Microsoft Will Kill Blu-Ray

I believe that digital distribution is the future. Microsoft (Nasdaq: MSFT  ) agrees. And no, it's not just for movies, music, and games anymore.

Just the facts, ma'am
Mr. Softy's new application store is not a mobile marketplace in the image of Apple's (Nasdaq: AAPL  ) iPhone app store and Google's (Nasdaq: GOOG  ) Android version. It looks like Windows Mobile will get its Skymarket sometime next year. No, the new shopping outlet is a regular browser-based e-business that sells hardware and software for PCs, Xboxes, and Zune players. Wait -- I thought we already had a plethora of those?

What does Microsoft's in-house store offer that the online stores of Best Buy (NYSE: BBY  ) , Amazon (Nasdaq: AMZN  ) , and Wal-Mart (NYSE: WMT  ) can't match? First, let's ask Microsoft.

"Microsoft Store is really about making that direct connection with the customers, and then making it a great experience from start to finish," says Larry Engel, the general manager of Microsoft's online store and marketplaces. "For the first time, customers will have one place to find and purchase everything from Microsoft, rather than seeing just a list of products."

Meet the new boss … different from the old boss
Sounds great, but it really isn't too different from existing e-retailers who have been running Microsoft-centric store-in-a-store environments for years. Many of them also sell the same stuff much cheaper at times than Microsoft's suggested retail price, which is the official pricing policy at the new app store. Nope, all-in-one shopping is not the ticket.

I think that the biggest advantage Microsoft holds is the ability to sell by direct download rather than being forced to ship physical media for every purchase. These are the guys who create and manage license keys for all Microsoft products, so it's easy to run a completely digital operation where the left hand of licensing has a direct line to the right hand of retail.

I think this is the same magic bullet that may eventually kill physical DVDs and CDs: an all-digital pipeline straight to your PC or entertainment center, either backed by true-blue license keys from the maker of each product, or released in the wild with no DRM at all.

Clearing the path
Apple is a veteran of fully licensed music distribution, and a relative newcomer in restriction-free music downloads along with Amazon. The movie guys are catching up, and privately held Valve has been selling games this way for several years. And open-source business software like Red Hat's (NYSE: RHT  ) Linux has mostly been online. A good amount of their big money comes from support contracts.

So now commercial software is jumping on the bandwagon in a big way. Microsoft isn't the first business-minded proponent of the download model, but it's the biggest duck in the entire pond. When Mr. Softy wiggles his feet, he makes huge waves. I expect the model to work, in spite of the massive competition. Then I expect other software houses to follow in Redmond's footsteps.

And then I expect physical media for software, entertainment, and information to die, little by little. By 2020, your grandkids will think that a Blu-ray disc is just a neat-looking Frisbee. Motley Fool co-founder David Gardner seems to agree, judging by the keiretsu of digital demons among his Stock Advisor picks. Just so you know.

Wal-Mart Stores, Microsoft, and Best Buy are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Best Buy, Amazon.com, and Apple are Motley Fool Stock Advisor recommendations. The Fool owns shares of Best Buy. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

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Read/Post Comments (11) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 17, 2008, at 5:04 PM, gjhinHI wrote:

    I believe in digital distribution. But I am routinely disappointed in Microsoft production implementation. My current HP Pavillion/Vista/IE experience is dismal, unless I like the computer locking up a couple times a day. Office 2007 is lots of change, for change sake, but no more useful than my old MS 97. Apple, on the other hand, has given me products that work easily and dependably. Sorry, Microsoft, I'm going back to the Mac as soon as I can. Apple may kill Blu Ray, but I'm not going to bet Microsoft can do it.

  • Report this Comment On November 17, 2008, at 5:11 PM, mreedpgh wrote:

    I think you're underestimating the gravitas of actually holding a creative work in your hand. After all, you can still buy books, and they practically DEFINE obsoleted technology.

    --Mike

  • Report this Comment On November 17, 2008, at 7:18 PM, monkeyet wrote:

    Digital downloads may be able to give a high quality picture, but is everyone forgetting about sound quality? If you want to get the high definition picture with standard definition sound then digital downloads are for you. Personally I love Blu-Ray and don't see it going anywhere.

