The Redmond, Wash., Windows maker is aiming to make further inroads into the connected living room this year, according to a report by the The Seattle Times.
"Microsoft's going to make a splash in this market with a stripped-down version of Windows tailored for set-top boxes and connected TVs," wrote author Brier Dudley. "The software is a version of its embedded device software, overlaid with the Windows Media Center interface, with media streaming and remote-control capabilities."
The Windows-based set top boxes will reportedly go on sale later this year and cost around $200. By comparison, the new streaming Apple TV costs $99.
In November, reports emerged that Microsoft was planning an Xbox-based streaming TV service in hopes of becoming a "virtual cable operator." At the time, sources claimed that Microsoft was at least 12 months away from launching the product.
The Seattle Times report comes just days before the Consumer Electronics Show in Las Vegas, where TV makers are expected to present the next generation of connected TVs.
Several manufacturers, however, may have had their plans delayed. According to The New York Times, HDTV manufacturers hoping to show off televisions running the Google TV software at CES have been asked by Google to hold off.
"Google has asked the TV makers to delay their introductions, according to people familiar with the company's plans, so it can refine the software, which has received a lukewarm reception," the report said. "The late request caught some of the manufacturers off guard."
After initial reviews of Google TV took issue with the platform's inconsistent interface and instability, Google has struggled to gain traction with the product. The Google TV platform has also faced resistance from the major studios, who are wary of Google cannibalizing their ad revenue.
Just a month after releasing a combination Google TV Blu-Ray device, Sony slashed its prices, suggesting that sales of the device were off to a sluggish start.
UBS Investment Research analyst Maynard Um sees Apple as leading the pack in the race for the "global digital living room," though Google and Microsoft have emerged as key players as well. According to Um, Microsoft's success with the Xbox and high Windows market share are the company's strong points, but the software giant lacks integration between products.
Apple is expected by a number of analysts to release an HDTV, possibly with 3D capabilities, within the next couple years.
"While Apple's commitment to the living room remains a 'hobby,' we continue to believe the company will enter the TV market with a full focus, as an all-in-one Apple television could move the needle when connected TVs proliferate," said Piper Jaffray analyst Gene Munster on Monday.
Just before Christmas, sales of the Apple TV, which began shipping in September, topped 1 million units. Wall Street viewed the milestone as a sign that Apple is positioned to become a "more material contributor and game changer in the TV space." According to Shaw Wu of Kaufman Bros., the addition of an Apple TV App Store would be a major catalyst for Apple's progress into the living room.