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Brier Dudley's blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

December 12, 2011 at 9:34 AM

Microsoft group doubles, aims for “intelligent systems”

Eleven months ago I was in Microsoft’s huge booth at the giant Consumer Electronics Show in Las Vegas, in a backroom filled with new digital TV systems.

On display was a drool-inducing array of TVs, set-top boxes and digital video recorders, all based on the lightweight, embedded version of Windows running the Media Center application for recording and playing TV content.

None of these products made it to store shelves this holiday season, at least none that I could find in the U.S.

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On the surface it seems like a missed opportunity, given the huge interest in all things video and the current focus on consumer electronics as the gauge of tech companies’ success.

Google continues to push its TV platform, and Apple is believed to be working on a full-blown TV, or perhaps a supersized iMac you can hang on the wall.

I wondered, could this be the next example of Microsoft squandering its early lead on an emerging consumer platform, another victim of Chief Executive Steve Ballmer’s relentless pruning?

But after talking with Microsoft managers and analysts over the last few months, I realized the case of the missing Microsoft TV gear isn’t quite so mysterious.

Microsoft still is happy to provide Windows Embedded to TV hardware companies, managers said, but the embedded team isn’t making a big push in that direction.

The Xbox is leading Microsoft’s charge into the living room, even though the console’s lineup of video services doesn’t give consumers as much flexibility and control as Media Center and its DVR capabilities.

Meanwhile, the embedded team has reorganized and expanded, largely to pursue a different market altogether. The move won’t attract a horde of gadget lovers, but it could turn into the company’s next humongous, multibillion-dollar business.

Microsoft now is pushing Windows Embedded as the cornerstone of “intelligent systems” – a variation on the “Internet of Thingsconcept that envisions connectivity and computing extended beyond computers and phones to all sorts of objects.

There’s a growing galaxy of sensors and tiny computers attached to everything from toasters and tennis shoes to shipping containers. Managing and analyzing the flood of data that’s being generated is one of the new challenges of computer science.

It’s also shaping up to be the next great battleground for tech companies such as Microsoft, IBM and Intel, which are jockeying for position as the intelligent-systems market outpaces spending on PCs, phones and general information-technology.

Research firm IDC believes the intelligent-systems market is growing 10 percent a year and will reach an eye-popping $2.6 trillion in sales in 2015. That includes sales of embedded systems and sales of mainstream phones, PCs and servers that contribute to intelligent systems.

“The real breakout year is sometime in 2013 or 2014 — not that it’s not happening now, but you need to see other things fall into place, there needs to be more of these systems connected,” said Mario Morales, IDC vice president, who co-authored a forecast report (below) released by Microsoft.

So what could these systems look like?

An example Microsoft provided is a large fruit company shipping bananas in “intelligent crates.”

The crates would detect whether they were exposed to light on the ship deck, and transmit data about how much light exposure the bananas received. When the ship arrives, the company knows which crates should go to supermarkets and which should go to warehouses for further ripening.

Processors on the crates may run embedded versions of Windows, but that’s only part of the sale Microsoft’s making. The fruit company also is using a version of SQL server that can analyze in real time the stream of data coming from the crates.

That data may be stored and crunched in Microsoft’s Azure cloud service, while the applications and embedded computers are managed like a corporate fleet of PCs, using Microsoft’s System Center orchestration server.

This explains why the embedded team was moved from the Interactive Entertainment group and is now part of Microsoft’s Server and Tools business. It’s still selling embedded operating systems to computer and device makers, but the big money is in stacks of software, servers and services in such industries as retail, health care, manufacturing and automotive.

“The reason why we made this move is because we realize from a product perspective there’s a level of integration that we needed to drive — how our client-type software work with server-side software,” said Kevin Dallas, general manager of Windows Embedded.

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Dallas (at left, in a Microsoft image from the 2010 Embedded Systems Conference) said Microsoft has “doubled down” on this business, doubling the size of his organization over the last three years.

The group updated its lightweight “compact” operating system based on Windows CE in October, but the big news this fall was that a modular, embedded version of Windows 8 will be released three months after the PC version of the operating system is released, presumably late next year.

Microsoft’s advantage comes when companies decide that their intelligent systems need to have the smarts of a PC operating system, which can be programmed and which can analyze data locally, instead of simply collecting and transmitting data back to larger computers.

But it also has to compete with free versions of Linux, including Google’s Android operating system, not to mention servers and tools from other vendors.

Microsoft, IBM and other companies are also haggling over standards that will affect if and how these systems truly connect and communicate with each other, and it’s far too soon to predict the big winner.

Morales said the transformation of the embedded business is just beginning and it’s still a wide-open market, in the stage where companies are investing heavily and competing with all sorts of innovation.

I was looking forward to those Media Center set-top boxes, but I guess there are other options.

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