Microsoft often builds prototypes of hardware devices such as mobile phones to help its partners who design and manufacture products for sale ... and it also has a very successful, and very innovative, hardware business selling keyboards, mice and other peripherals. This is fine, but it has to be very carefull not to step on its partners' toes.
Unfortunately it's frustrating when the hardware partners don't produce any market leading products, which has been the case in the market for portable music players, where Apple's iPod has won a monopoly market share.
Microsoft would usually grin and bear it. However, it is now enjoying some success in the games console market, where it was unable to find any hardware partners to sell consoles at a loss. And the Xbox has given Microsoft a taste of what it's like to control the whole user experience, just the way Apple does with the iPod, iTunes desktop software and iTunes Music Store. With the Xbox 360, games and Xbox Live, Microsoft has the same sort of exclusive control as Apple has in its iPod and desktop PC businesses, and it's hard not to feel the power.
It's also not hard to see the appeal of taking a similar strategy to the music market, with a Microsoft-designed and branded portable wma/MP3 player, Windows Media Player and online music store. Indeed, it's so obvous that rumours have been flying around for months if not years. The only thing that's missing are facts.
How many facts The New York Times has any is another matter, but a story today says it has talked to "entertainment industry executives briefed on the company's plans ... who did not want to be identified because they were not authorized to discuss the device."
The story says: "Microsoft has been developing its own hand-held music and video player to challenge Apple Computer's iPod and expects to have it in stores in time for the holiday season."
It also points out that this "is likely to anger Samsung, Sony, Creative Technology and other manufacturers that were persuaded to use Microsoft's software in their devices, because a Microsoft player would compete with theirs" -- though that's an assumption. None of these companies is quoted.
The alternative view is that they might be delighted. If Microsoft were simply to take the wma/MP3 sector of the market, leaving Apple's market intact, then it would be a disaster for third-party suppliers such as Creative, iRiver, Archos, Samsung, Sony and others. However, if Microsoft could swing the whole market towards wma/MP3, then they might all enjoy dramatic sales increases.
Microsoft just has to convince them that it's better to have a smaller part of a big pie than a big part of a very small pie. Not easy, perhaps, but not impossible.
It would open up the market because anybody can license wma and Microsoft's DRM, so Microsoft's entry would not limit consumer choice. A bigger device market would also help the numerous online music stores that offer protected wma downloads. And the music industry would like to have realistic competition for Apple's autocratic CEO, Steve Jobs.
Whether it's possible is another issue. Consumers are buying iPods because they like them, and consumer tastes are very hard to change.
However, there is another possible outcome. Apple is going to come under an increasing amount of political pressure to start licensing elements of its system, or find some other way of providing compatibility. Jobs could open the market just enough to keep the politicians happy and render Microsoft's efforts irrelevant.
Update: Microsoft has said reports that the company is planning an MP3 player to rival the iPod are based on "speculation and rumours", according to the BBC News.
