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By Seb Janacek, 4 August 2006 10:50

COMMENT

Seb Janacek gets nostalgic for another head-to-head between Redmond and Cupertino, this time to determine who will rule the digital music world.

Microsoft's announcement two weeks ago that it will be taking on Apple in the music downloads and MP3 player market was no great surprise - the rumours had been doing the rounds for months - but it represents Apple's most serious threat yet to protecting the iPod hegemony.

It seems that after trying to compete with the iPod for years through its hardware partners via its Windows Media digital rights technology and the Windows Media Player software, Microsoft - the undisputed world champion of populist repackaging or shameless rip-offs, depending on your ideological position - will jump into the market itself and go head-to-head with an old rival.

Microsoft executives said the company was committed to launching "a family of hardware and software products" - a vertically integrated solution, like that offered by iPod and iTunes - later this year.

Furthermore, reports that Zune will feature wi-fi connectivity appear to be credible, with the Seattle giant promising it will help users "explore and discover music together" and build communities by connecting with other users.

The company has also hinted that the Zune could fit into its wider strategy for consumer entertainment with users being able to benefit from cross-device portability for media.

Finally, it was also reported that Microsoft would allow users who had bought tracks from iTunes to completely replace their purchased music libraries with free replacement tracks from its own catalogue - something only Microsoft with its vast reserves of cash could realistically do.

Get more on Zune...

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My first thought about the rumoured Microsoft MP3 player was: "I bet it will have a lot of buttons." But possibly not. Photos circulating on the web which claim to be an early version of the player show a white plastic encasement, with a large screen dominating the top half and a track wheel in the lower half. Sound familiar?

Of course, the Mac faithful will scoff and tell you that whatever Apple does well Microsoft will copy and in this case it seems difficult to argue - if the photos are genuine. Even if they aren't it's not difficult to draw parallels between the two business models.

It's significant that several of the Zune's key features - wi-fi being the most obvious - are those the iPod currently doesn't offer.

It's unlikely that Zune is purely vapourware, though it might prove to be a trial balloon to test the market for interest in an iPod/iTunes alternative. It also seems unlikely it will ship this year as promised, even setting aside Microsoft's poor record in shipping products on time.

One would expect profitability would be nothing more than a pipedream for Zune. The Xbox, despite its success grabbing significant market share in the competitive games console market, has yet to break even - let alone post a healthy profit to complement its heady market position.

Ominously for Apple and other incumbent players in the digital music arena, that games console market share (at least outside of Japan) is something Microsoft has achieved in a short space of time despite the presence of an established market for consoles.

There's no doubt Microsoft with its mind-boggling cash reserves and marketing muscle will pose a far more significant threat to Apple than Creative or RealNetworks.

However, it's arguable that Zune poses a bigger threat to Creative and RealNetworks than to Apple itself. Microsoft's debut in the market will put it into direct competition with its heretofore partners.

The burning question is what Zune means for Apple. Some serious competition, of course, which can't be a bad thing for the consumer or even Apple.

Apple has roundly beaten off the challenge from other hardware and music service competitors and in recent years the iPod brand has become as synonymous with portable music as the Walkman was in the 80s.

With around 60 million devices sold since 2001, it's on track to match Sony's portable cassette player in sales over the next five years or so.

The challenge for Apple will be to maintain its powerful lead and momentum in the market and focus on what the company and its advocates claim it has always done best - innovate.

It's been several months since the iPod had an upgrade and analysts are warning industry watchers not to expect new devices at the forthcoming developer conference next week.

What can we expect from the next generation of iPods? Reports claim Apple is readying a 'true' video iPod complete with touchscreen display, to tie in with its recent moves to increase the amount of video content available through the iTunes store and its imminent move into movie downloads.

Other reports (apparently supported by lines of code uncovered in the latest iPod firmware) that the much-touted Apple phone might be due to make an appearance indicate the company has realised just making iPods smaller and smaller won't be enough anymore.

It certainly won't be enough to deal with an aggressively priced and marketed rival product with a richer feature set and a competitor that doesn't need to concern itself with trifling things such as profitability, at least not in the short to mid-term.

The presence of an old archrival in a new guise will ensure Jobs, Ives and their legions of designers and marketers stay on their toes.

A battle between Apple and Microsoft for control of an entire vertically-integrated market? It's almost enough to make you feel nostalgic...