The Consumer Electronics Show was held last week in Las Vegas. After Comdex, this is the second largest trade show in America, and like Comdex, only Las Vegas has enough display space, hotel rooms and hutzpah to contain it all. CES is not about computers, it is about stereo systems and cordless phones, and especially, about televisions. At CES, you can find the latest version of just about anything electric that makes sounds or pictures and generally doesn't require an operating system. Yet Microsoft was there, pushing its Windows CE operating system, which is aimed in any number of directions, including several that involve products -- like cable TV boxes -- that you wouldn't normally think of as having an operating system. Microsoft was also represented by WebTV, which introduced its second-generation box at the show. On Sunday, I sat for hours with a crowd of WebTVers at the airport as we all tried to get the heck out of Vegas. They were a happy group and incredibly young, some of them enjoying their first trade show. I just didn't have the heart to tell them that last week probably represented the high point in the total history of their company. It's all downhill from here for WebTV. Two years from now, the company will probably be dead.

At Comdex or CES or any other big trade show where new products are introduced, there are really two shows going on. First, there is the public show, the one magazines write about and most people attend. The public show is made of booths staffed by eager salespeople and pretty girls, who give away stuff to get you into the clutches of those eager salespeople. The public show is a display of old products and new products, but nearly always products that you can order either at the show or soon after. The public show is about selling stuff.

But there is also a private show, which doesn't take place in booths on the convention center floor and generally isn't written about by magazines. The private show happens in hotel suites with admission by invitation only. The private show is not about products you and I can buy this season, but about products you and I might be able to buy next season. While in the booths they were featuring products with winter and spring introductions, in the hotel suites the same companies were showing what they plan to be selling next Christmas.

The people who get to visit these hotel suites are often the executives of large distributors and resellers, or they are software developers who are being encouraged to prepare for some new platform that's on the way. Just occasionally, they are end-users who are being polled on what they think of some gizmo that might be for sale at Christmas, or might not, depending on their reaction. Reporters are hardly ever invited to the private show because just getting in the door of most of these hotel suites requires signing an agreement not to write about what you see. So reporters try to get their info secondhand by pumping their regular sources, who are known to be regular attendees of the private show.

This time I didn't bother with the public show at all, but concentrated my less than 24 hours in Las Vegas on entering as many private hotel suites as I could. Sorry, I can't share any names or numbers, but I can explain an important product trend that should emerge by Christmas, which brings us back to the likely death of WebTV.

CES is a show that generally features what we in the PC business think of as hardware -- devices that don't have to be programmed to do what they do. At CES, software generally means content -- everything from reference CD-ROMs to music CDs to prerecorded videotapes. What little traditional software is at the show usually takes the form of firmware, code that is stored in EEPROMs or Flash memory and is updated only occasionally, if at all. Microsoft's WebTV is a device that fits this description, since most users will never have to update the WebTV's browser -- a browser that comes burned into Read-Only Memory. For this show, then, Microsoft is more of a hardware company than a software company. And there's the rub.

When Microsoft paid $425 million last year for WebTV, the boys and girls in Redmond broke a quiet truce that had existed for many years: Microsoft became a hardware company. Sure, they had made mice and then keyboards, but WebTV was different. This was a device people might buy instead of a PC. With this decision by Microsoft, the game was changed forever.

From the viewpoint of Microsoft, which is to say the viewpoint of Bill Gates, the company had no real choice but to buy WebTV. Microsoft wanted to dominate the Internet and television, and this was a logical intersection of both, a place where there appeared to be no obvious competitor. Even more important, Microsoft was having a conspicuous lack of success dominating the emerging digital televison market. For years, they had been offering technical standard after technical standard to cable TV and telephone companies without a real design win. If the TV knuckleheads wouldn't accept Microsoft's technical leadership the way the PC knuckleheads did, then Microsoft would just have to show them how it was done by becoming a competitor.

This was a big mistake.

Even Microsoft needs friends, but buying WebTV didn't make any. The first-generation WebTV products didn't sell well when they were introduced and didn't sell any better when Microsoft kept its licensees from introducing their second-generation boxes until after Christmas. The idea had been to milk sales and profits through Christmas from the old boxes, raising Microsoft's overall return on investment. The new boxes, which allow Web surfing and TV watching at the same time, were held until CES. With only old product to push, Christmas was not kind to WebTV or to licensees, such as Sony.

Meanwhile, Microsoft -- now a competitor in the hardware business -- was asking hardware vendors to adopt its Windows CE operating system for devices like cable TV boxes and network computers. But as always, Microsoft required a hefty license fee to keep its profit margins high. In the consumer electronics business, you usually won't even find an operating system, and if there is one, the license fee is generally measured in pennies, not the dollars that Microsoft is used to. And the Microsoft software frankly isn't all that good. Why pay more for software that requires more powerful hardware to do the same work? There is no reason, so Windows CE is struggling. Last year, CableLabs, the technical standards organization for the cable TV industry, told Microsoft to take a hike, that CableLabs would control its own software standards. Last week, TCI, the largest cable TV company, licensed Sun's Java software for its cable boxes over strenuous Microsoft objections. Sure, TCI also announced that it had the option to use Windows CE, but they aren't required by the agreement to buy a single copy or pay a single dollar to Microsoft. The announcement was pure face-saving for Microsoft and rear-covering for TCI, in case its Java strategy doesn't work out.

A lot of this had to do with WebTV. Hardware makers and especially chip makers felt betrayed by Microsoft's decision to become a competitor, so they simply stopped playing along. The result of this taking-off-of-gloves was what I saw over and over again in those secret hotel suites.

Working within the constraints of those nondisclosure agreements I had to sign, here's what little I can say without binding my heirs to pizza delivery for all time. By next Christmas, we will be seeing products for sale from many different manufacturers that add WebTV-type functionality FOR FREE to things we would be eager to buy anyway without the WebTV-like features. If you were planning to buy some sexy new piece of electronics gear and it just so happened that the device included the ability to function as a Web browser, too, and having that browser functionality cost no more than not having it, would you also shell out $200+ for a WebTV? Of course not.

Game, set, and match. WebTV is a sexy name, but hardly worth $425 million.

And speaking of people who have received LOTS more money than they deserve, pornographer Larry Flynt begins his Internet radio career next Monday. Larry will be bringing his Freedom Radio Network (http://www.freedomradio.com/) to the air. This RealAudio call-in, log-in, e-mail-in talkshow, which threatens to be the raunch of a full-blown network, is yet another bozo taking advantage of the Internet's total freedom of expression. Flynt, who could certainly afford a real radio show if he wanted one, says he's going online because the FCC won't make an effort to censor him there. Or at least that's the story. With kickoff guests including Ariana Huffington and Bill Maher, it ought to be interesting. The fact that I even know about this weird event is because Larry and I share the same publicist. Now THAT's scary!!