Microsoft is preparing to wage a high-stakes battle against Apple and its iPod digital music player, a move that could bring to mind the battle between the tech giant’s Xbox video game console and Sony’s PlayStation.
"It seems like an exact head-to-head competition with Apple," said one source. "It is really like an Apple approach, to control the device and the whole stack of technology. This is like Xbox versus PlayStation."
Microsoft Corp. is developing a music and video device to compete with Apple’s iPod and creating its own music service to rival Apple’s iTunes, sources familiar with the plans reported.
“The news comes one day after Microsoft founder Bill Gates announced he would ease out of a day-to-day role at the company he built into the world’s biggest software maker.”
Robbie Bach, a rising star at Microsoft who headed development of the Xbox video game business, is overseeing the project, one source said.
Bach was promoted to president of Microsoft’s entertainment and devices division after it was restructured in December. At that time, he wrote in an e-mail to co-workers, "While I will continue to play an important role in the games area, I will spend more time thinking about our broader challenges and opportunities across the division."
The Redmond, Washington-based company has held licensing discussions with the music industry and is already demonstrating the entertainment device, the sources said.
Last fall, Microsoft ended such talks with the record labels and temporarily shelved plans to launch its own music store. A Microsoft-branded music service would reflect a digression from an existing strategy to provide software for other such services, just months after the company announced a service called URGE with Viacom Inc.’s MTV Networks.
"It seems like a shift in strategy … Microsoft is very committed to it," one source said.
At the same time, Microsoft executives have begun making the rounds of the music companies to demonstrate its own digital music player — the existence of which Microsoft executives have never publicly acknowledged.
Sources say the device plays both video and MP3s, and some who have seen it say the quality of the video surpasses that of the video iPod.
One source, who has seen a demonstration of the service, said it was an improvement over iTunes. "They have been developing technologies that have really good music discovery and community," another source said. "iTunes is the 7-11 of music stores. You do not hang out there."
In recent weeks, Microsoft shot down rumors that it had partnered with several consumer electronics companies in Japan to launch an iPod rival.
While previous talk centered on Microsoft offering a subscription music service, the company is now focused more on offering a music service that replicates the iTunes model of selling individual songs for download, according to a source.
Most iTunes rivals charge monthly fees to access a catalog of entertainment, but some allow consumers to buy single songs for about $1 each. Microsoft’s service will emphasize the pay-per-download, or a la carte, model, sources said. A subscription component will also be offered, according to early accounts of the planned service.
Apple, meanwhile, is fresh from its victory over the music labels in its recent round of licensing talks. Apple succeeded in denying the labels’ wish for variable pricing, and the current standard of 99 cents per track remains in place.
Microsoft joins a crowded field of competitors in the music service sector, including an entertainment device and service expected to be launched by Internet retailer Amazon.com Inc.
At a recent conference hosted by The Wall Street Journal, Microsoft Chairman Bill Gates reportedly said, "There is such a rumor," when asked whether the company plans to roll out a digital music player.
Amazon plans to heavily subsidize the cost of the digital device, much like wireless service companies do with the cell phones they sell, one source said. Some of the devices will come preloaded with music.
Microsoft earlier this year denied rumors that it was developing a hand-held video game device to complement its Xbox video game console. It is unclear when Microsoft, based in Redmond, Washington, plans to launch the entertainments device and music service, the sources said.
Microsoft’s software technology has provided the copyright protection framework for a number of subscription music services globally, some with well financed backers including Yahoo Inc. But Apple Computer Inc. remains dominant in the multimillion-dollar field of music and device sales.
Apple could not immediately be reached for comment.