By Troy Wolverton and Bill Snyder

Staff Reporters

7/5/2006

Microsoft (MSFT - commentary - Cramer`s Take) plans to release a portable digital media player by the holiday season this year that will rival Apple Computer`s (AAPL - commentary - Cramer`s Take) iPod, according to published reports.

Unlike the iPod, Microsoft`s player will incorporate a wireless radio that will allow users to download songs and videos directly without connecting to a computer, according to the reports.

To complement the new device, the company also is developing some new media software that could potentially integrate an online music store similar to how Apple`s iTunes works, according to Reuters. To promote the device, Microsoft plans to spend ``significant marketing dollars,`` Reuters reported.

A Microsoft representative declined to comment. Representatives for Apple did not return calls seeking comment.

Rumors of Microsoft unveiling such a device have been floating for weeks. Industry analysts could not confirm the published accounts but said they are plausible.

The move would mark a major change in strategy for Microsoft and could mean a significant threat to Apple`s dominance in the digital music market.

Microsoft has previously attempted to compete with Apple by licensing its Windows Media software to various partners. Dell (DELL - commentary - Cramer`s Take), for instance, offers music players that play Windows Media encoded songs which customers can download from stores such as that run by Napster (NAPS - commentary - Cramer`s Take).

But that strategy has been a failure to date for both the Microsoft`s service and hardware partners. Apple`s iPod players hold more than 70% of the digital music player market in the U.S. and lead in worldwide market share.

Mike McGuire , an analyst with Gartner, said Microsoft certainly has the ability to create a version of the iPod, but success in that market would not be a slam dunk. ``Putting the hardware and the software together in a meaningful way will be expensive and difficult,`` he said. However, he also noted that Apple dislodged Sony`s (SNE - commentary - Cramer`s Take) Walkman from its position as the de facto standard for digital music, and it would not be impossible for Microsoft to do the same to Apple.