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Microsoft to rival iPod with Zune

Pat Baudisch, a researcher with Microsoft Research, plays with a ``Soap'' prototype handheld computer pointing device that doesn't require a flat surface during a demonstration of possible future Microsoft Corp products in Redmond, Washington, on Tuesday. Microsoft has confirmed that it is working on music and entertainment products that are expected to compete with Apple Computer Inc's popular iPod and iTunes music service. PHOTO: AP

Microsoft Corp said it is building a music player to challenge Apple Computer Inc's iPod, confirming months of speculation that the world's largest software maker was preparing to enter the US$4 billion market.

The first products go on sale this year and are being developed under the code name Zune, Redmond, Washington-based Microsoft said in an e-mailed statement yesterday from General Manager Chris Stephenson. A service will rival Apple's iTunes.

Microsoft is aiming to dent Apple's 77 percent share of the US market for digital music players with a product that will offer the Wi-Fi wireless Internet connection the iPod lacks. Apple's popularity among consumers and deep catalog of content make it an uphill climb.

"It will take an awful lot for Microsoft to dislodge an entrenched competitor like Apple," said Michael Gartenberg, an analyst with Jupiter Research in New York.

"Given Apple's history with iPod, it's not like they're going to sit back while Microsoft enters the market," he said.

Microsoft's statement, sent by spokeswoman Sally Julien, provided no additional description of the products. Julien declined to comment further or to make a Microsoft official available. Apple said it had no comment, according to spokeswoman Natalie Kerris.

The Wi-Fi connection will let users share some content between devices, said Jeff Kempler, executive vice president of Virgin Records America, a label owned by London-based EMI Group Plc, in an interview. Kempler saw a slide show about the device and hasn't seen a demonstration.

"Wi-Fi capability is incredibly positive," said George White, a senior vice president at New York-based Warner Music Group, said in an interview.

"It's something we've always wanted to see -- ways to legally share music to get people to purchase it," he said.

White met with Microsoft three weeks ago to discuss licensing Warner's music.

Virgin has been in "productive conversations" with Microsoft about licensing its music and has talked with the company about making artists available to promote and advertise the device, Kempler said.

Microsoft is planning a large marketing campaign, comparable in size to the US$500 million spent to release the Xbox 360 video game console last year, Billboard magazine wrote, citing an interview with Microsoft's Stephenson.

Microsoft is abandoning a six-year strategy of relying on partners who build devices based on Microsoft's Windows Media software. None of the partners, including Sandisk Corp, Creative Technology Ltd, Toshiba Corp, Samsung Electronics Co, Napster Inc and RealNetworks Inc, have even a 10 percent share of the market.
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