I believe that digital distribution is the future. Microsoft (NASDAQ:MSFT) agrees. And no, it's not just for movies, music, and games anymore.

Just the facts, ma'am
Mr. Softy's new application store is not a mobile marketplace in the image of Apple's (NASDAQ:AAPL) iPhone app store and Google's (NASDAQ:GOOG) Android version. It looks like Windows Mobile will get its Skymarket sometime next year. No, the new shopping outlet is a regular browser-based e-business that sells hardware and software for PCs, Xboxes, and Zune players. Wait -- I thought we already had a plethora of those?

What does Microsoft's in-house store offer that the online stores of Best Buy (NYSE:BBY), Amazon (NASDAQ:AMZN), and Wal-Mart (NYSE:WMT) can't match? First, let's ask Microsoft.

"Microsoft Store is really about making that direct connection with the customers, and then making it a great experience from start to finish," says Larry Engel, the general manager of Microsoft's online store and marketplaces. "For the first time, customers will have one place to find and purchase everything from Microsoft, rather than seeing just a list of products."

Meet the new boss … different from the old boss
Sounds great, but it really isn't too different from existing e-retailers who have been running Microsoft-centric store-in-a-store environments for years. Many of them also sell the same stuff much cheaper at times than Microsoft's suggested retail price, which is the official pricing policy at the new app store. Nope, all-in-one shopping is not the ticket.

I think that the biggest advantage Microsoft holds is the ability to sell by direct download rather than being forced to ship physical media for every purchase. These are the guys who create and manage license keys for all Microsoft products, so it's easy to run a completely digital operation where the left hand of licensing has a direct line to the right hand of retail.

I think this is the same magic bullet that may eventually kill physical DVDs and CDs: an all-digital pipeline straight to your PC or entertainment center, either backed by true-blue license keys from the maker of each product, or released in the wild with no DRM at all.

Clearing the path
Apple is a veteran of fully licensed music distribution, and a relative newcomer in restriction-free music downloads along with Amazon. The movie guys are catching up, and privately held Valve has been selling games this way for several years. And open-source business software like Red Hat's (NYSE:RHT) Linux has mostly been online. A good amount of their big money comes from support contracts.

So now commercial software is jumping on the bandwagon in a big way. Microsoft isn't the first business-minded proponent of the download model, but it's the biggest duck in the entire pond. When Mr. Softy wiggles his feet, he makes huge waves. I expect the model to work, in spite of the massive competition. Then I expect other software houses to follow in Redmond's footsteps.

And then I expect physical media for software, entertainment, and information to die, little by little. By 2020, your grandkids will think that a Blu-ray disc is just a neat-looking Frisbee. Motley Fool co-founder David Gardner seems to agree, judging by the keiretsu of digital demons among his Stock Advisor picks. Just so you know.

Wal-Mart Stores, Microsoft, and Best Buy are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Best Buy, Amazon.com, and Apple are Motley Fool Stock Advisor recommendations. The Fool owns shares of Best Buy. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

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