MSN Pits Music Store Against Apple’s iTunes

Microsoft today threw down the gauntlet to Apple with the beta debut of its MSN Music digital music service at

While it won’t be easy to depose Apple’s iTunes from its top spot, it won’t be impossible either, industry-watchers say.

“In order for anybody to gain ground on Apple, they’re going to need to do some differentiation. They’re going to have to do what Apple has done well, and then go beyond that,” said David Card, VP and senior analyst at Jupiter Research. “It’s not too late. This market is very, very new. We’re going to have some serious players yet to enter. Amazon and Yahoo will be in the space at some point, and some retailers will make moves into the space.”

Microsoft is in the music business for a different reason than Apple, according to Card. While Apple’s motivation behind the iTunes store is to sell iPods and music services, Microsoft is launching MSN Music to proliferate its Windows Media and Windows DRM technology platforms.

“It’s more about winning than making money. Microsoft wins when it sets platform standards and then builds products that implement those platforms,” Card said. Some of those products are the platforms themselves, and they don’t necessarily make money on all of their technology platforms. “They don’t sell an Internet Explorer standalone. But as long as IE is the leading browser, that helps the Windows franchise. This is about making Windows DRM a dominant rights management software.”

While advertising won’t be the main revenue stream for the service, the company has hinted MSN Music could play a role in future marketing offerings. In the past promotional giveaways have seen iTunes team with Pepsi, Real Networks with Comcast, Sony with McDonalds and Napster with the UK newspaper The Sun.

So far, ads in the store itself — Overture-supplied paid text links — appear in a sidebar to the search results. There is also a prominent link to a list of devices from Microsoft partner manufacturers like Creative, Rio, iRiver, Samsung, and Belkin. That list in turn links to MSN Shopping, where the devices can be purchased from MSN’s retail advertisers, or to the device manufacturer’s site. Ads also appear in the content pages, which are mostly drawn from MSN’s existing Entertainment section, according to Christine Andrews, product manager for MSN.

To promote the service, the company isn’t planning to stray outside of MSN’s own sites. “We’re going to use our MSN network to support our music service. We’re not going to do a $160 million TV ad campaign with dancing shadows,” Andrews said, in reference to Apple’s advertising campaign. “Apple has done a great job in helping to build the category of downloading music. That kind of campaign may be great for them, but for us, we’re going to use our own network to support our service.”

In addition to driving traffic from other MSN sites, and utilizing content from MSN Entertainment, the company is leveraging its network in other ways as well. The new service uses technology from MSN Search, in which it began investing more heavily earlier this year. Future plans for the service include integration with MSN Messenger to provide new ways to share and discover music, such as sharing playlists, Andrews said.

“We’re not going to build a service here at MSN unless we’ve thought about what we have that we can build off,” she said. While it’s only natural for competitors to shudder when Microsoft enters a market, there’s no guarantee that MSN Music will have a big impact on the market here, according to Card. Microsoft needs to produce a store that differentiates itself from the competition, then it needs to drive traffic to the store, and then they have to line up manufacturers with competitive devices to support it.

“I don’t think Apple has anything to worry about in terms of significant market share loss for 12 to 18 months at least, depending on what happens with the other devices, the evolution of other technologies, and how Microsoft markets it,” Card said.

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