Table: Microsoft Hits Home

With its software entrenched in home offices, Microsoft is aggressively reaching into the living room. Here's how its strategy stacks up:

GAME CONSOLES

Microsoft (MSFT ) leapt into this $20 billion market in a big way with its Xbox launch in November. The company hopes to leapfrog rivals with online gaming that lets players compete from anywhere.

OUTLOOK: FAIR

Xbox is off to a glitchless start, but Microsoft hopes to capture 40% of the market in five years--a tall order, since Sony (SNE ) is No. 1. Analysts expect Microsoft to grab less than 25% of the market.

ONLINE SERVICES

The company is aggressively developing paid subscription services on MSN that will let users do everything from downloading music to synchronizing their banking and investment accounts.

OUTLOOK: FAIR

Microsoft is the innovator in the consumer Web services world today. But with its 33 million online access subscribers to Microsoft's 7 million, AOL (AOL ) has a firmer hand on the consumer's wallet.

HOME NETWORKING

Microsoft is building links in every piece of its software in order to make PCs, set-top boxes, stereos, and handheld devices work better together.

Reliable networking requires software, and that's Microsoft's strength.

OUTLOOK: GOOD

Moreover, Microsoft is the only company that has both the software expertise and the lineup of devices to make home networking prolific.

PCs

Microsoft has combined ever-more consumer offerings into the newly minted Windows XP. That has made it easier to do everything from organizing music files to gathering digital photos.

OUTLOOK: GOOD

Microsoft's strength on the PC is insurmountable. Windows ships on 95% of all PCs sold. That gives Microsoft a huge entree into consumers' homes, where it can pitch its other products and services.

INTERACTIVE TV

Microsoft is aggressively hawking its set-top box software to cable operators, hoping to put its technology at a crucial gateway to the Web.

OUTLOOK: POOR

Microsoft is still losing ground to its chief rival, Liberate Technologies (LBRT ), in the market for software for TV set-top boxes. Several cable companies that Microsoft invested in chose rival software rather than waiting for Microsoft to get it right.

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