Microsoft to take on iPod?

With Seattle software giant's consolidation of its consumer businesses under top Xbox 360 execs--and its just-announced Urge music service with MTV, rumors abound that company is ready to battle Apple's music-player juggernaut.

Although Microsoft remains a distant second to Sony in the video game console business, its Xbox 360 is the must-have item this holiday season, making it a serious contender in a market where it had zero presence just five years ago.

Since the Xbox 360 launch last month, the Seattle-based software giant has made some personnel moves that have Wall Street and industry analysts buzzing with the idea that Microsoft might turn its attention to the portable media player market--putting it in a head-on clash with the Apple iPod juggernaut.

It's "certainly one thing you could imagine," Jupiter Research analyst Michael Gartenberg told the Seattle Post-Intelligencer.

A digital music player battle between the biggest software company on the planet and the company that owns nearly 80 percent of the portable music player market could be one for the ages, particularly because Apple's proprietary digital rights management (DRM) technology blocks Microsoft-friendly digital music services like Napster from targeting iPod users.

Microsoft announced the personnel moves last week, consolidating its consumer businesses--digital music, television, and games--under one roof. Bryan Lee, currently the lead financial executive for the Xbox, will lead a new Entertainment Business group, with Xbox executive J Allard charged with overseeing design and user experience of Microsoft's gaming and entertainment products.

Microsoft spokesman Carlos de Leon said the company hopes to take its "key learnings" from the Xbox business and "apply them to other consumer entertainment products where it makes sense."

Microsoft's announcement last week that it would launch its own digital music service, called Urge, along with MTV, has also added to the buzz.

Apple has come to dominate the digital music market through marketing genius and by offering an end-to-end experience, coupling its iTunes music store and the iPod line of music players.

A Microsoft portable music player coupled with a strong launch of Urge would mimic that strategy.

SG Cowen analyst Drew Brosseau told Barron's Online that even though it might take years to make a dent in the iPod lead, the $8 billion digital music and media business--growing 15 percent a year--includes $2.5 billion of non-iPod revenue, much of which Microsoft could sop up with a strong entry in the segment.

If it has any immediate digital music plans to unveil, next month's Consumer Electronics Show in Las Vegas is the next likely venue for Microsoft to do so.