The Company says that it is working on a music and entertainment "project" dubbed Zune, which will include hardware and software products that offer users on-the-go access to music and entertainment.

 "Under the Zune brand, we will deliver a family of hardware and software products, the first of which will be available this year," said Chris Stephenson, general manager of marketing for Microsoft" said.
"We see a great opportunity to bring together technology and community to allow consumers to explore and discover music together."

Although Microsoft declined to comment on specific details for its Zune brand, a spokesperson confirmed that the first products will begin shipping by the end of 2006.

"This is a radical departure for Microsoft," said Michael Gartenberg, vice president and research director for JupiterResearch. "It's a change in their business model and for the first time will put them in direct competition with partners that license technology from them."

"The strategy that Microsoft is taking is pretty interesting," said Rob Enderle, principal personal technology analyst at Enderle Group. "This is Microsoft moving against [companies like] Apple where they are strong and hitting hard where [those companies] are weak, in areas like partnership and breadth of offering…Right now Microsoft is the only one offering something this comprehensive, and they've got their fingers in so many other areas that they can move in areas that others cannot."

Companies like Apple and Creative Technology, which makes the Zen Vision player, will likely encounter some digital opposition in the multimedia arena as Microsoft begins its initial foray into portable music and entertainment. Apple's iPod, however, currently holds over 50 percent of the digital media player market, according to research firm NPD.

"At this point, Apple will probably not be affected too much in the short-term because Microsoft's short-term growth is likely to come from non-iPod users," Gartenberg said. "For companies like Creative and iRiver, the big problem last week was how to compete with Apple. This week it's how to compete with Microsoft as well."

In addition to vying for market share from well-established competitors, Microsoft faces additional challenges in the digital-entertainment market, according to JupiterResearch. Among the key challenges for the Redmond-based powerhouse are; creating a technically competent challenger, creating a lifestyle device, and creating an [all-encompassing] platform.

"Microsoft is providing one thing that other companies couldn't provide, which is a peer-to-peer (P2P) solution," Enderle said. "Zune is designed as a P2P service so you can share music with friends through the Internet or by beaming music to other users via WiFi."

According to Enderle Group, Microsoft may, however, face potential pitfalls in actually executing the roll-out of its portable media player.