  • Report this Comment On November 17, 2008, at 8:54 PM, OfNoConsequence wrote:

    Moneyet is right, Blu-Ray isn't going anywhere... :)

  • Report this Comment On November 17, 2008, at 9:34 PM, cyclone wrote:

    Wow, is this headline a stretch. By 2020, sure, I can imagine that Blu-ray will not be the dominant format. But 15 years on most formats are well-past their prime. Microsoft surely isn't going to have any meaningful negative impact on Blu-ray in the next five years, and claims that downloads will kill Blu-ray are woefully misguided.

  • Report this Comment On November 17, 2008, at 11:39 PM, velocitywave wrote:

    My girlfriend and I love taking a stroll down to the local video store, scanning all the cover-boxes, talking with people, running into neighbors, picking out a movie together, walking back...

    We also love going to the Paramount movie theater downtown with massive screens, popcorn, hotdogs, giant buckets of Coca Cola, lineups, crowds making noise, that annoying loud mouth that's in every crowd and keeps interrupting the movie, that everyone has to say , "Shhhh!" to... I love it all.

    Sure... sometimes we download our movies -- and sometimes I don't feel like treking to the videostore, and I don't feel like annoying line ups at the movie theater...

    But sometimes there's just nothing like taking my girl out on a date to the theater after a dinner out, and sometimes I just love the walk over to the videostore.

    It's like eating food: you can make food at home for much cheaper, but sometimes you just like to eat out. (That's the way it is with movies -- sometimes you just want to go out of your home!)

    It's very hard for me to imagine a world without videostores and movietheaters. But I guess it could happen. But then where would I walk to on a boring Friday night?

    And on an unrelated note, I've been dying to own a blue-ray burner, so I can burn backups of my computer-files, onto a disk capable of holding 50 gigs. (I usually backup to harddrives, but disc is a great backup to the backup.) The moment those burners get cheap I am so buying one!

  • Report this Comment On November 18, 2008, at 10:56 AM, martinfool wrote:

    Before this can happen we will need a LOT of bandwith available. I don't see that real soon. As other posters have noted, BluRay with HD sound and video creates big files. Most of the current streaming video services do not even match the quality of standard DVD (4-5 Mbps). BluRay is more like 12-20 Mbps or more depending on Audio.

  • Report this Comment On November 18, 2008, at 11:13 AM, SandyRN wrote:

    This article is very premature. Downloads provide poor quality picture and sound at this time (as well as taking forever to download). People are jumping on Blu-ray because they get a high quality picture and great sound. We use a 13-ft screen with D-ILA and what we look for is an in-home theatre experience. Downloading dosen't do that. Even people that are not enthusiasts are buying HD TVs and enjoying the enhanced pictures and sound. They want their "family movie night" to be the best experience possible.

    I won't be jumping on this bandwagon for years, yet. I think it will happen. It's just way to early for the majority of people who want great picture and sound. This isn't a reason to buy Microsoft today.

  • Report this Comment On November 18, 2008, at 2:37 PM, redavtx wrote:

    There is relatively poor penetration of high-speed internet access in the US. For physical media to die off, that penetration would have to go to nearly 100%. That's not going to happen soon.

    Internet providers are beginning to implement and enforce download limits, which restrict people's ability to download high-definition content.

    Currently, the quality of content to be downloaded is not on par with Blu-ray. For it to be the same, download times and data limits make it unfeasible.

    I am still waiting for Microsoft to deliver on any of its promises. Whenever Microsoft has competed on a level playing field, it has lost. I expect the same trend to continue.

    There will always be a large portion of the population that prefers physical media--to be able to hold the product that they purchase. Digital downloads of software are vulnerable to being deleted (usually accidentally during a typical Microsoft crash) and lost. There will always be a need, and therefore a market, for physical copies. I will personally NEVER purchase software (including music and movies) except as a physical copy. If the day comes that it is no longer available, then I will cease to buy any more products.

    The death of Blu-ray, and physical media altogether, will not be decided by software companies. It will be decided by the consumer. The industry 'experts' have yet to realize that.

  • Report this Comment On November 18, 2008, at 8:59 PM, roybishop wrote:

    So for the next 12 years, Microsoft is foolishly hurting themselves by not simply adding a Blu-Ray drive to the Xbox 360. They're leaving money on the table.

    Since a lot of my portfolio is in MSFT, this really irritates me. They're not just being a bad loser (with HD DVD), just a loser.

  • Report this Comment On November 26, 2008, at 9:13 PM, cdocasualty wrote:

    Yeah and hard disks were going to die too.

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