Microsoft has at last confirmed plans that it will launch its own music-download
store next year, putting it on the path to direct competition with Apple
Computer’s iTunes and a growing list of rival digital song stores.
With unequaled software reach, Microsoft’s entry into the market will almost
necessarily create a splash larger than that of virtually any other company,
despite being as much as a year behind Apple and others. But the company’s
service is also certain to be closely scrutinized by antitrust regulators who
are already examining its music policies with a microscope.
The plans also represent a change in direction that has left some of
Microsoft’s own customers feeling betrayed. When Apple’s store launched last
year, Microsoft publicly stated it had no plans to compete directly, preferring
instead to let other stores use Microsoft technology for their own efforts.
But those assurances changed over the course of the last few months, rivals
said.
“They called up and said they were going to do it themselves, but the person
on the phone said, ‘You know us, it’s going to take us more than a year to get
it up,’” said one executive at a rival music service, asking not to be named.
“It was a bad news, good news kind of thing.”
The official confirmation of Microsoft’s music-retail plans come after months
of speculation and hints from as high as Microsoft Chairman Bill Gates himself.
Gates said in July that he was considering building a song store, even if he
didn’t see it as a direct profit center for the company.
A spokeswoman for the company’s MSN division said that the store is expected
to launch in 2004, but gave no details beyond that. As first reported by The
Wall Street Journal, the company also posted a listing on its corporate hiring
site last week advertising for a senior marketing staffer who could help develop
a business plan for the site’s launch.
By the time Microsoft’s download store debuts, the digital landscape will be
awash in competition, however. Apple’s Windows-based store, which sold 1.5
million songs in the first week of November, opened in mid-October. The new
Napster–a combination store and subscription service–launched at the end of
October.
RealNetworks’ Rhapsody subscription service is adding a song store that will
be open to the public by the end of the year. Musicmatch, MusicNow and BuyMusic
all have opened their digital doors already. Major retailers including Wal-Mart
Stores and Amazon.com are expected to launch their own efforts, while PC makers
including Dell are offering co-branded versions of other company’s stores.
Virtually all of them, with the exception of Apple, and the probable
defection of Rhapsody later this year, use Microsoft’s own technology to encode
and distribute music.
As recently as last summer, Microsoft appeared to be keeping its hat out of
the direct retail ring, under the theory that persuading as many other companies
as possible to use its Windows Media technology was more important than having
its own store.
“We’re still very comfortable with the strategy of enabling lots and lots of
partners to build these things, rather than build a closed proprietary service
on our own,” David Caulton, a group manager for the Windows division, said at
the time.
It’s too early to tell whether the software company’s shift has ruffled
enough feathers to drive other media companies or distributors to rival formats,
such as those distributed by Apple or Sony. Some of Microsoft’s
soon-to-be-rivals say that they had expected the company’s entry anyway and that
working with Microsoft inevitably had elements of competition and cooperation.
“We have known for some time that they were considering this, specifically
the MSN group,” said Greg Rudin, vice president of marketing for FullAudio’s
MusicNow service, which is carried as a link inside Microsoft’s Windows Media
Player. “We are strongly partnered with the Windows Media division, and…they
have given us assurances that they will be fair and equitable with their
partners.”
While Microsoft tries to soothe customers’ bitterness over its store plans,
it also will have to negotiate a tricky legal landscape. Regulators on both
sides of the Atlantic are already asking hard questions about the software
giant’s music plans and will certainly watch closely to see how tightly the
company links the store to its Windows operating system and the Windows Media
application.
European antitrust officials are already considering forcing Microsoft to
remove its multimedia software from the operating system, saying that the
connection is unfair to rival software companies.
In the United States, federal and state regulators are questioning a “Shop
for Music Online” link inside the XP operating system that leads directly to a
Microsoft page.
The spokeswoman for Microsoft said it was too early to tell whether the
download store will be contained inside the Windows Media application, or simply
included inside the MSN service. Most analysts expect a link to the store inside
the application itself, following in the wake of Apple’s success with its iTunes
software.
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