Motorola Dials Microsoft

The story is that Motorola (NYSE: MOT) will be playing the field with its upcoming music phones, unveiling two or three other phones designed to play the Windows Media file format from Microsoft. That means, by some estimates, that it is spurning Apple. If you need to play catch-up, recall that Motorola has previously released phones that play Apple's iTunes.

Is this really another Microsoft-Apple showdown on the digital music frontier? Please. It's more like a five-man cage match with all the handset makers brawling among themselves. The undisputed champ, Apple, stands nearby, able to lay down a first-class beating any time it wants, and Microsoft -- well it just collects ticket money on the sidelines.

Allow me to explain.

The new news here is that there will be an increasing number of phones and providers that will allow Windows-formatted music downloads over the wireless network, as well as from a linked home PC. Wireless providers hope that this will make music phones more attractive, but at double the price ($1.99 per tune, from what I've seen), I'll need to see it before I believe it.

But even this isn't much of a scoop. Nokia (NYSE: NOK) announced last year that it would build phones capable of playing Windows media files under such a scheme.

As far as the Motorola-Microsoft relationship goes, keep in mind that Motorola has been making phones with Windows Mobile OS for a while, such as the i930, available from Sprint Nextel (NYSE: S) or the MPx220, from AT&T's (NYSE: T) Cingular. As other handset makers incorporate the latest version of the Windows Mobile OS, all users really need to listen to tunes on these devices is a headphone jack and a chunk of memory.

In fact, phones capable of playing music files have been around for a while. These include past Palm OS offerings from Palm (Nasdaq: PALM), as well as its newer Treo. The Windows Mobile OS -- on that machine and others -- contains a portable version of Media Player software that synchs the devices with the desktop version.

This is part of Microsoft's strategy, which I liken to an oil blot that sort of oozes across the landscape until it's pretty much everywhere. By providing just the underlying OS for portables, and the file format, Microsoft hopes to spread into these markets, irrespective of the eventual winners on the provider and hardware level.

The wild card here is consumer preference. So far, these converged devices don't seem to be flying off the shelves -- at least not compared to the iPod. The fussier interface inherent in phone designs like the Motorola ROKR has already proven to be an also-ran, and I really doubt that the even funkier interfaces necessitated by the program-within-OS model can compete.

That will mean a tough road for handset makers and service providers. By situating their businesses outside this scrap, Apple and Microsoft are positioned to do just fine either way.

Philip Durell looks for undervalued oil spots every month in Motley Fool Inside Value . A free trial is available.

Seth Jayson is holding out for the next generation of converged devices. At the time of publication, he had shares of Microsoft, but no positions in any other company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.