Will Microsoft's New Xbox Music Crush Rdio, Spotify, MOG And Pandora?

Having tried - and failed - to capture a share of the online music market with the Zune MP3 player, Microsoft is launching another attempt with Xbox Music. The hook this time? Tying it directly to Windows 8.

In fact, since the new service will be the featured music application - or "core experience" - within Windows 8, some sources in the online music industry are already making noises about the antitrust implications of “bundling” a music service directly into Microsoft’s upcoming operating system. Microsoft plans to roll out Xbox Music on the Xbox Monday, and put the app on PCs and tablets powered by both Windows RT and Windows 8, plus launch it on Windows Phone 8 devices as well. 

How Much Will Xbox Music Cost?

Xbox Music offers a number of features that directly compete with music services like Rdio, Spotify and MOG: users will receive an undisclosed number of free, on-demand tracks for six months, then can sign up for a $9.99/month Xbox Music Pass that will allow unlimited streaming. Microsoft hasn’t said whether it will allow free on-demand streaming for mobile devices as well; that’s a perk that rival music services usually charge for. Those free song streams will include ads, which will go away with the Xbox Music Pass; Microsoft has also done away with the ability to download and own ten free songs per month, as the Zune’s earlier Zune Music service did.

Songs will cost about $1.29 apiece, according to PC World, via either Microsoft Points or a credit card. 

Scan And Match

Microsoft has also unveiled a scan-and-match service that works like those already in use by top-tier music service providers Amazon and Apple. It will add all the music you own to your Xbox Music cloud catalog, including music acquired through other services. All told, Microsoft is promising to sell 30 million different tracks in the Xbox Music Store, comparable to the selection Apple’s iTunes offers, plus what users can find in their own libraries and match to Microsoft’s online database.

In addition, Microsoft will offer a “radio” feature called SmartDJ, which will compete directly with Pandora. Unlike Pandora, however, SmartDJ will be seeded only by artist (not by song) but will offer unlimited skips as well as a “full view” of the upcoming songs recommended by the service.

“The launch of Xbox Music is a milestone in simplifying digital music on every type of device and on a global scale,” said Don Mattrick, president of the Interactive Entertainment Business at Microsoft, in a statement. “We’re breaking down the walls that fracture your music experiences today to ensure that music is better and integrated across the screens that you care about most — your tablet, PC, phone and TV.”

Integration Is Key

So far, Microsoft’s service lacks a Web player, one of the keys to extending Xbox Music onto platforms like the Apple Macintosh. That’s a likely next step, and the traditional route of socially connected services like Spotify and MOG, where users are “paid” in free songs for performing social tasks, such as sharing playlists and allowing the service to post to a user’s Facebook Timeline. In its announcement, Microsoft promised future social integration, but hasn’t said how that will be handled. Microsoft has forged strong ties with Facebook inside of its search engine, Bing, but hasn’t done anything to indicate that it will be able to go father than its rivals in this space.

The most important aspect, however, is the fact that Xbox Music will be the default music player for the Windows ecosystem, tied directly to the operating system. In a very real sense, Xbox Music becomes the iTunes of Windows 8, but with key advantages that iTunes lacks: the free music and “radio” aspects. At launch, Xbox Music will have arguably the largest clout of all radio services, if only because of its placement, its breadth, the free music and the radio elements.

That doesn’t preclude users from using services like Rdio and Spotify, especially if they have existing subscriptions. But fewer new users are likely to sign up, if Microsoft already offers everything and more that its competitors do.

Another Bundling Case?

Microsoft’s announcement has already generated some upset stomachs among its competitors, although, as of Monday morning, none were willing to go on the record. Spotify, which popularized free a la carte tracks, declined to comment. One service suggested, however, that Xbox Music represented another example of Microsoft bundling its own services in an effort to freeze out the competition - which Microsoft has already paid a record fine to settle.

Microsoft has already been involved in two famous cases that involved bundling - to the detriment of competition, according to government antitrust regulators. In 1999, Judge Thomas Penfield Jackson’s findings of fact found that Microsoft acted as a monopoly in bundling Internet Explorer with Windows, although the case ended up with Microsoft agreeing to a consent decree that would allow it to open up some of its communication protocols. During the case, however, Microsoft executive Paul Maritz was quoted by an Intel witness as claiming that Internet Explorer would “cut off Netscape's air supply,” referring to the rival browser that eventually became Mozilla.

In 1998, Sun began complaining to the EU that Microsoft was failing to provide certain documentation about the interfaces to Windows NT. The complaint was later expanded to include concerns about how Microsoft handled streaming media within Windows. In March 2004, the EU ordered Microsoft to pay €497 million in fines, which at the time was the largest penalty that the EU had ever handed down. Microsoft was also ordered to design a EU-specific version of Windows without Windows Media Player, which users could download separately, or choose a competitor.

During the 1998 case, Microsoft claimed that competing products could easily be downloaded, a defense that it used to justify its bundling behavior. Microsoft representatives used the same explanation on Monday, but also characterized music as a “core experience”.

“Customers expect devices in today’s market to offer core experiences like music services,” the company said in a statement. “With Windows 8 and Windows RT we’re committed to meeting customer expectations for these experiences, while also giving customers the choice of a wide range of applications and services from other providers, all easily accessed from the Windows Store.”

None of the rival music services contacted by ReadWriteWeb would issue an on-the-record statement on Xbox Music or the antitrust aspect. However, it’s important to note one important lesson from history: how the market shares of rival media players struggled during the years in which Microsoft’s bundling case was heard. 

Like the basic versions of the online music services, the third-party media players were free. Although Microsoft was forced to offer a “Windows N” to the EU market without Windows Media Player, only 1,787 copies were bought by EU retailers, according to a paper authored by Christian Ahlborn and David S. Evans, two advisors to Microsoft.  In part, that’s because the two OS versions were offered at the same price. That showed that customers simply didn’t care which media player they used, as long as it was included.

“In theory, one could make the argument that in 1999 there might have been demand for Windows N which due to Microsoft’s behavior has evaporated in the meantime,” they wrote.