Over the weekend, Barron's Tech Trader column was dedicated to the growing speculation that Microsoft's (NASDAQ:MSFT) next move would be to enter the digital music player business.
The reasoning does have its flaws. Yes, the company announced that it was teaming up with MTV to roll out a new online music subscription service last week but none of the subscription service providers like Napster (NASDAQ:NAPS), RealNetworks (NASDAQ:RNWK), or Yahoo! (NASDAQ:YHOO) is a player on the hardware side. Yes, Microsoft is in the process of consolidating its consumer business and its Xbox 360 design team may have time on its hands, but that doesn't mean that Apple Computer (NASDAQ:AAPL) needs to begin chewing away at its nails over a potential iPod killer.
The hope here is that Microsoft can take advantage of its Xbox 360 popularity among the digital youth as a way to make its media playing devices stand out. Until the Xbox made the software giant the country's second-largest console maker, Microsoft seemed to have the personality of a shrink-wrapped corkboard.
Now, just as Apple managed to use the halo effect of iPod's success to win back market share in its once-fading personal computer business, the rumored scuttlebutt indicates that Microsoft is hoping for a halo effect with its Xbox 360 to enter other consumer electronics markets. Yes, Microsoft is the company behind the Halo video game series, but let's not be so quick to hand out halos here.
Let's not forget about Sony (NYSE:SNE). Its PlayStation platform has a much larger audience than the Xbox. Sony is no stranger to media-playing hardware. Sony Walkman anyone? However, ask your kid whether he wants a Sony Bean portable MP3 player over an iPod and you're going to get some pretty strange looks. Sony even owns one of the big four music labels, and those connections still didn't let it pose any kind of threat to Apple.
Then again, as the Xbox has showed us, Microsoft doesn't have to be the top dog to matter. Thanks to its association with Viacom (NYSE:VIA) on URGE, Microsoft will also have access to those music fans tuning in to MTV, VH1, and CMT.
Taking a bit out of Apple's pride isn't just about mattering in digital music. If the recent Inside Value recommendation is able to produce a hot alternative, Apple's halo effect may lose some of that glow, and that would certainly be good for Microsoft's flagship software business. After all, Microsoft does sell application software for Macs, but it clearly doesn't control the operating system.
It's why Microsoft has every reason to give it an old-fashioned college try here. Then again, going by Apple's gargantuan lead and the inability of others to make a dent in the iPod fortress, that college try may quickly crumble to little more than a frat-house kegger.
Microsoft is a Motley Fool Inside Value recommendation.
Longtime Fool contributor Rick Munarriz wonders whether Bohemians dig Rhapsody. He does not own shares in any of the companies mentioned in this story. He is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks a day early.
