Microsoft Plays Apple's Tune

Microsoft acknowledged Friday that it is gearing up to challenge Apple Computer's dominance in the portable music player business by producing its own line of media devices.
The software giant said that it is creating a new line of portable entertainment devices and software under the "Zune" brand name. The first device, scheduled for release this year, will be a music player meant to compete with Apple's (nasdaq: AAPL - news - people ) iconic iPod. It will launch at the same time as Microsoft rolls out a compatible music store, a la Apple's iTunes.
"Today, we confirmed a new music and entertainment project called Zune," Microsoft's (nasdaq: MSFT - news - people ) general manager of marketing, Chris Stephenson, said in a statement. "We see a great opportunity to bring together technology and community to allow consumers to explore and discover music together."
Official confirmation of Microsoft's move, which had been widely reported and discussed in recent weeks, appeared first in a story in Billboard magazine on Friday.
The strategy is a major departure for Microsoft, which until now has been content to produce software that supports other devices and platforms that compete with Apple. Yahoo! (nasdaq: YHOO - news - people ), Napster (nasdaq: NAPS - news - people ), RealNetworks (nasdaq: RNWK - news - people ) and, most recently, Viacom's (nyse: VIA - news - people ) MTV, in conjunction with Microsoft, have introduced services designed to compete with Apple's iTunes store.
And hardware manufacturers including Samsung, Sony (nyse: SNE - news - people ), Toshiba (other-otc: TOSBF.PK - news - people ) and Creative Technology (nasdaq: CREAF - news - people ) have tried to produce answers to the iPod. But so far, none of the efforts have made a dent in Apple Chief Executive Steve Jobs' control of both the digital music hardware and software markets.
Music executives and others who have been briefed about Microsoft's plans for its first player say it will include a wireless capability meant to allow consumers to "share" music from one device to another, or potentially to download or stream music remotely--capabilities that Apple's iPod line doesn't offer.
Those plans are also a sticking point between Microsoft, music labels and music publishers, who are trying to resolve how many times a Zune owner could listen to music on another owner's device, and how much money the music industry should receive each time a track is played.
"It's certainly a business issue to be worked out," said George White, the senior vice president of strategy and product development for Warner Music Group (nyse: WMG - news - people ). "That's a use case that we'd certainly like to work out, because it's very powerful. It's a very strong way to turn people on to new stuff."
Until now, the music industry has created two general models for selling online music. When consumers buy downloads through services like iTunes' store, the industry generally receives about two-thirds of the retail price, which is then split between music labels, songwriters and musicians. When music is streamed via services like Napster and Yahoo!'s music store, music owners receive a small payment each time consumers play a song.
It's unlikely that Microsoft intends to take back Apple's control of the portable music player market. Instead, its strategy seems aimed at getting in front of Apple's plans to leverage its iPod success into other markets--most significantly consumer's living rooms. Apple has already begun positioning its Macintosh computer line as a home entertainment device, and the company has been in negotiations with movie studios to transmit full-length films over the Internet.
"This is about far more than the iPod. This is a battle about the digital home," says Jupiter analyst Michael Gartenberg, who has been briefed by Microsoft about its Zune strategy. "Apple already controls one end of the system. That's a huge threat to Microsoft."
At the same time, Microsoft's decision to confirm its plans on a midsummer Friday indicates that the company isn't entirely ready to acknowledge the scope of its plans. Says Gartenberg: "They're trying to do this somewhat quietly, without getting expectations ahead of reality."






Source : Forbes

 

[bonddonraj]

Microsoft was once the envy of every manager. The almost accidental choice by IBM for building the operating system for the IBM PC captured near-monopolies in MS Windows and MS Office. Net profit rose meteorically from nothing in 1985 to $9.5 billion in 2000. And then, the firm hit a brick wall. By 2006, net profit had reached only $12.6 billion: 33 per cent growth in earnings over a six-year period sounds more like an old economy stock than an IT company. As a consequence, the stock price has been flat from 1998.

What went wrong at Microsoft? Innovation by Apple (the Ipod and notebook computers), Google (search engine) and Sun Microsystems (servers and enterprise software) overshadowed weak product development at Microsoft. Every single new product launched by Microsoft in the last 15 years has failed: it is only the ancient MS Windows and MS Office products which produce profits. Now the MS Windows and MS Office monopolies are themselves losing ground to open source alternatives and to Apple. So Microsoft is a peculiar firm that produces a lot of cash, but lacks projects worth investing in. For a while, the company simply built up a huge bank balance, thus becoming a liquid fund for shareholders. In April, the company announced it would take $2.4 billion of this stash and try to mount an assault on Google. Shareholders were outraged, for this is a battle against a nimble rival that Microsoft can’t win. The stock price dropped by 30 per cent in two days, and the episode may have precipitated the departure of Bill Gates.

Last week, Microsoft started doing something admirable. Recognising that it lacks good investment opportunities, it will now return cash to the owners. So, without a hint of machismo, without self-aggrandising efforts at fighting Apple or Google or Sun, it will send back great wads of cash to shareholders through a share buyback: $20 billion now and another $20 billion over the next five years.

That brings us to the Indian corporate sector. Half the companies here have above-median prospects. Most if not all of the other half, those with weak prospects, should be emulating Microsoft and sending spare cash back to shareholders. But high pay-out goes against the self-aggrandisement of top managers, who like to run big companies because it is good for managerial egos, and because there are bigger opportunities for self-enrichment. Wise dividend policy is thus the task of a vigilant board, which must require that projects have high rates of return. Companies with weak prospects should be pushed by their boards to not squander shareholders’ money on dubious projects, and to instead pay out cash. As of today, most listed companies have a pay-out ratio of close to 20 per cent, which suggests there is room for improvement from the shareholder’s perspective.