The high stakes behind Microsoft's 'iPod killer'

14.07.2006
Widespread reports claim Microsoft will release a digital media player to compete against Apple's iPod. The stories received the lightest of denials from Microsoft, which said only the obvious: The reports are speculation and rumors.

While most reports positioned this development as the start of competition between Microsoft and Apple in the audio player space, the two companies already are, in fact, competing bitterly -- if quietly. And the stakes are potentially huge, extending well beyond music players and music download services.

"Microsoft is not interested in entering the digital audio player market per se," noted Ross Rubin, director of industry analysis for market research firm NPD Group. "It's all part of a broader battle."

Apple's wildly popular iPod is, by far, the leading media player, with market share still above 76 percent, NPD recently reported. The iPod, along with the iTunes music service, has played a pivotal role in increasing Apple's profits and some analysts give the glow created by these products credit for Apple's recent modest increase in desktop market share.

However, Microsoft developed the digital rights management (DRM) software, which it dubbed PlaysForSure, that is behind the subscription music services offered by vendors such as Rhapsody, Napster, Virgin Digital and Yahoo. These services, which compete directly against iTunes, enable users to pay a flat monthly rate -- typically between US$10 and $15 -- to download virtually all the music they want for playback on their PCs and audio players. Subscribers can play that music as long as they pay the monthly fee. This option to "rent" music isn't offered by iTunes, which requires users to purchase the music for 99 cents a song or ten bucks an album.

Perhaps not surprisingly, iPods don't work with PlaysForSure subscription services; using those services requires a media player from vendors such as SanDisk, Creative, iRiver and Archos. And those PlaysForSure devices don't work with iTunes.