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With the exception of the Xbox and a line of PC keyboards and mice, Microsoft has largely kept out of the hardware business. According to reports published last week, however, the company plans to take on Apple and other gadget makers directly, launching its own Microsoft-branded media player in time for the Christmas holiday shopping season.

Reviving rumors circulating since a Reuters report in mid-June, entertainment industry executives privy to Microsoft’s plans told the New York Times last week that the Microsoft media player will have a larger screen than the industry-leading Apple iPod, and will download data wirelessly using a built-in Wi-Fi chip. Microsoft is reported to be in negotiations with recording studios and television networks to sell music and videos tailored for the device through an Internet site similar to Apple’s iTunes Music Store.

Microsoft told the BBC on July 7 that talk of a Microsoft rival for the iPod amounted to “rumors and speculation.” But the company didn’t directly deny that a portable media player is in the works, merely saying it had nothing to announce on the subject.

If the rumors are true, the project underscores a gradual strategy shift underway at Microsoft, as it adapts to an era in which more and more digital content is being delivered to devices other than PCs. Those devices need software too, creating a new market Microsoft isn’t willing to cede to competitors – as its investment in mobile-phone operating systems and other alternatives to its bread-and-butter desktop software products shows. By building its own media player – Lance Ulanoff of PC Magazine has cleverly christened it the “MiPod” – Microsoft could solidify its place in the era of mobile digital content, and would no longer need to rely on manufacturing partners to design and market devices using Microsoft code.

But any company entering the media-player market must contend with the iPod. Apple rivals such as Creative Technologies, Samsung, and iRiver offer devices with comparable capabilities, but have barely dented the iPod’s 80 percent market share. Microsoft, meanwhile, has a mixed record in the hardware business. The Xbox 360, for example, has wooed many advanced gamers away from Sony’s PlayStation 2 – but it has yet to turn a profit, thanks in part to high manufacturing costs. And Microsoft lacks Apple’s marketing savvy and cult following, especially among youth.

Can Microsoft hope to produce a real iPod killer? Many observers are skeptical. Yet Microsoft has enjoyed a number of come-from-behind victories. If product developers in Redmond have studied the mobile-media market closely and learned from Apple’s successes (and failures), the MiPod has a chance of becoming a credible rival to the iPod.

There are a few specific steps Microsoft could take to help the MiPod gain a foothold – though it may already be too late, if the company is really aiming for a year-end release.

1. Keep It Simple.
In other words, don’t use Windows as the MiPod’s internal operating system. With Windows CE and its successor Windows Mobile, Microsoft has demonstrated an almost obsessive preoccupation with adapting its core operating system product for devices other than PCs. But many of these devices have limited functions or run only one program at a time, which means Windows – with its submenus-within-submenus-within-menus – is overkill.

A case in point is the Motorola Q, a new smart phone designed by the same team that built the highly popular Razr. The phone is winning praise for its thin form factor, convenient keyboard, and high voice quality. But it is being faulted for its needlessly complicated software interface, which depends on Windows Mobile 5.0.

Microsoft engineers are doubtless under pressure to build the MiPod around either some permutation of Windows or the company’s existing Windows Media Player software. But the appeal of the most successful handheld gadgets lies partly in the fact that they aren’t as fussy and complex as PCs or desktop software. Microsoft should start from scratch.

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