Jay Greene at BusinessWeek Online:
After getting trounced for four years in the digital music business by Apple Computer (AAPL), Microsoft (MSFT) finally seems poised to do something about it. BusinessWeek has learned that the software giant is working on plans to develop its own portable digital media device to rival the iPod, rather than just providing technology to partners. Microsoft hasn’t decided if it will go ahead. But sources inside the company and at its partners say Microsoft has put together a team that’s considering the business end of such an initiative.
Going forward with it would be an acknowledgement that the current strategy isn’t working. Chairman William H. Gates III has argued that consumers would prefer a vast choice of devices to the limited selection from Apple. That’s why Microsoft has relied on dozens of partners to come up with sleek devices and clever online-music services that use its software.
More by following the link including Xbox VP Peter Moore’s comment that it should be a portable gaming device as well as a music player (Xpod?), and Creative Technology’s CEO Sim Wong Hoo’s observation that such a move would undercut Microsoft’s efforts to get widespread use of their digital media technology.
Microsoft’s reliance on hardware partners in the PC space has kept them out of the notoriously low margin side of the business while still allowing them extensive control of hardware specifications across the industry. The Microsoft forays into PC related hardware have always seemed to be to fill gaps that partners weren’t covering and then were promptly followed by withdrawals as the market matured (e.g. Wi-Fi networking). The only one remaining is the longtime operation making keyboards, mice, and game controllers.
The Xbox is a different animal, of course, and perhaps a different model applies to portable music players as well. Steve Jobs thinks so:
The problem is, the PC model doesn’t work in the consumer electronics industry, where you’ve got all these companies and some does one thing and another does another thing. It just doesn’t work. What’s going to happen is that Microsoft is going to have to get into the hardware business of making MP3 players. This year. X-player, or whatever.
In any case, the story gets a sort of left handed confirmation from a Microsoft spokesman
A spokeswoman for the company called the BusinessWeek story “speculation,” but confirmed that Microsoft was considering its own music player, along with many other projects stemming from a major reorganization announced last year.