Microsoft's Strategy: Be Apple

Here we go again.

Tuesday, Microsoft (Nasdaq: MSFT  ) announced a strategy of bringing digital entertainment to users in the home, at the office, or on the go. The centerpiece of the strategy is Microsoft's Windows-powered Media PC, which allows for managing music, photos, movies, and recorded and live television via a desktop or portable computer.

Oh, and in building on the portable ploy first announced in July, Mr. Softy also said it had rolled out the first official U.S. release of its MSN Music Service as well as new music players compatible with its Windows Media Player 10. The list includes devices from Creative Technology (Nasdaq: CREAF  ) , Samsung, and iRiver. Samsung also introduced the Microsoft-powered YH-999, which is capable of taking recorded TV, music, videos, and the like on the road.

You'll pardon my skepticism if we've heard much of this before. Like maybe from -- oh, I don't know -- Apple (Nasdaq: AAPL  ) . Check out this write-up at the Apple website that outlines the company's strategy to make the Mac a "digital hub." Look closely and you'll notice that the story is from 2002. Since then, Apple has rolled out a megahit in the iPod and bundled its various digital entertainment software into a suite called iLife that now includes a tool for budding composers called GarageBand.

The only real difference is that Apple hasn't decided it wants to take on Motley Fool Stock Advisor pick TiVo (Nasdaq: TIVO  ) in managing your television.

Yet, if anything, Microsoft's move should scare the heck out of Apple investors. I mean, we've been here before, right? Microsoft was way behind Netscape in Web browsers and went on to nearly drive the company out of business and into the waiting arms of Time Warner (NYSE: TWX  ) unit AOL, which acquired it on the cheap. And everyone knows the story of the Mac OS and Windows.

Microsoft clearly wants to be better than Apple at, well, being Apple. What's scary is that Mr. Softy has the resources to do it. Microsoft's 2004 research and development budget was $7.7 billion. Apple's was $489 million. Yeesh.

Since we've been down this path before, Apple investors can only hope that CEO Steve Jobs has prepared his company better this time. Right now, it seems so. The iPod digital music player is close to establishing itself as a cultural icon, the iTunes music store is still far and away the leader with 70% of the market for legal music downloads, and Apple is growing sales hand over fist while also earning more moolah for each dollar of sales.

Still, no one knows how to "embrace and extend" someone else's innovation like the Microsofties. I wouldn't bet against them.

For more Foolish views on digital entertainment:

What do you think? Can Apple fend off Microsoft's full frontal assault on the digital entertainment market? Is Microsoft too constrained by Windows to really do any major damage to Apple? Debate all this and more at the Apple and Microsoft discussion boards. Only at Fool.com.

Fool contributor Tim Beyers is the rare Mac user who thinks Microsoft makes pretty darn good software. Tim owns no shares in any company mentioned, and you can view his Fool profile and stock holdings here.


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