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Microsoft Vies for Maturing Markets In Battle for Technological Supremacy

By John Markoff


Microsoft’s interest in making its own hand-held music and video player, disclosed by entertainment industry executives this week, indicates that its old way of doing things is not working in its battle against Apple Computer’s iPod.

In the PC market, its bread and butter, Microsoft has depended on hundreds of large and small computer makers that have built desktop and laptop computers running its Windows operating system.

But in some areas, Microsoft has been moving toward a go-it-alone strategy. The models here are Apple Computer’s Macintosh and iPod businesses, which combine hardware, software and online services in a user-friendly package.

Microsoft competes against Nintendo and Sony with its Xbox video game console, for which it designed the computer chips with IBM and tightly controls software distribution. And in the market for cell phone handsets, three of the four major carriers now carry phones labeled with the Microsoft Pocket PC and Smart Phone brands.

The shift, analysts said, is being driven by Microsoft’s need to grab a share of markets that could grow more quickly than the PC industry, which is maturing.

“Digital media is too important to abdicate the market to Apple,” said Phil Leigh, president of Inside Digital Media, a market research firm in Tampa, Fla.

Entertainment industry executives who were briefed on the Microsoft music and video player said this week that the device was equipped with a wireless Internet connection and an advanced display screen, and that the company planned to release it before the holiday season, along with an online store.

Richard Doherty, president of Envisioneering, a consumer electronics consulting firm based in Seaford, N.Y., said he had talked to several major retailers of consumer electronics in recent weeks and that Microsoft had not yet briefed them on its plans, leaving open the possibility that the company had not made a final decision to introduce its own player.

But one music industry executive said his company was told that Microsoft had made a large financial commitment to market a player this year. A senior TV network executive said that Microsoft had talked to the networks about selling their programming through the online store, but that “no deals are in place.”

Introducing a player would be a distinct gamble, analysts said, fueled by the company’s inability to make a dent in Apple’s domination of the digital audio market with its combination of the iPod and the iTunes Music Store.

One major risk is that makers of digital music players that now use Microsoft software might feel that they faced a disadvantage if Microsoft’s player were more directly integrated with a Microsoft music service and offered exclusive features.