SEATTLE -- Permit Moxi Digital founder Steve Perlman a moment of giddiness.
Perlman has spent the past two years developing the Moxi Media Server, which he unveiled to rave reviews last week. But now the real battle -- against Microsoft -- begins.
The Moxi is the first of a new category of consumer electronic devices, called home entertainment gateways, expected to flood U.S. households over the next few years.
The idea is that consumers will acquire appliances to manage broadband signals carrying TV programming and Internet content into their homes. Such digital hubs will store TV shows, movies, music, online games and other Web content, then distribute the content on demand to TVs, stereos, personal computers and portable devices all over the home. Instead of hovering over a keyboard, consumers would wield a remote control.
Forrester Research predicts 10 million U.S. homes will use digital hubs by next year, and that the number will rise to 25 million by 2006. If devices like Moxi gain mass appeal, the PC might be relegated to mundane tasks, such as doing taxes and e-mail, says Josh Bernoff, Forrester analyst.
Not surprisingly, Microsoft, whose Windows operating system drives 92% of PCs, isn't idle. The software giant last week announced it is developing an extension to Windows XP, dubbed Freestyle.
Samsung, Hewlett-Packard and NEC will use Freestyle to develop PCs that can do everything a Windows XP machine does -- plus serve as a digital entertainment hub, says Mike Toutonghi, vice president of Microsoft's eHome division.
Microsoft is also working on software, called Mira, which will let a computer user roam from room to room, wirelessly accessing all PC programs via touch commands on a portable flat-screen monitor.
Microsoft is vague about details on Freestyle and Mira. Few question the company's resolve. ''We believe the PC has a strong role to play in a connected world,'' Toutonghi says.
Moxi out front
But it was Moxi that won Best of Show at last week's Consumer Electronics Show in Las Vegas.
With Freestyle and Mira still in the conceptual stage, Perlman bets consumers will opt for devices conceived primarily to receive and distribute streaming video and audio.
''Microsoft is crazy if it thinks people are going to want to watch TV or listen to music using Windows XP as their primary outlet,'' he says. ''Windows XP is the most non-real-time system ever created, because it needs to accommodate so many different masters.'' Perlman likes to cite the example of listening to a favorite song on his do-everything XP PC only to have the music stall when new e-mail arrives.
By contrast, Moxi dedicates most of its 80 gigabyte hard drive and Linux operating system to processing up to four video and dozens of audio streams.
Perlman isn't just another idea guy. He thought up WebTV, a device that lets users surf the Internet over their TV. He sold the company in 1997 to Microsoft for $425 million. WebTV, which is still available, never became a big hit.
Industry analysts applaud features in Moxi that should help it avoid the same fate. It's:
* Wireless ready. The Moxi is set up to send and receive data from PCs, CD players or any device using a wireless standard called 802.11. So, Moxi can copy a music collection stored on the hard drive of a PC in the den and play it back on a high-fidelity stereo system in the living room.
It can also disperse multiple streams of digital video and audio files in real time to 802.11-compliant devices. So Dad can catch Monday Night Football in one room, Mom an HBO movie in another, while junior taps into a Webcast rock concert in yet another.
* Affordable. Satellite TV and cable companies will sell or lease Moxi boxes to consumers at discounted prices. The units will replace existing set-top boxes. Pricing should be comparable to current monthly cable fees, probably about $50 a month, with satellite subscribers also paying a few hundred dollars to purchase a Moxi box paired with a satellite dish.
* Widely available. The first Moxis are expected later this year. EchoStar, a satellite TV company, will provide access to 6.4 million subscribers, perhaps 17 million if a merger with Hughes Electronics' DirecTV clears antitrust hurdles.
Moxi also has an inside track to 19.6 million cable subscribers through AOL Time Warner's cable division and Paul Allen's Charter cable systems. Content distributors EchoStar, AOL and Charter have a $67 million stake in Moxi Digital.
''We haven't announced all of our partnerships yet,'' Perlman says with a grin.
Watch, then take over
Don't count Microsoft out just yet. Being late to an emerging market didn't stop the software giant from muscling aside Netscape's pioneering Web browser to make its Internet Explorer the dominant Web-surfing tool -- or swallowing WebTV at the height of its hype.
With backing from AOL Time Warner, Perlman probably isn't angling to sell Moxi to Microsoft. Besides, once burned, Microsoft ought to be paying close attention to the cloudy aspects of Perlman's latest vision.
Steve Vonder Haar, an analyst at the Yankee Group, for one, questions the wisdom of relying on cable and satellite installers to link the Moxi to anything but a second TV. Such connections can be befuddling to the average consumer.
''The Moxi's sizzle comes from its ability to network,'' Vonder Haar says. ''Folks in Silicon Valley might have 802.11-compliant stereos, but I doubt Joe Six-Pack does.''
Meanwhile, Microsoft is hustling down a familiar path. With Freestyle and Mira, it has begun recruiting hardware makers, hungry for fresh sales, to help shape an ''ecosystem'' of home gadgets seamlessly tying into digital content using Microsoft software.
''Once Microsoft gets going, it can scale more quickly,'' says Rob Enderle, an analyst with Giga Information.