Steve Perlman says he learned lots of lessons founding WebTV Networks Inc. and selling it to Microsoft Corp., a $425 million deal that made him a star in technology circles.
Now he must put those lessons to the test. The 40-year-old entrepreneur is set Monday to unveil one of Silicon Valley's biggest bets on consumer electronics in years: a device that, among other things, acts as a central home entertainment server, storing songs and TV programs that can be sent wirelessly to TVs, stereos and even computers around the home.
The product thrusts Mr. Perlman's latest start-up, Moxi Digital Inc. into TV wars with the likes of Microsoft and the probable combination of Comcast Corp.'s and AT&T Corp.'s cable businesses. Moxi's souped-up boxes combine the functionality of cable or satellite receivers with DVD players and the personal video recorders made by TiVo Inc. and others. The VCR-sized box hooks up to one television and can send data such as audio and video to electronics around consumers' homes that are hooked up to smaller auxiliary devices.
With the new offering, Mr. Perlman hopes to address the problem of too many home devices and remote controls that can't communicate with each other. The incompatibility makes it difficult to do things like download a music file from the Internet and play it on the stereo, or start watching a program in the living room, pause it and then watch the rest in bed. The Moxi boxes are designed to do both those tricks.
The devices, not expected to reach consumers until the second half of this year at the earliest, are likely to be a hot topic at this week's Consumer Electronics Show in Las Vegas. Moxi plans to cut deals with TV service providers to distribute them, announcing the first such relationship Monday with the satellite operator EchoStar Communications Corp., one of its investors. Consumers will obtain the boxes either from their cable provider or satellite operator.
Marc Lumpkin, an EchoStar spokesman, would not say exactly when Littleton, Colo.-based EchoStar would introduce the new devices, but said shipments may not begin until early next year. He also declined to comment on how much EchoStar would charge consumers for the devices or the service.
There is no guarantee of an easy ride. Most interactive TV products have struggled with low consumer adoption. And new ways to connect home systems loom: Monday night at the CES show, Microsoft chairman Bill Gates is expected to demonstrate a tablet-style device called Mira that communicates wirelessly with PCs and possibly other devices, acting like a terminal to display rudimentary games and Web content.
Still, analysts so far are enthusiastic. "We believe it to be the best consumer-focused product out there," says Richard Doherty, director of research at the Envisioneering Group, a Seaford, N.Y., research firm. Besides simplifying entertainment options for consumers, he praises Moxi's strategy of working with EchoStar, which could goad cable operators and other satellite companies into offering Moxi's features in order to retain customers.
EchoStar's pending acquisition of Hughes Electronics Corp. could also be a boon for Moxi, says Josh Bernoff, an analyst at Forrester Research in Cambridge, Mass. If the deal is approved, as many analysts now expect, EchoStar may replace the 10 million set-top boxes running on Hughes' DirecTV system, and Moxi boxes could be used to do some of that. If that happens "then this could take off like a rocket," Mr. Bernoff says.
Moxi will need to raise more money to play in those big leagues. But the company has done surprisingly well so far in that department. Early last year, even as venture-capital funding was getting harder to come by, the company managed to raise $67 million in what was one of the biggest first funding rounds in several years and the biggest ever for a consumer-electronics company, according to venture research firm VentureOne. Besides EchoStar, investors include networking company Cisco Systems Inc. and cable operator AOL Time Warner Inc., plus venture capitalists Mayfield and Barksdale Group.
One attraction was Mr. Perlman's knack for trail-blazing. (Until Monday, Moxi, based in Palo Alto, Calif., had been boldly dubbed by its founder as Rearden Steel Technologies, after the steel mill at the center of Ayn Rand's "Atlas Shrugged.") Mr. Perlman's WebTV box was among the first to let consumers surf the Internet through their television sets.
But WebTV's sales languished, in part because the first models cost consumers about $325 each. And even at that price, the WebTV hardware was sold at a loss.
Such subsidies have caused problems for other companies. For instance, Moxi rival TiVo, which also allows users to store television programs and pause live TV, has yet to turn a profit -- largely because it has had to help subsidize the boxes in order to create reasonable consumer demand. Michael Ramsay, TiVo's chief executive, says declining hardware prices have changed that situation. He expects the company will break even in terms of cash flow by January 2003.
One way Mr. Perlman hopes to avoid that problem is by getting out of the hardware sales business and having the satellite or cable companies sell the devices it designs. Moxi will give away the hardware design and license the operators its software to make and run them.
It is unclear right now what consumers ultimately will pay for the Moxi devices and services, especially since operators may keep the cost down in hopes of luring customers with the features and then charging them for extra services such as video on demand. Moxi says operators have indicated that they might sell or lease the devices for about the same cost as a digital cable box or higher-end satellite box.
The Moxi box will cost the cable and satellite operators about $425 to manufacture, compared with anywhere between $200 to $700 for cable or satellite boxes. But, because the auxiliary boxes are cheap to manufacture, it would cost only $50 to $100 for the operators to hook up other televisions -- rather just adding whole new boxes as most systems now require.
One obstacle: Mr. Perlman concedes that he may not get any business from the cable behemoth that Comcast stands to become if its acquisition of AT&T Broadband is approved. That's because Microsoft, which is developing its own software for set-top boxes of its own, backed Comcast in the deal and has invested $5 billion in AT&T Corp.