Microsoft Getting Under Apple's Skin

He adds: "When you've got an entrenched vendor, you have to give the nod to the entrenched vendor."

Indeed, instead of threatening Apple, Zune likely poses the most danger to Microsoft's PlaysForSure partners, says Michael Gartenberg, an analyst with JupiterResearch.

"Creative, Iriver: They have a lot to be concerned about, as well as [Microsoft's] partners on the music side [like] MTV's Urge service," says Gartenberg.

In contrast, "this is a move that Apple's been expecting," he says. "I doubt that they've sitting around waiting for Microsoft to enter the market so they could give them a warm embrace. This is going be an intense battle."

An Apple representative declined to comment on the Zune announcement.

Although the new service will compete with the PlaysForSure initiative, Microsoft plans to continue to support the older service even while promoting Zune, Gentes said. "We think there's opportunity for both. The parallel offerings [will] provide additional choice," she said.

Gentes declined to say how much Microsoft will charge for the device, how much capacity its hard drive will have or what encoding format the company will use for songs and other media. Through the Zune service, Microsoft plans to offer music and is mulling whether to offer both games and movies, she said.

Key to a games effort could be J. Allard, the Microsoft vice president who spearheaded development of the Xbox, the company's video game machine. Allard is now helping direct development of Zune, Gentes said.

Also unclear is whether the company will offer content through a subscription service or a la carte as Apple's does with iTunes, Gentes said.

"We're looking at both," she said.

Microsoft plans to differentiate the Zune service from iTunes and other offerings by emphasizing community and social networking aspects, Gentes said. The idea is to allow music aficionados to connect with each other easily to share recommendations on music and other entertainment.