The company's Zune project is an effort to make inroads against Apple. The first Zune device will be released in the U.S. this fall with products designed to complement Microsoft's Media Center PC software, Xbox 360, Xbox Live, MSN and Windows Live initiatives.


Microsoft Corp. outlined on Thursday its strategy for taking on Apple's iPod and iTunes juggernauts with its own digital-media devices and service -- saying that the "Zune" project will be long and expensive but ultimately worthwhile.


"It is something that is going to take time," acknowledged Robbie Bach, president of Microsoft's Entertainment & Devices Division, in his first public comments since the company confirmed the project's existence last week.


Bach predicted development and marketing costs of hundreds of millions of dollars, and said it's not as if the company will be able to conquer the market in six months. "This is something that's going to be a three-, four-, five-year investment," he said.


Microsoft spent the rest of the day trying to convince Wall Street analysts that it has some other interesting stuff up its sleeve in the meantime.


The occasion was the company's annual financial analyst meeting, a daylong gathering in Redmond where Microsoft describes the state of its businesses and their prospects. The company showed upcoming software, including Windows Vista and Office 2007, and detailed plans in emerging areas such as video games, online advertising, mobile devices and business software.

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One attendee, alluding to Microsoft's struggles against Google and others, asked Microsoft Chief Executive Steve Ballmer to speculate about when the company might stop going it alone online and instead improve its standing through a big acquisition.

"There's no acquisition path out," Ballmer replied. "Darn it, we'll work hard till we do well, and whether it's me or the guy who has to replace me because we're not doing well enough, we will do well, darn it. We will do well."

The company's Zune project is an effort to make inroads against another rival, Apple. Bach said the first Zune device will be released in the U.S. this fall. He said the products will be designed to complement Microsoft's Media Center PC software, Xbox 360, Xbox Live, MSN and Windows Live initiatives.


Microsoft has previously supplied media software and left the devices to hardware makers. But Bach said the company considered it necessary to take a more integrated approach -- handling the hardware, software and services with Zune.


That strategy risks alienating the device makers that the company partners with, but Bach said he doesn't see Zune precluding Microsoft's relationships in that regard. Ballmer said Microsoft is unique in its ability to pursue a project such as Zune. Apple's iPod and its iTunes Music Store dominate their respective markets.

"For better and for worse, there's no other company that would be attempting to get into that business at this time," Ballmer said. "Nobody else has the optimism, nobody else has the financial resources, and you might say nobody else, you know -- well, let me just leave it at that."

Microsoft didn't show a prototype of the Zune device, perhaps missing a chance to drum up further interest among the analysts with a tangible sign of its work.


And on another front, Microsoft continued to avoid a definitive answer to one of the biggest questions dogging the company -- whether Vista, the next version of its dominant PC operating system, will suffer another delay.


During a morning session, Kevin Johnson, co-president of Microsoft's Platforms & Services Division, told the audience of analysts that the company sees no data currently that would indicate it can't meet the existing schedule, which calls for a debut for business customers in November and a broad retail release in January.

"However," he added, "we're going to ship the product when it's ready."

Investors don't appear pleased with the continued ambiguity. Shares of the company closed down 50 cents, at $23.87.


Microsoft Chief Financial Officer Chris Liddell told analysts last week that a delay of Windows Vista by a quarter could cut into the company's revenue by around $200 million to $400 million.

"They continue to hedge" on the timing of the new operating system, said Rick Sherlund, a financial analyst with Goldman Sachs. "History has shown that software is typically late, and if you hear someone hedging, that's never a good sign."

But Sherlund said he hadn't expected the company to offer a definitive answer about the schedule at the Thursday meeting, so it wasn't a surprise. The final word is more likely to come in August or early September, he said. He noted that he has already incorporated a delay into his financial assumptions for the company.


Thursday's event was notable in part for Bill Gates' absence. The Microsoft chairman, who has announced plans for a two-year transition to full-time philanthropy, is vacationing in Africa. Absent was the customary scene of analysts at the evening reception encircling Gates three or four deep, trying to hear every word.


Instead, it was Ray Ozzie who drew the big crowd to his lunchtime table.


Ozzie, recently appointed to fill Gates' role as the company's chief software architect, said on stage that Microsoft's move to online services such as Windows Live marks a fundamental shift away from its past focus on PC-based software.


"We're in a new era," Ozzie said, explaining that the company will continue to work on traditional PC software but will now start its planning from the vantage point of online services to be used with various computers and devices.


The company has lots of ground to make up in major online areas. Microsoft's Online Services Division saw its revenue fall 2 percent last year, to $2.3 billion, and the company's MSN Search engine remains a distant third in market share.


Microsoft's product plans have come under particularly close scrutiny since the company disclosed plans to boost spending by $2.7 billion this fiscal year on a variety of new products and initiatives. Ballmer sought to convince analysts that the investments will pay off in the form of bigger revenue growth in the future.


Among other things, the company has been hiring large amounts of people. It disclosed this week that its worldwide work force grew by more than 10,000 in the fiscal year ended June 30, to more than 71,000 people, the largest annual increase in its history. In contrast with years past, the company didn't make employment projections for the current fiscal year as part of the Thursday meeting.


Source: Sci-Tech Today


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