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Microsoft names iPod competitor.

Microsoft is indeed developing a digital-media player to compete with Apple's iPod, and there's much more to the story.

A few details trickled out last week from music companies that Microsoft is lining up to support the device. Microsoft isn't commenting, but I was able to piece together a broader picture with some research, reporting and information from a source close to the project. What's being developed is actually a complete line of Xbox-branded digital-media products, including a device that plays media, a software media player and an online media service.

The project, or at least part of it, is referred to internally at Microsoft by the code name Argo � a reference to the huge warship used by the hero Jason in Greek mythology.

Argo is being developed within the Xbox group under the leadership of Xbox co-founder J Allard. His team includes people who previously worked on MSN Music, an online music service that had a promising debut in 2004 but fell victim to Microsoft's dithering over its music strategy.

Now the company is firmly behind Argo. It has committed hundreds of millions to produce and market the devices.

As reported last week, initially by Bloomberg News, the device is expected to go on sale by Christmas. It has Wi-Fi capability so it can connect wirelessly to home and public networks and other players.

Wi-Fi sounds like a big deal if you're comparing the player to the wire-bound iPod. But this is more than just another MP3 player. It will also compete with game players from Sony and Nintendo that have long had Wi-Fi and work as media players, Internet terminals and communication devices.

Argo is likely to showcase another Allard project � XNA, a new toolkit that helps game developers create titles for multiple platforms.

It's a grand plan, but as with a few other big projects in Redmond, it may be a struggle to get it all done by the end of 2006. The project isn't completed yet, the holidays are approaching fast and the team is under intense pressure to get everything absolutely right.

The timing of the hype cycle is perfect, however. Microsoft's annual meeting with financial analysts is July 27, and it's looking bleak. Wall Street is furious Microsoft won't be selling new versions of Windows and Office in the fall as promised.

Argo could help the December quarter and give executives something to discuss with analysts other than product delays, Bill Gates' departure and the high cost of doing battle with Google.

I had thought Microsoft would put its holiday marketing effort behind Urge, a music service it developed with MTV and bundled into Windows Vista's new media-player software. It's helping device makers produce players that show off Urge and the software. Now, those efforts are in parallel with Argo.

On the surface it seems like a rebuke of the Windows team that has carried Microsoft's digital-media torch. It's also a test of Chief Executive Steve Ballmer and his reorganization of the company. Has he truly made the product groups more autonomous? Can Xbox's young guns get past the old guard with a less Windows-centric venture?

By approving Argo, Ballmer was at least willing to try a bold new approach and risk alienating device makers that buy a lot of software.

But there's more at stake. Apple and others are becoming entertainment gateways, broadband-era broadcasters. If Microsoft doesn't do the same, it would, heaven forbid, be just a software company.

Posted by Ed on July 11.

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