The operating system for IPTV, also known as middleware, is the heart of a service provider’s video offer. Middleware has had an interesting history within IPTV circles, especially among tier 3 IPTV providers. We’ve seen a few middleware options come and go, and news out of TelcoTV last week is Cisco has joined this cycle.

There’s been no formal confirmation of this from Cisco, but there was enough chatter from insiders to reveal that Cisco has pulled the plug on their middleware offering, which was a part of their IPTV Service Delivery Platform (ISDP). ISDP is Cisco’s attempt at a turnkey IPTV offering for service providers. It has many other elements besides middleware, many of which I assume will continue despite the middleware exit.

Cisco’s move is not surprising, given the challenge for middleware providers in North America. The issue boils down to segmentation, and who companies will target with their middleware platform. The IPTV market in North America is broken down into two distinct markets – 1) Tier 1 and 2 players like AT&T, CenturyLink, TDS, Telus, and others, and 2) everyone else, which include a sizeable number of small tier 3 providers. For all intents and purposes, Microsoft dominates the first category – tier 1 and 2 providers – with their Mediaroom product. That leaves the universe of everyone else to Microsoft’s middleware competitors, and while numerically there are many more tier 3 providers, when measured by actual subscribers, it comprises a much smaller market. Too small, some argue, to support the number of middleware providers chasing it.

A brief history. Early on in the IPTV lifecycle, middleware for tier 3 carriers was pretty much dominated by Myrio, which actually emerged from a scrappy little bunch out of Reno, Nevada called SourceNet. Myrio was purchased by Siemens back in April 2005 and is now a part of the Home Entertainment 3.0 platform from Nokia Siemens Network.

Myrio’s transitioning over the years opened the door to another middleware player, Minerva Networks, who currently stands as the market leader in the tier 3 IPTV space. Other middleware players on the fringe, including Ericsson, Conklin-Intracom, Innovative Systems, and Quative, among others (and until very recently Cisco), are fighting over whatever middleware scraps remain.

I suspect Cisco took a hard look at the reality of the market and decided it just wasn’t worth the effort – there’s simply not enough dollars out there to justify the R&D, sales and marketing, and other expenses needed to build and maintain a viable middleware product. At least not enough for a company like Cisco.

To make things even more interesting, Microsoft, which has pretty much written off the tier 3 market, is now elbowing its way in, primarily through resale partners like Motorola, Alcatel-Lucent, and now Cisco. Cisco will be attempting to transition their small middleware customer base over to Mediaroom, in a way that one insider tells me, “makes them whole.”

So the middleware saga continues. And not to throw a monkey wrench in its complicated state of affairs, but the next issue on the horizon to deal with is OTT video and its implications on middleware. New players like Google, Apple, and Boxee, among others will influence the direction of IPTV and the operating system that controls it for service providers. Is Google TV the latest iteration of middleware?