Why Tivo will thrash HP, Microsoft

HP HAS been trying to launch an "entertainment center" platform since 2000. Someone call Carly and tell her it's time to shoot the dog.

Its first attempt launched in 2001 was a Linux-based device dedicated to playing music, hooked into an HP-proprietary "walled garden" for content and listed out at $1000 for a Celeron-based boxed with a 40 GB drive. Compaq had a competing device around the same price, but nobody in their right minds was going to burn $1000 for a castrated PC stuffed into a stereo box.

Round two was launched in December 2004, with HP's Digital Entertainment Center. The new version is now built around Windows Media Center, rolls in a digital video recorder and up to two TV tuners, 802.11g, a wireless keyboard, lots of slots for flash media, a Pentium 4 processor, and a DVD-burner. List price on the entry-level box is $1500 and includes a 160GB drive.

Now compare this to the humble $199 ($99 with rebate) TiVo. The $99 TiVo only has one onboard TV tuner, 40 GB drive, a nicely designed remote, and is built around Linux. As a dedicated appliance that can be expanded through software, the baseline TiVo can play music and display pictures off of other PCs through one's TV, record video at all hours of the day, and just works. If you want a wireless connection, you have to shell out around $40 for a USB frob, but that's no big deal because after the smoke clears, you still have a device is around $1300 less than the HP Digital Entertainment Center to record video.

Apologists for HP will argue that it's not really fair to compare the higher-powered Entertainment Center to the TiVo since you can't run spreadsheets or do word processing on a TiVo, but most consumers are willing to trade off 20 percent functionality for an 80 percent cost savings. You don't hear HP or Microsoft bragging a lot about how many Media Center PCs they've sold.

The folks at TiVo have a simple enough platform that they can continue to add functionality by doing software releases, rolling them out as a part of the $13/month TiVo subscription price. Already, TiVo is rolling out a "TiVoToGo" service to allow downloading of saved video from a home TiVo onto a PC or laptop for portable viewing, with the option to burn a DVD through the PC to save episodes. Ultimately, TiVo has announced places for e-commerce capabilities, so couch potatoes will be able to order things using a remote control rather than having to get up and sit down in front of their computer.

At the end of October 2004, TiVo had about 2.3 million subscribers on board. Multiple by $13 a month, and it's pretty easy to see why Microsoft is making nice with TiVo in the short-term. Of course, Microsoft could never bring itself to actually buy TiVo, given its wretched use of Linux, but the Vole is happy to sell codecs and other software pieces to get TiVos to play well with the crop of Windows-CE-running "Portable Media Devices."

Will HP (and other PC companies) see the light and bail out of the Microsoft "Media Center" market? Today, it's unlikely, but if a couple more articles by Fortune like this appear or if its latest "reorganisation" doesn't show results, HP may actually have to shoot a few dogs in its product lineup. µ