Two things struck me while watching Bill Gates give his last (as co-founder and chairman of Microsoft (Nasdaq: MSFT)) keynote address to the assembled throng at the Consumer Electronics Show in Las Vegas last night:

  1. Mr. Softy badly wants to be like Mr. Mac.
  2. He's got a shot at getting there.

Mr. Bill goes to Hollywood
It's the deals that sway me. Microsoft has inked deals to bring TV shows and movies from NBC Universal, ABC, Showtime, and MGM to its Xbox Live and MSN online service. The deals with Disney (NYSE: DIS), Sony (NYSE: SNE), and others can't be good news for Apple (Nasdaq: AAPL), which suffered a blow months ago when NBC pulled its shows from iTunes.

It gets worse. Mr. Softy now will team with the Peacock network to deliver 3,000 hours of online coverage of the Summer Olympics at MSN.

Then, of course, there's the Hollywood factor. Gates gets his share of celebs every year, but this time around, U2 frontman Bono made a cameo in a video screened during the comic relief portion of the hour-long Windows love-fest. That's the same U2 that once adorned the iPod, and which seems to be linked inextricably with the Mac's daddy. (Not to mention Apple board member Al Gore's appearance in the same video.)

The X-factor
But that's show business. More impressive to me are Microsoft's plans for the Xbox, which, for years, had very little to do with Apple. No longer.

Microsoft Entertainment President Robbie Bach told the CES crowd that Mr. Softy has a deal with BT Group to turn British versions of the Xbox into a combination game console and set-top box for on-demand TV programming. 

Surprising? Not to many Fools, I'm sure. My colleagues Seth Jayson and Rick Munarriz have been writing about the Xbox as a media hub for years. Seth has even suggested that Microsoft buy Netflix (Nasdaq: NFLX) and use the Xbox to deliver its vast library of content on demand.

Yes, I know, that's pure speculation. But would it be a bad idea? The Xbox, for all its faults, has a big footprint. More than 17.7 million consoles have shipped; Xbox Live has 10 million members. Apple TV, meanwhile, has been a rare bust for the company that Fools voted the best stock for 2008.

Make mine mobile
Then there's the iPhone. Microsoft CEO Steve Ballmer probably can't ever live down these words, uttered in April in an interview with USA Today:

There's no chance that the iPhone is going to get any significant market share. No chance. It's a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I'd prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get. [Emphasis added.]


Separate studies from researchers Canalys and NPD say that, in the third quarter, the iPhone outsold its Windows Mobile-powered peers here in North America, accounting for 27% of the total market. Research In Motion (Nasdaq: RIMM) remains the leader.

Nevertheless, Mr. Softy has big plans. Gates showed off a device fresh from Microsoft's labs that could identify, and provide information about, any object caught in its viewfinder. No word yet on when this feature might be cooked into new Windows Mobile phones, but Bach waxed breathlessly on the advertising opportunities represented by a more interactive mobile platform.

His take: The market for on-the-go ads could be worth $11 billion by 2011. Puts the $6 billion Microsoft spent to acquire aQuantive last May in perspective, doesn't it?

Indeed. But there's more at stake here than a digital billboard grab. Using its expertise to get tough in mobile ads would not only differentiate Windows Mobile devices from the iPhone but also stick it to its (arguably) toughest rival: Google (Nasdaq: GOOG), which hopes to get a heaping helping of the mobile ad market when its Android mobile software debuts.

What's a decade worth?
If we take Gates at face value -- and there's no reason we shouldn't -- Microsoft's goal is to get between users and interactive experiences wherever they occur and, in doing so, dominate the next digital decade as it did the first.

That won't be easy. But I also think that well-publicized problems with the Xbox have driven users and investors alike to grossly underestimate Mr. Softy's chances, much in the same way that analysts once thought the Mac OS would never again take market share from Windows. You know how that one turned out.

Watch your back, Mr. Mac. Mr. Softy is back in school. And he wants your lunch money.