The device allows consumers to centrally store and share all their digital media including photos, home video and TV recordings.
The appliance runs an adapted version of Windows Server 2003 and uses Raid storage technology to provide high uptimes. Windows Server and Raid storage are typically deployed in enterprises rather than in consumer applications.
Microsoft chairman Bill Gates showed off the device during his CES opening keynote on Sunday.
"Windows Home Server is for homes where you've got multiple PCs or Xboxes in cases where you want to have your storage available at all times to the different devices," said Gates.
Microsoft worked closely with HP, which unveiled its HP MediaSmart Server running the new Microsoft software. The device is based on a reference design from chipmaker AMD. Intel also unveiled reference designs.
The first devices are scheduled to ship by the third quarter this year and will cost $500 to $1,000.
In addition to backing up and streaming digital music, photos and video throughout the home, a Windows Home Server device can automatically push fresh content to mobile devices every time they connect to the network.
It also allows parents to regulate the content that can be accessed on each computer on a network, and could be expanded to home automation tasks such as monitoring a security system or acting as a telephony control server.
As Windows Media Center Edition becomes more popular, consumers will find a need for a media server that backs up their assets, according to Rob Enderle, an independent industry analyst.
"Media Center Edition has one inherent flaw," Enderle told vnunet.com. "Little Johnny could be playing a game and catch a virus on the same systems where you store your digital photos and media."
Because Windows Home Server is set up as a bolted down server, users will only be allowed to access data. The software furthermore is much more robust than the consumer version of Windows XP.
For the device to become a true success, however, it will have to offer movie downloads as well, Enderle suggested. But movie studios are notorious for opposing download services as they fear it will spark further piracy.
Richard Shim, a senior analyst at IDC, warned that setting up the device and network will be a daunting task.
"Folks hire people to organise their closets. This home media server is your central closet for all your digital media content. That kind of stuff just doesn't fall into place," Shim told vnunet.com.
"This is not just a file server in the basement. It is a sophisticated piece of home technology."
Shim believes that the device will find limited appeal because of its complexity.
Gates also highlighted Sync, a technology developed with Ford that is based on Microsoft's automobile platform.
Sync offers hands-free calling and synchronises the vehicle's address book with a mobile phone. Content stored on mobile devices also can be played on the car's audio system.
Ford plans to make Sync available in 12 models by the second half of this year. It will have reached all cars by the end of 2009.
Although Gates did pay some attention to the forthcoming Windows Vista operating system in his keynote, entertainment took up the most time.
In another major unveiling, he said that the Xbox 360 will be expanded with support for internet television (IPTV).
Microsoft already markets special software to power set-top boxes dubbed Microsoft TV IPTV Edition which is used by providers including BT and AT&T.
The Xbox 360 application essentially turns the gaming device into a IPTV set-top box. It is expected to become available by the end of this year.
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