Microsoft Aims to Outshine Adobe's Flash

In a bid to capitalize on the burgeoning online video market, the tech titan(Microsoft) is launching Silverlight, its new video-player software.

The explosion of Web video has opened a new front in the battle between Adobe Systems (ADBE) and Microsoft (MSFT), each shooting for a bigger share of software that can create and serve up clips. For companies that publish online videos—and the advertisers who sponsor them—the result could be new technology that squelches piracy, cuts download times, and lets consumers watch programs even when they're offline.

Microsoft and Adobe will both unveil new video-playing software at the National Association of Broadcasters conference in Las Vegas on Apr. 16. Both companies are aiming to capitalize on a growing market for Internet video ads, expected to grow from $1.5 billion market in 2007 to $4.2 billion in 2011, according to market researcher Yankee Group.

Dueling Debuts
Adobe's Flash Player, installed on more than 700 million PCs, has become the de facto standard for multimedia that runs in a browser. Google's (GOOG) YouTube and News Corp.'s (NWS) MySpace are heavy Flash users, and the Flash Video format has supplanted media players from Microsoft and RealNetworks (RNWK) as developers' target of choice.

In a bid to extend its lead, Adobe will preview the Adobe Media Player, due for release later this year. The product is based on new technology called Apollo and can play videos written with the company's popular Flash technology on a Web browser or on a desktop player when users aren't online. With a feature sure to appeal to content creators intent on fighting piracy, the new player can also bar copying of clips as they stream over the Internet, unlike Adobe's current Flash Video format.

Not to be outdone, Microsoft is releasing software called Silverlight, which can be used in Microsoft's Internet Explorer Web browser as well as Apple's (AAPL) Safari browser and Mozilla Foundation's Firefox. Silverlight will be released this year for Windows PCs and Macs and will let users trigger videos by clicking in a browser window, an easier method than the one now required by Windows Media Player. Silverlight also includes copy-protection technology called PlayReady. Microsoft has signed up Major League Baseball, Netflix (NFLX), and others to test the software. Down the road, videos created to play with Silverlight could also run on Microsoft's Zune digital music player and Windows-powered cell phones, says Forest Key, a director in Microsoft's developer division.

Demand for Web-based Tools
Underlying the new technologies is the recognition that graphics designers and video producers want to publish their work in a variety of media: TV, DVDs, the Web, and print, using common tools and technical skills they've already mastered (see, 2/13/06, "A Flashy New Adobe"). At the same time, the explosion of video on sites such as YouTube and MySpace has led users to forsake clunky desktop video software for user-friendly click-to-play tools on the Web.

"You want a great, instant-on experience for the audience, and that's what Flash gave you," says Jeremy Allaire, founder and chief executive of Brightcove, which hosts Web videos for companies including CBS (CBS), the New York Times Co. (NYT), and Time Warner (TWX). That ease of use is what's driving Microsoft's development of Silverlight, says Allaire. "The success of Flash Video has taken them by surprise in some respects, so they've tried to catch up a bit to what the media industry really needs" (see, 10/30/06, "What Comes After YouTube"). Brightcove has built a prototype video player that uses Silverlight and plans to make it available as an option to customers later this year.

Ever since Adobe's $3.4 billion merger with Macromedia in December, 2005, it has been butting heads more often with Microsoft, in areas including software development tools and document creation (see, 12/27/05, "Tough Choices Ahead for Adobe"). After Adobe threatened to sue Microsoft for including free functions in its software that could threaten Adobe's products, the software giant agreed in June, 2006, to remove certain functions from its Office 2007 suite and include Flash and other Adobe software in Vista. "Microsoft is watching them even more closely than a couple of years ago, and Flash is the reason," says Rob Helm, an analyst at consulting firm Directions on Microsoft.

Silverlight Shows Versatility
Adobe's Media Player will make it easier for programmers to create video-enhanced Web sites using familiar Adobe tools including Encore and After Effects. "These are tools creative professionals have been using for over a decade," says Jim Guerard, a vice-president at Adobe. For instance, developers authoring DVDs will be able to save video in a Flash format that preserves scene markers when users watch it in the Media Player. To get those capabilities, developers will need the new versions of Adobe software included in its Creative Suite 3, a pricey lineup of bundled software that begins reaching stores Apr. 16.

Where Microsoft has fallen short—and Flash has excelled—is in the ability to combine Web-page elements and ads with online video and to work on systems other than Windows. "The one place they always get beat up, including by Adobe, is they're not cross-platform," says Forrester Research (FORR) analyst Jeffrey Hammond. Silverlight could change that. In addition to working with a variety of browsers, it also supports both next-generation DVD formats, HD DVD and Blu-ray, while Adobe works only with Sony (SNE)-backed Blu-ray.

Just don't expect Microsoft to hold its trump card, the Windows operating system, for too long. Microsoft is weeks away from releasing a line of Web design software that, when combined with Silverlight, will help developers create all manner of sophisticated online graphics. That software will work in conjunction with Windows Vista, tethering developers and their products all the more closely to Microsoft. "That's where they're going to make their money," Allaire says. And where Adobe's game of catch-up could begin.



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