Will Microsoft Succeed With iPod Killer?

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COMMENT: I’m in Majorca Spain at the moment attending a Senheiser conference on Hi Fi and iPod accessories and the big buzz is whether Microsoft will actually be able to take on the success of the iPod.

Rumour has it that Microsoft is designing a product that combines games, music and video in one handheld device, according to sources familiar with the project. The Microsoft product would compete with Sony, Nintendo and Apple Computer products, including the iPod. And Microsoft it claims has some of its most seasoned talent from the division that created its popular Xbox 360 working on it.

Packaging produced by a Microsoft InHouse team showing an Iod competitor.

According to the Mercury News, Game executive J Allard leads the project, and its director is Greg Gibson, who was the system designer on the Xbox 360 video game console, sources said. Bryan Lee, the finance chief on the Xbox business, is leading the business side of the project.

By anchoring its entertainment device as a handheld game player, Microsoft is starting from its position of strength in the entertainment business that it hopes Apple cannot match, even with its iPod. Game industry publications, circulating rumours of this development, have dubbed it an “iPod killer,” but its functions would probably more closely resemble Sony’s PlayStation Portable multimedia gaming device, sources say.The product might not be ready for market for at least a year, and maybe two. While details are sketchy, the pedigree of the people in charge of the business shows how strategic it is to Microsoft’s future.

“That would certainly be an interesting development in the market,” said Anita Frazier, a game industry analyst at the NPD Group.The other competitors have huge leads on Microsoft. But the Xbox veterans have been underdogs for a while. Gibson, 35, is an electrical engineer who joined Microsoft in 1997 to help design computer mice and other hardware. He shifted to the Xbox division in 1999 to help design the innards of the original Xbox. In 2002, he became the system designer in charge of the overall design of the Xbox 360.

 Allard, a 36-year-old programmer who became famous for prompting Bill Gates to take the Internet seriously, commanded much of the hardware and software teams who put together the Xbox 360. Lee, a long time entertainment executive, joined Microsoft as finance chief for the Xbox a few years ago. The approval of the project spurred the reorganization of the leadership team in the Home and Entertainment Division in December, sources said. In September, Robbie Bach, formerly the chief Xbox officer, was promoted to lead the Entertainment and Devices Group, which combined the Xbox with other mobile and entertainment businesses in one of four major product groups.

 Then in December, the jobs of the top Xbox executives were broadened so that they could manage all of the businesses related to the broader Entertainment and Devices Group, which included the Xbox business, mobile devices, MSN, music and home productivity software. Allard, whose group designed the Xbox 360, was named to head “experience and design” for the entire group.

 Sources said the reason for the reorganization was to bring Allard, Lee, Gibson and all of the relevant businesses into a single group, which is supervised by Bach. The participation of these highly regarded Xbox veterans suggests that Microsoft is very serious about catching up with Sony’s PlayStation Portable handheld game player, Apple’s iPod music players, and Nintendo’s handheld GameBoy Advance and Nintendo DS game players.

 In the past, all of Microsoft’s efforts to compete have fallen short. The company considered making an “Xbox” game player a few years ago but shelved the idea. It considered making a handheld at the same time it devised plans for the Xbox 360 in 2002 and 2003, but it again decided to delay its entry.

 Meanwhile, Microsoft’s efforts in PocketPC handhelds and Portable Media Players have fallen short in competition with the iPod. Last week, Microsoft unveiled Project Origami, a handheld Windows computer. But that device isn’t targeted on pure entertainment as Microsoft’s new product would be. The existence of these other projects suggests that there is still some infighting within Microsoft about its best approach to portable gadgets.The handheld project is still in its early stages. Microsoft is still figuring out which strategy to pursue in music technology, according to sources familiar with the matter. The code name for its music service, which would be the equivalent of Apple’s iTunes, is “Alexandria.”

 One benefit of waiting longer is that the handheld will probably have sufficient technology in it to run a lot of original Xbox games from a few years ago. Hence, it wouldn’t be hard to create a new library of games for the handheld.Signs of activity have surfaced. Transmeta, a maker of low-power chip technology, said last year that it had assigned 30 engineers to work with Microsoft on a secret project. Transmeta’s engineers work on ways to take the power out of computing chips so that they can be used in handheld devices with long battery lives.

 In an interview with Business Week in January, Xbox corporate vice president Peter Moore referred to a new product under development and said, “It can’t just be our version of the iPod.” He said the Xbox brand “is an opportunity” if Microsoft decides to enter the mobile entertainment competition. Moore declined to comment further recently on the rumour about the handheld. But sources familiar with the project confirmed its existence within the Xbox organization. What remains to be seen is when Microsoft will launch the device. Gibson’s group of hardware engineers only became free last fall, when most work on the Xbox 360 was completed.

It could be 2007 or 2008 before the device hits store shelves, sources said. That would give rivals such as Sony, Nintendo and Apple considerable time to consolidate their position and come up with their own new gadgets in the meantime.

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