Mo' Music From Microsoft

It's finally happening. The Microsoft (NASDAQ:MSFT) steamroller is rolling out its long-predicted multinational music strategy. Yesterday, we learned that the firm -- in partnership with small tunes provider Loudeye (NASDAQ:LOUD) -- launched its downloadable music biz in eight new European markets, bringing its total presence across the pond to 17 nations.

The most immediate effect will be to rev up the mindless, Dodge-vs.-Chevy-vs.-Ford-type feud between the Apple (NASDAQ:AAPL) zealots, the RealNetworks (NASDAQ:RNWK) rabble, and all the others: Roxio (NASDAQ:ROXI), Virgin Group, etc.

Sigh. Such hostility over such a marginally profitable business. I would not be surprised to see iPods sporting stickers representing Calvin whizzing on Bill Gates.

What will Microsoft's growing presence in the music download field mean for investors? Probably very little, at least for the time being. As for Apple, the music business is just an accessory for the iPod anyway. And nothing will blunt the popularity of the iPod in the near future -- it's still the simplest and best MP3 player around.

But the future is less clear. Competing MP3 players have gotten smaller, better, support more file choices, feature longer battery life, and have greater capacity than the Mini. Apple's response so far has been to jump the shark with its expensive iPod Photo and bundled music edition featuring the signatures of aging non-hipsters U2. (One wag at Fool HQ to another: "What's next, a Depends edition?")

Similarly, Microsoft shareholders shouldn't hope for an immediate windfall. After all, MSN music is one of only a dozen competing download services, including Wal-Mart's (NYSE:WMT), accessible with a single click from Media Player 10. But therein lies the key. Microsoft's strategy is for the long term. It doesn't need to be hip. It doesn't need to make a splash. It doesn't even need to earn money, yet.

If Microsoft really cared about making a bundle now, it wouldn't bother directing customers to the competition, and it wouldn't let iTunes beat it on price in Europe. So, although Microsoft brass claims the download biz is currently profitable, it clearly looks at the service the same way it looks at the operating system it's providing for those clunky and ridiculous portable media centers. This is a loss leader, a way to build relationships and licensing deals that will pay off down the road.

This game has just begun, but here's a prediction for you: Microsoft is a long-term winner. It won't be long before multi-gigabyte flash chips are available to stuff into PDAs that will also be phones, cameras, game decks, and movie and MP3 players. In such an environment, hardware makers will go on cutting each others' throats, while software and service providers will collect enough pennies to make billions.

For related Foolishness:

• Microsoft is shareholder-friendly.
• Wanna bet it all on theiPod?
• Tim Beyers thinks Apple is a rule breaker.

At the time of publication, Seth Jayson had no position in any firm mentioned. View his Fool profile here.