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Can Microsoft's Xbox Music Beat Pandora and iTunes?

By Chris Neiger - Sep 9, 2013 at 7:08PM

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The company just went all in with its new Xbox Music apps for Android and iOS, but taking on Apple and Pandora could prove embarrassing for Microsoft.

Over the weekend, Microsoft (MSFT 0.06%) launched iOS and Android apps for its Xbox Music streaming service, and it added free unlimited streaming for Web users to boot.

Microsoft hopes users will stream, discover, and download music from its service, but with Apple (AAPL 1.33%) and Pandora (P) already dominating downloads and streaming, the Windows maker may be out of its league.

Xbox Music. Source: Microsoft.

Battling Pandora's growth
Pandora is one of the world's leading Internet radio services, boasting 1.35 billion hours of listening just last month. That's right -- more than 1 billion hours streamed in just one month. That figure is up about 16% from the same time last year.

And it's not just listening hours. Active Pandora listeners totaled 72.1 million last month, up 28% year over year, and its share of U.S. radio listening increased to 7.46% from 6.3% year over year.

In blog post, the Microsoft said it created Xbox Music a year ago to provide "an all-in-one music service that gives you the independence to stream music for free, subscribe to all the music you want, or download to own your favorite songs. And it's all integrated across your tablet, PC, phone, and TV."

Why is this ambition bad for Microsoft? The company simply doesn't have enough mobile mindshare to woo users to its streaming service.

Streaming against the tide
Windows tablets made up just 4.5% of all tablet market share in the second quarter of 2013, and Microsoft's own Surface tablets accounted for only 15% of that figure. Meanwhile, the Windows Phone OS holds 3.7% of smartphone OS market share. With Microsoft's low mobile OS penetration, it's going to be difficult to convince mobile users that they should look to Xbox Music for all their mobile music needs.

If that weren't enough, Apple will officially launch its iTunes Radio service with the new iOS 7 tomorrow. The new service will bring Apple squarely into music streaming, which adds to its already dominant position in downloadable music. Although Apple changed the digital music world with iTunes and the iPod about a decade ago, the company is nowhere near a sure bet in the streaming space, when pitted against Pandora and Spotify. Consequently, Microsoft can expect an even harder time.

iTunes Radio. Source: Apple. 

Microsoft is trying to capitalize on the Xbox reputation with Xbox Music, and with good reason. Xbox has been a shining star in the dim universe of Microsoft's product releases as of late. But despite the company's push into mobile music streaming, investors should be realistic about Microsoft's potential in the market. Taking on Apple, Pandora and Spotify clearly won't be an easy task, and it doesn't help that consumers fail to see Microsoft as a top mobile contender.

Investors should keep a close eye on how fast the Redmond company can grow Xbox Music subscribers and then compare that to iTunes Radio subscribers, when the figures become available. If the new Xbox One comes with a free subscription to Xbox Music, and sells millions of devices, then the company may be able to jump start the service with the console. But giving away free subscriptions is much easier than getting people to pay a monthly subscription fee -- and right now I can't see why users would want to pay Microsoft over Pandora, or even Apple.

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple and Pandora Media and owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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