Microsoft Sings a New Zune

As I write this, The Whites Stripes are in the background, singing about a doorbell, subtly reminding me that Microsoft (Nasdaq: MSFT  ) recently came calling on Apple's (Nasdaq: AAPL  ) digital hegemony. Last week, Mr. Softy confirmed plans for a line of portable music and video players before the end of the year.

The service is to be sold under the brand name "Zune," and will include hardware, software, and an online store, making it the Windows equivalent of the iPod and iTunes. It's also a dramatic departure from earlier efforts, back when Mr. Softy planned to be an arms supplier to other digital storeowners. But the niche players have produced no noticeable incursion into the Mac maker's digital entertainment empire.

If anything, it seems to be expanding. Apple sold 8.1 million iPods in its latest quarter, up 32% from the year prior. The iconic device also accounted for 34% of total revenue, up three percentage points from last year's third quarter.

Enter Zune. Like the iPod and iTunes, it will be a comprehensive service, which could prove threatening to the millions who have bought the iPod for use with Windows computers. And I do mean millions. This exceedingly interesting iPod timeline at Blogcritics.org points out that 13 million iTunes songs were sold to Mac users before the music store was extended to embrace Windows in October of 2003. Today, more than a billion tracks have been downloaded from iTunes. That suggests Windows users are responsible for at least a plurality of the 58 million iPods in use today.

And they may be craving a better experience. After all, the Windows version of iTunes doesn't exactly earn top marks. Meanwhile, The Wall Street Journal reports that Zune will include Wi-Fi for streaming music and videos from the Internet -- a feature that existing versions of the iPod lack. Plus, the brain behind Microsoft's successful Xbox game console, Robbie Bach, is heading up the project.

Maybe I'm being alarmist, but as an Apple shareholder (I hold 2008 call options), I'd prefer the Mac maker lock the door to the digital entertainment market while it still has a key. Once inside, Mr. Softy has been
known to overcome long odds. Don't give him that chance, Steve. Instead, offer Hollywood whatever it needs to brush Zune aside for movie downloads. Then get to working on an iPhone, or a wireless iPod movie player, or whatever it is you have up your sleeve. Just be sure to inject a heavy dose of that crazy cool design that had us drooling over the iPod in the first place, because that's the magic the Redmond giant has never been able to duplicate, and probably never will.

Microsoft is a Motley Fool Inside Value selection. Ask us for anall-access passto the service and you'll be privy to chief advisor Philip Durell's best picks, which collectively are beating the market by nearly 2%. You'll also receive instructive lessons on valuation and company analysis. Give Inside Value a try; it's free for 30 days.

Fool contributor Tim Beyers owns LEAP options in Apple, and a new MacBook Pro, which he occasionally uses to run Windows. You can find out what else is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.


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