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Friday, January 07, 2005

Microsoft - SONY Alliance !! – Potential & Implications

We covered in our blog Micosoft + Sony Two laggards trying to come together. Mark Mulligan posts an excellent analysis on the possible Microsoft-Sony alliance to take on Apple, iTunes and iPod.
Mark writes,"Bill Gates has been quoted commenting that Sony and Microsoft 'have a lot of incentive to work together' to help break Apple’s dominance of the digital music space. Does any incentive exist? Yes it does, but the key reason is devices rather than services or stores.One of the biggest differences between Microsoft and Apple is the conversion rates of the installed base of devices compatible with their audio codecs and DRM. In Apple’s case it is nice and straight forward. In Microsoft’s it is less so: they are a software company not a hardware company, so their installed base is of third party manufacturers, this implicitly gives them much less control. A large proportion of iPod owners have downloaded music from the iTunes Music Store. There is a much lower conversion rate for WMA compatible devices due to the fragmented and decentralised nature of both the WMA device and store/service landscape. Microsoft's challenge is how to engage those 'inactive'' devices and get consumers to start consuming WMA content rather than just using the devices as MP3 players. Any initial success is going to be limited in comparison to Apple due to the aforesaid factors but the larger size of the WMA compatible base offsets that a small amount. However, Microsoft are further hamstrung by the fact they can’t push their own music stores or services too hard for fear of alienating software clients such as Napster and Loudeye/OD2, so they have to rely on their partners to do a lot of the work for them.In this context Microsoft need to improve the percentages on all factors available to them. Increasing the installed base of devices to offset lower conversion rates by pooling resources with Sony would be one way of achieving this.

Joe Wilcox writes, while concurring with Mark's perspective, Microsoft also needs to overcome the synchronization problem between Windows Media Player 10 and WMA-supporting portable music players. Some of that is software, but much is really about hardware supporting the software. That's a problem Microsoft can't fix. The hardware vendors need support new protocols introduced with WMP 10. So what if Microsoft and Sony teamed up? Would that make any real difference? A Sony selling a quality music player at a loss to gain market share; kinda the same model as the game console business, where the real profits are elsewhere. Sony's 20GB hard disk Walkman is a smart-looking music player, and one wonders how it would sell for 100 bucks or less( What happens to sony's philosophy of always charging a little more better qulaity, reliability etc)..If the device supported WMA DRM, well,the long-term potential benefits to Microsoft is evident to its music store partners, Sony and Sony Music?

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