Originally created 11/17/06

Microsoft will stick with Zune doggedly



SEATTLE - Few have accused Microsoft of being first to the market, but plenty have learned the hard way that the company can be very good at sneaking up from behind.

That's the tack Microsoft Corp. is hoping to take with entertainment. The software maker has invested years of effort and billions of dollars in entertainment endeavors ranging from television technology to video game consoles.

What's more, it has said that it's willing to spend much more money, and take much more time, to see if those investments pay off.

Its latest effort, the $249.99 Zune portable player and music service, which debuted Tuesday, mark one of the highest-profile attempts to take on Apple Computer Inc.'s iPod and iTunes powerhouse.

Analysts don't expect the early effort to make a serious dent in Apple's market share.

"It's not even going to give the iPod a bad headache for the time being," said analyst Michael Gartenberg, of Jupiter Research.

Still, Mr. Gartenberg says, Microsoft's competitors may have reason to be wary of what the company's deep pockets and dogged persistence could accomplish in years to come.

For Microsoft, which rakes in billions from its highly profitable Office business software and Windows operating system franchises, it may seem strange to put so much emphasis on digital entertainment businesses where profitability can be much trickier.

Analyst Toan Tran, of Morningstar, says the company could have little choice but to get into those businesses. That's because entertainment devices, which are now used for everything from storing photos to playing video games and watching movies, are increasingly encroaching into the turf Microsoft has tried to hold on to with the Windows operating system that powers most PCs today.

"Microsoft wants to get into the space because it's a very big market and the PC is not the center of the world anymore," Mr. Tran said.

Microsoft says it has grown interested in entertainment because technology now plays a bigger role in the way people do everything from watch television to listen to music. Robbie Bach, the president of Microsoft's entertainment and devices division, said that's a change that plays to Microsoft's strengths.

Still, Microsoft has yet to figure out how to make a lot of money at this new game.

While it has earned a following with the Xbox console and its online gameplay service, Xbox Live, the effort is still losing money. It could also take four years or more before the Zune effort is profitable. Overall, Microsoft's entertainment and devices division lost $96 million in the quarter ended Sept. 30.

The Zune launch also follows on the heels of another Microsoft-backed digital music effort, called PlaysForSure. Chief Executive Steve Ballmer said Microsoft will continue to support the companies that make PlaysForSure devices.

He said, however, that the company decided to also launch its own Zune product, which isn't compatible with PlaysForSure, after seeing that the effort wasn't doing much to temper Apple's momentum.