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Monday, November 13, 2006

MSFT Zune Puts More Pressure On iPod (MSFT)(AAPL)

After Microsoft w=has adopting a business model that may cut music companies in on the sale of its Zune hardware along with the traditional cut of content fees, the big software company is pushing another feature to grab share from Apple.

The Zune has the capacity to locate other Zunes and then share files with them wirelessly. The iPod cannot make this claim nor can any of its other rivals. The technology draws on features from Microsoft's earlier development of the Xbox game platform.

Many in the portable media player industry have written off the Zune as an expensive endeavor from Microsoft which is doomed to fail because of the iPod's huge distribution base. Of course, a similar case could be made regarding Japanese cars entering the US market in the 1960s.

Microsoft is changing the paradigm of what a portable music player can do and how its content partners can profit. This, at the very least, will put pressure on Apple to consider what it must do to keep its lead. As an analyst from Jupiter Media pointed out to BusinessWeek recently: "Close ties to the music industry could pay off for Microsoft in the short term with exclusive record industry deals. Companies such as Universal, for example, may grant Microsoft the rights to offer new releases earlier than rival services."

At this point, with Microsoft's marketing muscle behind it, the Zune may be changing the landscape for multimedia devices just enough to become successful and bleed Apple in the process.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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