The Microsoft Windows XP Reloaded marketing campaign cranks up this week with the launch of Windows Media Player (WMP) 10, MSN Music, and the partner-made Portable Media Center devices. These releases follow the shipment of XP Service Pack 2 (SP2) and XP Tablet PC Edition 2005, both of which became available in early August and precede a host of other XP Reloaded releases that many have pegged for October. Chief among those second-stage releases, of course, is the next version of XP Media Center Edition (MCE), a product veiled in much secrecy.

With a public beta release earlier this summer and many public pronouncements from Microsoft about its design, WMP 10 is largely a known quantity. But MSN Music, Microsoft's first serious foray into online music services in the United States, has been the cause of much speculation. And although some people have suggested that the service will quickly relegate Apple Computer's successful iTunes to the dustbin of history, I'm not sure that's going to be the case.


More important, perhaps, is what's the difference? The online music market is currently tiny, only occupying about 2 percent of the $1.7 billion music business in the United States, and much, much less worldwide; even the most positive outlooks see online music occupying just 12 percent of the overall music business in the United States by 2007. As David Card, the research director of Jupiter Research, told the “New York Times” this week, "for Microsoft, \[entering the online music business\] is like Slate, not Xbox. It's a pretty small opportunity right now."


So why bother at all? My guess is that Apple's success in online music was eye-opening for the software giant, as was the failure of the PC industry's usual strategy, in which a host of Microsoft partners rally around a common format--Microsoft Windows Media Audio (WMA) in this case--and split up the market. Despite the emergence of WMA-based challengers such as BuyMusic.com, Musicmatch, Napster, Wal-Mart, and others, Apple continues to dominate online music, and the company appears to be reforming itself along consumer electronics lines as a result. However, if Apple is ultimately successful, Microsoft's wider plans for Digital Rights Management (DRM) and its Windows Media formats will fail, because consumers, hardware and software partners, and services will all want to use Apple's formats. Thus, although sales from online music might accurately be equated to an accounting error in the Microsoft Windows Division, the software giant needs to jump-start acceptance of its own formats if it expects to be a future player in more lucrative markets, such as digital movie delivery, High Definition (HD) film projection, and the like.

In any event, MSN Music will go live this week, alongside the new WMP version. The company is also launching a new "Plays for Sure" branding campaign designed to educate users about whether music purchased from MSN Music and all the WMA-compatible online music stores is compatible with a wide range of more than 70 portable audio players. The message here is clear: Apple's iPod might be successful, but it's only natively compatible with iTunes, an online service that offers relatively low-quality songs for sale. If you use a WMA-compatible solution, the software giant says, you’ll have plenty of choices, both on the music-store side and on the portable-player side. By choosing WMA, you'll know that the music "plays for sure" on whatever device you choose. Assuming, of course, it's not an iPod.


Consumers will ultimately decide whether MSN Music or any of the other digital media-related products and services that Microsoft and its partners unleash over the new few months are good enough to merit purchase. But at this still-early stage of the game, Apple is ensconced in the driver's seat, and it's unclear whether anything Microsoft can do--no matter how good it is--will change that for the short term. In the long term, Microsoft's "network effect"--in which simply bundling WMP in Windows and setting the Microsoft Internet Explorer (IE) home page to MSN.com garners millions of users--might actually be enough to tip the scales. But that will take years and likely another Windows version. In the meantime, Microsoft is reloading XP with a host of new updates, products, and services. Let's see whether any consumers take the plunge.