Microsoft's Online Store More Buzz Than Music

Meanwhile, in a note last month, Citigroup Smith Barney analyst Tom Berquist suggested that Microsoft's online store also may be a move to protect its PC franchise against Apple's recent success.

"Microsoft's real ambition may be to hurt Apple on the PC side," Berquist wrote, noting that Apple recently exceeded Gartner PC unit estimates. "By providing a technology that enables competing music services to compete more effectively with iTunes, Microsoft may ultimately be seeking to enhance its own competitive position in desktop [operating systems] vs. Apple." (Berquist has a buy rating on Microsoft, and his firm has done banking with Microsoft.)

Still, that's not to say the online music market doesn't hold some promise of growth. Research firm Gartner presages that online music will balloon to a $1 billion market in 2008, compared with $170 million in 2004.

With its enormous marketing muscle, Microsoft should be able to vault to the No. 1 spot among Windows-based music services, ahead of such smaller competitors as Roxio(ROXI Quote), Napster and Musicmatch, Bernoff said. Microsoft is expected to push the new music store on its MSN Web site -- which counts nearly 115 million unique visitors a month in the U.S., according to comScore Media Metrix -- as well as its new Windows Media Player.

In addition, unlike Apple's proprietary approach, in which iTunes music plays on its iPods, Microsoft's music store will offer music downloadable to a multitude of players from different manufacturers. Microsoft's store initially will sell music a la carte -- downloadable per song or album -- with prices expected to match its competition at 99 cents a song and $9.99 per album.

In anticipation of Microsoft's launch, longtime Microsoft rival RealNetworks(RNWK Quote) recently launched a special promotion selling songs at 49 cents each and offering a 50% discount on albums. Excluding that special offer and the free file-sharing sites, Wal-Mart(WMT Quote), not surprisingly, is the low-cost leader in online music, selling songs at 88 cents each and albums starting at $9.44.