Microsoft obviously gives priority to the PC desktop and server markets today, but the company is working hard to extend its reach into new markets that it hopes will reap rewards in a future "post-PC" world. Not surprisingly, Microsoft has made the most progress with new developments in interactive TV, handheld wireless computing, and even video games—projects that mirror the company's current work.

Although Microsoft has run into problems with its current-generation Windows CE-based software for interactive TV devices, the company is also working on a Whistler-based version of the software. (Whistler is Microsoft's code name for the next version of Windows 2000.) Microsoft believes that the latter software, which it calls Microsoft TV, will open up the interactive TV market because developers are more familiar with its Windows NT-based programming model.

Microsoft's plans designate interactive TV devices as home-network hubs for the many homes that will already be connected to the outside world through high-speed data pipes. If a secure, stable, and powerful OS such as Whistler powers these devices, they could also serve dual duty as Internet gateway and connection-sharing devices.

The company is also making strides with its handheld devices, which currently run Windows CE. In addition to the fairly popular third-generation Pocket PC devices that debuted early in 2000, Microsoft recently released a similar upgrade for handheld PC (H/PC) devices, which now target vertical markets such as the medical field. The new devices, which are sold under the moniker Handheld PC 2000 (H/PC 2000), correct problems from earlier versions and add features that customers have been ask-ing for. Microsoft first intro-duced H/PCs at the same November 1996 rollout that saw the introduction of the Windows CE OS, but the devices have long suffered at the hands of Palm OS devices and subnotebook computers, which fell in price dramatically over the past few years. H/PCs typically feature clam-shell designs with a half-sized or full-sized VGA screen and a laptoplike keyboard. After the initial launch, Microsoft tried color devices and a second-generation H/PC version with a larger screen and Windows CE 2.0; both devices flopped. "We learned a lot \[with the previous generation H/PC\]," said Doug Dedo, Microsoft product manager for Mobile Devices. "Some of the approaches we took were not appropriate for this device." One thing that hasn't changed, however, is the price: H/PC 2000 devices cost $800 to $1000, which edges uncomfortably into laptop territory.

Microsoft's most successful upcoming non-PC product might be the Xbox, which the company hopes will carve its niche in the suddenly crowded video-game-console market. Microsoft has agreements with the world's top game developers, which will support the Xbox with new games and new versions of old favorites. More than 150 companies, including heavyweights Activision, Capcom, Eidos Interactive, Konami of America, Midway Home Entertainment, and Namco, have signed on to create titles for the machine, which will sport many PC-like features.

The Xbox's current specifications are a 733MHz Pentium III processor, 64MB of RAM, an 8GB hard disk, a custom 3-D graphics processor, and custom 3-D audio with 64 channels of sound. Xbox developers will find a familiar Windows-based programming environment with enhanced Microsoft DirectX capabilities. Analysts note that the Xbox is due to ship in October 2001—precisely the same time as Whistler—so the Xbox might use some form of Whistler as its underlying OS. According to Robbie Bach, senior vice president of Microsoft's Games Division, "Gamers haven't seen anything yet."