Why Microsoft Zune is iPod's New Challenge

Challenges facing Microsoft. Despite the attraction of entering into both markets, the primary obstacle blocking the firm has been the sheer market share Apple commands. In the same survey conducted by the NPD group, Apple's many rivals combined gained a total market share of 25 percent in the portable music player market and 15 percent in the online music market.

The entrenched position of Apple has given the company leverage against the competition. It has been able to sign licensing deals with major record labels and media companies. Shaw Wu, an analyst with American Technology Research, wrote in a client's note that "(Apple) has sold over 1 billion songs and 30 million videos. Entering the market would be formidable challenge to Microsoft.

While the firm is concerned about the dominance of Apple in the digital music market, it's just one component of Microsoft's bigger plans for becoming a player in the digital home entertainment market where it is currently competing with the Internet-connected Xbox360 video game/DVD player.

"It's more a concern that Apple controls a key endpoint in the digital home and that Apple bits flow only to other Apple controlled bits or devices," wrote Michael Gartenberg, vice principal analyst and research director at Jupiter Research. "That scenario doesn't bode well for Microsoft's larger ambitions."