Microsoft Gets Its Groove On With New Streaming-Music Service, But It's No Spotify Killer

Earlier this month, Microsoft rebranded its music streaming service -- in case you hadn't heard. "Xbox Music" is now known as "Groove," a move that Joe Belfiore, corporate vice president of the operating systems group at Microsoft, explained was intended to erase perceptions that the service was only for people with Xboxes.

Microsoft doesn't reveal how many people use the music service, and the lack of mainstream media coverage about the name change suggests not many people care. This is a service with 40 million songs (around 10 million more than Spotify), some unique cloud features like OneDrive streaming, and deep integration with Windows.

From the outside, it looks like Microsoft should just throw in the towel. It has a long history of changing the service to compete, but it still hasn't set the world on fire like Spotify has. But bundling a decent music offering in with Windows 10, along with a range of other services, might be crucial to Microsoft becoming a major player in the developing subscription-based online space.

Microsoft actually rejiggered the service a few times before. The ill-fated Zune music player launched with an iTunes-like music store that offered 2 million songs at launch. This was way back in 2006. The key differentiator at the time was the Zune Music Pass, which let customers rent music (and keep 10 free MP3s per month) for $15. Zune never really took off, and in March 2011 the company announced it would stop making the MP3 players themselves. In September 2011, Microsoft added a new Zune Music Pass tier that dropped the 10 free MP3s but sold for $10 per month.

"They did a rotten job with Zune," said Jack Gold, president and principal analyst at J. Gold Associates. "A lot of this was a reaction to what Apple did. [Former CEO Steve] Ballmer wanted Microsoft to be Apple, but Microsoft can't be Apple."

Zune Music, Take 2

Then at the E3 2012 conference in June, Microsoft shuffled the service again. This time, it would be called Xbox Music, launching alongside Xbox Video in October of that year. There was a music store, just like before, but a more Spotify-like ad-free streaming service with a free, ad-supported tier. Two years later, the free tier was dropped.

Then in March of this year, Microsoft added OneDrive support, where users could match their own songs to songs already on the service for streaming anywhere. Sound familiar? A lot of Microsoft's movements with Groove have mirrored its competitors', occasionally beating them to market, but largely just keeping pace with the industry as a whole. And yet Xbox Music, er, Groove, remains an obscure curiosity.

"With all things streaming being extremely hot right now, I would enjoy seeing Xbox Music and Microsoft further expand their combination and really test the waters of what can be done in this market," said Erik Ashdown, CEO and founder of Indiloop, a smartphone remixing platform. "I think they played it safe with this one and just piggybacked on what was on trend at this current moment."

Groove In A Microsoft World

Not a lot differentiates Groove from its competitors. Sure, there's OneDrive integration and a bigger song library, but for most people, anything that plays the hits ad-free will probably suit them fine. Will the customer care about the small differences?

"Music streaming is largely a commodity. There's not much difference between the services. Apple has a great marketing engine, and that's a huge advantage, but mostly it comes down to just picking your favorite," said Gold. "It's like the difference between Toyota and Honda. People who like Toyota will stick with Toyota."

It's a tough market to crack, and there's a lot of competitors out there. Most of the big music streaming services have an ecosystem built around them. Apple, Google, Amazon...there are exceptions to this, like Pandora and Spotify, the latter of which has integrated itself into existing third-party products with ecosystem holes to fill, like the PlayStation 4. This may explain why Microsoft doesn't simply dump Groove: It wants to offer it as part of living in the Microsoft world.

"Microsoft wants to be as broad a digital platform as they can be, and so [they] want to battle on as many fronts as they can," said Frank Gillett, vice president and principal analyst at Forrester. Gillett sees these ecosystems as moving toward offering complete packages: Subscribe to one bundle, receive all our services, and don't worry about remembering all the different passwords and monthly payments.

"Think back to before Microsoft Office, where you had your spreadsheet program packaged separately from your word processor, etc. ...What a pain!," said Gillett. "It's the same thing for you and me in our digital world." When considered as part of the Windows 10 world, with the amount of hype and marketing Microsoft is putting into launching the platform at the end of this month, maybe it's not so neglected after all.