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What Will Microsoft Morph Behind Zune?

When Microsoft launches its Zune music and gaming device, it may also merge it with two of the Web's most popular ways of enjoying new music.

The speculation goes something like this: The entertainment device would combine music services like iTunes and the social networking aspects of sites like MySpace in order to help users discover and share music and other entertainment.

Microsoft has plenty of assets to morph into the Zune device. For starters, it has one of the biggest blogging sites in MSN Spaces. Its Windows Live Spaces offering is aimed at the social networking realm.

Chris Stephenson, General Manager of marketing for MSN Entertainment Business, said the Zune architecture will be "one part MySpace, one part iTunes and one part Xbox Live" when he broke the news in an interview with Billboard magazine.

He later built on those comments in the company's own cryptic statement:

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

Robbie Bach, president of the entertainment and devices division at Microsoft, seemed to confirm this on Thursday during the company's annual financial analyst meeting. He also said Microsoft is not just introducing Zune "to do what other people do."

Discovery and community were emphasized, which would seem to confirm the notion of a social network around music.

"Apple has their iTunes and iPod business. Now look at our business. We have burgeoning [interactive television] businesses, we have Media Center, XBox 360, XBox Live, MSN Live and Windows Live. We're going to put all those together and add Zune to that," Bach said.

Bach also said there would be no price cut through the holiday, despite persistent rumors floating around Internet news sites that the XBox 360 would be cut by $100 to $299.

Rob Enderle, principle analyst with The Enderle Group, thinks that's exactly the plan: a horizontal integration across Microsoft's consumer lines involving Windows Live, XBox Live, MSN Spaces and Zune.

The idea of an integrated iTunes/MySpace/MSN Spaces/Windows Live service means Microsoft is still thinking PC-centric, said Enderle. Microsoft believes most music is consumed on a Media Center PC. This is where the social networking element comes in since the Zune won't have a keyboard.

Apple's iTunes has served up more than one billion music files to fans since its launch in 2003, with 2.9 million files available for download.

Even with almost three million songs, Podcasts and audio books on iTunes, browsing for new material is not as easy. As successful as it is, iTunes is lacking on the community side, with the exception of its iMix user-submitted playlists.

This is where MySpace comes in. Many young, up and coming bands have established a presence on the social network site and regularly talk directly to their fans. For example, when the rock band Taproot parted company with its record label in June, the word got out through its MySpace site in a blog entry from the band.

With a social networking element, people can make playlists of bands they like on the service and share them. "So you can build a playlist by selecting your friends and the combination of your friends' favorites becomes your playlist," said Enderle.

If Microsoft does indeed engage in a strategy of marrying its products, it would be a first. This would not be putting five separate applications in a box and calling it Office, it would be true horizontal integration across product lines to offer a broad spectrum of services.

"The number one thing is community," said Bach. "When you go to any music site, what do you do? Today you buy music. But it's hard to meet your friends there, it's hard to share music experiences there, it's hard to find out information on your favorite bands. We think a community is what has to happen."

Enderle gives credit for the move to Bach.

"When Robbie Bach took over that side of the company, he really started getting the different groups functioning around him working as a team, whereas before they were functioning as pillars," he said.

In the meantime, the Zune whispers are building. Two staffers on the Zune project have personal blogs where they keep dropping tidbits about Zune. Take the latest comments from Cesar Menendez, who works on the Zune project for Microsoft.

"There's not much I can talk about right now about Zune, which you all no doubt have noticed," he wrote on his blog ZuneInsider yesterday. "However, today I'm able to confirm one thing: Zune will come w/ some pre-loaded content."

Microsoft declined to comment on its plans for the device. But it wouldn't be a stretch to say it wants the world to stay tuned on Zune.

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