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iPod rivals ready for prime time at last?

Clones look to undermine Apple's long-standing, overwhelming lead in the market for MP3 players. This year's would-be iPod rivals

A shadow shaped like an apple is looming behind many of the star-studded speeches and product announcements at the Consumer Electronics Show in Las Vegas this week.

Even though Apple Computer is likely saving its biggest news for its own Macworld conference in San Francisco next week, there's little doubt that the Silicon Valley tech pioneer is on the minds of many at CES.

Apple's iPod has dominated the portable audio market so completely over the past few years that giants like Sony and Microsoft have been reduced to also-rans. Now, four years since the first iPod was introduced, the question remains: With new product lineups and services, can the iPod's rivals finally start reeling in the market leader?

"We've got a lot of work to do. On the PC, our stuff is still the most popular stuff out there. It's not true in the portable device space, and I think we have to do some stuff to simplify the experience."
--Steve Ballmer
CEO, Microsoft

Optimistic iPod competitors dot the Vegas convention halls this week. But even the biggest companies concede they've got a long way to go to catch the most successful consumer electronics product of the past decade.

"We've got a lot of work to do," Microsoft CEO Steve Ballmer said in an interview with CNET "On the PC, our stuff is still the most popular stuff out there. It's not true in the portable device space, and I think we have to do some stuff to ."

If there is hope for Apple's rivals, it may lie in the swiftly changing nature of the digital-media market. As consumers warm to online music, they're beginning to look for more choices, and different kinds of devices, Apple's rivals argue.

Part of the iPod's success, of course, is due to its seamless links to Apple's iTunes music store and software. Apple CEO Steve Jobs' bet that consumers would respond to a simple offer of 99 cent songs that can be easily downloaded to his iPod device has paid off handsomely.

Digital song sales remain only about 5 percent of the overall music market, but Apple's overwhelming dominance of that business has helped keep iPod's share of the MP3 player market near 70 percent, with more than 6.4 million sold last quarter alone.

Apple rivals are increasingly betting that subscription services, which let consumers listen to an unlimited amount of music for a monthly fee, can undermine that lead. This year, most of the major iPod rivals are expected to support Microsoft software that will allow such vast amounts of music to be transferred onto portable devices from a PC. The iPod does not support subscription services.

In the past, however, this all-you-can-eat model has been confusing for device owners. Virtually all devices that use Microsoft technology carry the company's "Plays For Sure" logo, intended to show compatibility among all the devices and online services that Microsoft's products mesh with. But there's been a catch: Not all the devices have actually been fully compatible with subscription services.

Most new Microsoft-based MP3 players now have a subscription capability. Microsoft also plans to market music subscription plans from MTV and other companies as it gears up for the launch of Windows Vista operating system later this year, potentially giving the model new momentum.

But analysts note that Apple rivals still lack a simple link between online services and devices. The extra work of matching different companies' devices and services may well keep consumers coming back to Apple, some say.

"There are promising alternatives," said Yankee Group analyst Nitin Gupta. "But there need to be integrated marketing efforts, (instead of) requiring the customer to put the package together."

This year's would-be iPod rivals are a far more diverse bunch than in the past, often blending sets of features drawn from wholly different markets.

The most obvious candidates are MP3 players from companies such as SanDisk, Samsung, iRiver, Creative Labs and Sony. SanDisk is currently in second place, with 7.8 percent market share of flash-based and hard-drive players taken together, compared with Apple's 69 percent, according to market researcher NPD Group. Those figures represent sales from January to November of 2005. (SanDisk has about 29 percent of the flash-based market--which excludes players with hard drives--while Apple has about 49 percent, according to NPD.)

"We've been pretty encouraged by the devices we've seen. We think they're headed in the right direction."
--Bill Pence
CTO, Napster

SanDisk's new Sansa line of players, which come in 2GB, 4GB and 6GB versions, have color screens and compete most directly with Apple's diminutive, flash-based Nano, while supporting Microsoft-based subscription services.

SanDisk showed off its 6GB Sansa e270 player on Thursday at the Consumer Electronics Show in Las Vegas, setting its price at about $300. Apple's largest-capacity Nano is 4GB and costs $249.

"Ultimately, we would like to make this a two-horse race, and reach 35 to 40 percent market share," SanDisk General Manager Nelson Chan said at the event.

Creative Labs' new Zen Vision: M aims more directly at the video-enabled iPod, with a color screen and the ability to play several kinds of video formats.

iRiver's new U10 is a more dramatic departure from a design perspective, abandoning the iPod-like shape for a small matchbox-size device topped entirely by a small video screen. Lacking buttons altogether, the device instead relies on the screen, which rocks back and forth and up and down to let people scroll through music or video lists.

Many music-playing devices are pushing the technology even further.

Start-up MusicGremlin has created an MP3 player that taps directly into the company's online subscription service through a Wi-Fi connection, without ever needing to connect to a computer. The device can also browse and play songs from other Music Gremlin users' downloaded collections, if no Net connection is available.

Cell phone companies are diving wholeheartedly into the music business, with Sprint Wireless and Verizon Wireless beginning to offer iTunes-like music download services over their mobile networks. Verizon's V Cast music will be available on phones from LG and Samsung, but other companies, including Motorola and Sony Ericsson, are also touting their phones as on-the-go music devices.

"We've been pretty encouraged by the devices we've seen," said Napster Chief Technology Officer Bill Pence, whose digital music service currently has about 450,000 subscribers. "We think they're headed in the right direction."

Many of the smaller companies, and even some of the industry's largest, are turning to Microsoft to take on the Apple music powerhouse. It's hard for other companies to make substantial headway unless Microsoft counters Apple's massive ongoing marketing campaign, these companies say.

"Apple has buried the market with advertising for (iPod and iTunes), and since then it's been difficult for any other company to shake that bedrock," said Mark Farish, senior product marketing manager for Samsung Electronics America. "With 'Plays for Sure,' Microsoft has had a soft launch, not a thunderclap. That's what they need."

Reuters contributed to this report.