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Selling a New Digital Tune

Microsoft, in a business strategy shift, will enter new territory with the launch of its own music player and service under the Zune brand.

July 24, 2006|Dawn C. Chmielewski | Times Staff Writer

Microsoft Corp. faces major challenges as it readies a portable music player and service to take on Apple Computer Inc.'s popular iPod, analysts said Sunday.

The device, the first of a family of hardware and software products under the new Zune brand, is expected to ship by year's end and represents a fundamental shift for the Redmond, Wash.-based software giant.

"Microsoft wants to basically build an exact equivalent to Apple and thinks they have the marketing and design pizazz to pull it off, which strikes me as incredibly unlikely and hubristic," Aram Sinnreich of Radar Research said.

Apple has claimed about 70% of the digital music market by seamlessly tying its iPod music player to its iTunes software and online store, making it easy for music fans to buy songs, organize them into playlists and transfer them to the portable device.

Until now, Microsoft has created the underlying technology on which other portable devices and services operate. But it has been unable to gain ground in the digital music marketplace by following this time-honored strategy of making the software that enables other companies to design portable players and services.

Microsoft has launched two major initiatives in recent years to find its mojo in digital music, with mixed results.

Music players bearing its PlaysForSure logo -- designed to assure consumers that devices that use Windows software would work just as effortlessly with rival services such as Napster or AOL Music Now -- didn't always live up to that promise.

And MTV Networks' digital music service, Urge, launched this spring as part of Microsoft's new Windows Media Player 11, has met with tepid reviews.

This time, Microsoft elected to follow the strategy it pursued when it launched the Xbox video game console to challenge the established leader, the Sony PlayStation 2.

As it did then, it will create products under a separate, hipper brand and control all facets of the experience -- including designing the hardware and creating the service.

"Under the Zune brand, we will deliver a family of hardware and software products, the first of which will be available this year," said Chris Stephenson, general manager of marketing at Microsoft, in a statement. "We see a great opportunity to bring together technology and community to allow consumers to explore and discover music together."

Analysts say Microsoft's willingness to compete with device makers such as Creative Technology Ltd. or Iriver Inc., which license its software, demonstrates that the stakes are high.

"It's huge," said Michael Gartenberg, analyst for Jupiter Research. "This is typically not Microsoft's business model.... Even in the times when they felt they needed to take their destiny into their own hands, so to speak, it was never in the sense of having to compete directly with their partners."

Steven Vonder Haar, research director at consulting firm Interactive Media Strategies, said Microsoft might have been reluctant to design a soup-to-nuts digital music offering because of previous entanglements with antitrust regulators.

"Conscious of antitrust issues, Microsoft always has to be careful about taking the obvious step too early," he said. "So, it's not that [Apple's] Steve Jobs is the only brilliant mind in the technology industry to come up with this idea, it's that if Microsoft would have done this three years ago, they would have been lampooned and chastised as the big, bad, evil giant."

The announcement was no surprise to the music industry, in which discussions have been taking place for months.

Music industry sources, who spoke on condition of anonymity because of the sensitivity of continuing talks with Microsoft, said the new music player would have a WiFi wireless networking component that would enable people to share their playlists and individual songs.

It would also combine elements of a subscription service, in which people pay a monthly fee for unlimited access to music, with the ability to buy specific tracks, sources said. Billboard magazine was the first to confirm speculation about Microsoft's new music player.

Gartenberg said Microsoft would need to create hardware and software that matched the no-hassles Apple experience.

The tougher challenge, he said, will be to make a product with the same cachet.

"People are very happy with their iPods," Gartenberg said. "It's not like there are thousands of disgruntled iPod owners waiting for something else to come along."

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