aligned with Sega need not detain us unduly, given the company’s reputation for corporate ruthlessness. More likely, Microsoft has been resorting to its familiar octopus strategy, delicately probing a developing sector for potential, then hauling in its tentacles once the time proves right. And what tentacles Bill Gates has proved to have. In the the first half of this year, for example, Microsoft invested £3bn in AT&T, £300m in NTL and £187m in UPC, in what is self-evidently an attempt to propel and perhaps eventually dominate the broadband cable revolution.

Opinions on the motivation behind this strategy vary. To some, the parallel with John D Rockerfeller and Standard Oil is compelling. Rockerfeller almost managed to corner the market in the hot stock of a little over a century ago by gradually building up a stranglehold on oil distribution. It all ended in tears, in 1911, when Rockerfeller fell foul of antitrust legislation and Standard was broken up. Microsoft, too, displays a fanatical interest in distribution and, spookily, now faces a federal antitrust suit.

But Gates’ motives remain more difficult to pinpoint, not least because of the thorny issue of ‘convergence’. The only way to correctly second-guess the future of the digital revolution is by hedging bets and taking a stake in, or creating an alliance with, whatever appears to show promise. It is difficult to monopolise something that has yet to take shape. The one certain winner in this particular revolution is not, as it happens, any of the competing distribution technologies, but content. Which appears, on present evidence, to be the Achilles heel of Microsoft, despite its best efforts to forge alliances with the likes of Dreamworks, NBC and Sony.

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