Swan song for Microsoft's music allies? By Ina Fried http://news.com.com/Swan+song+for+Microsofts+music+allies/2100-1041_3-6097935.html
Story last modified Tue Jul 25 08:23:54 PDT 2006 Microsoft's Zune player is designed to be a counterpunch to the iPod, but it could deliver a sharper blow to some of the company's longtime partners. For years, Microsoft has been trying to combat Apple Computer's music system by offering a technology that can be used on an array of devices and be mutually compatible with several subscription and pay-per-download sites. Now, however, the software maker is singing another tune. Confirming months of speculation, the software maker said Friday that it plans to enter the market with its own Zune-branded music player and software. It leaves one question up in the air, however: Just how much attention will now go to Microsoft's PlaysForSure program, which promotes the broad range of services and players that use its Windows Media technology? Microsoft says it is not abandoning that 2-year-old effort. But it has not said whether its new player will support outside music services that use the Windows Media format, or whether any Zune service will work on outside players. On top of that, it has certainly not played up compatibility in what it has to say about Zune. "Any experience, whether it is device (or) service (or) software, will be tightly integrated," a Microsoft representative told CNET News.com. Company executives have indicated dissatisfaction with the experience provided by existing players and services, as well as with the market impact those products have had. "We do need a more consistent experience," Microsoft CEO Steve Ballmer said in a January interview. "That doesn't mean it's bad to have a variety of devices. I think that's great. But there are some things we need to make sure are more consistently delivered across the portable devices." But speculation is rampant about how good its upcoming Zune device will really be. Not all the blame can be leveled at hardware makers and service providers, according to IDC analyst Susan Kevorkian. "Finger-pointing can go both ways in this kind of a situation," she said. Regardless of who is to blame, some analysts have said the arrival of Zune signals an end to the company's broad-based partner approach. "Even though Microsoft still talks about the diversity of the Windows platform as an overall advantage, let's face it: The platform argument is dead, and licensees will have to deal with it," JupiterResearch analyst Michael Gartenberg said on his blog Friday. Microsoft denies things are so black-and-white. The software maker said it will continue to promote other products that have Windows Media technology at their core. "As a company, we remain committed to the strategy," a Microsoft representative said on Monday. "There's room for both kinds of approaches." PlaysForSure devices Device maker iRiver said it is not convinced that having to compete with its technology partner will be a bad thing. Jonathan Sasse, iRiver America's chief executive, said all of Apple's investment in recent years has created a huge market for such devices, even if rivals have grabbed only a fraction of that opportunity. "The entire industry grew," Sasse said in a telephone interview. "It's not unreasonable that we might see something similar." Sasse said that he would be more concerned if Microsoft seemed like it was going to create a $200 player that offered little different from today's devices, but had a ton of marketing behind it. Microsoft has only talked about one device for the holiday season. It also said that the device will have built-in wireless technology--and wireless is not something that iRiver offers today or was counting on for the holidays. "I don't really expect a broad product-lineup to be coming out on day one," Sasse said of Microsoft's launch. That said, whatever Microsoft's first product is, Sasse said it is liable to compete directly with an existing device. "I imagine they are going to land squarely on somebody," he said. SanDisk, meanwhile, said Microsoft may alienate consumers by too closely imitating Apple's closed approach--that is, by making the Zune player and service work only with one another. "Based on what they have publicly said, we believe that Microsoft will mimic Apple's proprietary closed-system solution, SanDisk CEO Eli Harari said Monday on the company's earnings conference call. If so, that could allow SanDisk's Sansa player, among other devices, to succeed with a more open approach, particularly at the low-end of the market. "The partnerships that we are developing with the various music services will become more visible in the coming quarters and will further enhance the Sansa user experience," he said. The move does represent a new direction for Microsoft, which has historically left the hardware business to its partners, with the Xbox game console being the primary exception. The company has been working for months to integrate MTV Networks' Urge subscription music service into Windows Media Player 11, which will be built into Windows Vista and will be available for download for Windows XP. The company released a test version of Windows Media Player 11 in May. Microsoft's decision to create its own player and software follows a long effort by the company to tackle the iPod without entering the market with its own device. After finding that the software and devices using its technology were not working well together, Microsoft in 2004 devised its PlaysForSure program, which aimed to indicate, using labels, which products worked with its music technology. But the branding effort was not as successful as hoped: Confusion remained over which players worked with subscription services, among other concerns. Microsoft has since revamped the program to be more clear. The company has also put its focus on promoting a few players and the Urge service more heavily. IDC's Kevorkian said it's not as if Microsoft's partners haven't gotten the wholehearted support of the Windows Media team. The Zune service comes out of the Xbox side of the company and has been developed largely in parallel with the PlaysForSure products. "What this likely speaks to is different strategies being worked out within the ranks of Microsoft," she said. But, Kevorkian said, the arrival of Zune is an indication the PlaysForSure effort had not managed to compete well against the iPod. "It hasn't fully realized its potential," she said. "Now that Microsoft's attention may be focused on building its own device and service, it remains to be seen where PlaysForSure goes, if anywhere." Even for Microsoft, maintaining a dual approach could be tough. "Operationally, that's really complex," said Gartner analyst Michael McGuire. One of the questions, though, is whether Microsoft wants to stay in the hardware business in the long term, or if it would consider getting out of it at some point. "Is that a skill set they want to have forever, or is this a short-term necessity?" McGuire wondered. If it is the latter, there could be a new opportunity for the hardware makers. Sasse, for one, seemed open to that. He noted that iRiver was already a licensee of Microsoft's portable-media center design. "It has been a model that worked," he said. 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