The Redmond-based software maker said in a statement it planned a series of hardware and software products, with the first expected to be available this year. The products will be called Zune.
Microsoft refused to provide more details beyond the statement, such as whether anyone in the music industry has expressed serious interest. Microsoft has been briefing music industry executives on the project for some time.
Jupiter analyst Michael Gartenberg, one of a handful of industry analysts briefed on the project, said Microsoft probably feels like it has to get into the portable player market because it is such an important jumping-off point for getting people to embrace its technologies in the living room.
That's key for the company as the traditional market for its Windows desktop operating system grows saturated. Microsoft has already expanded the reach of Windows by adding features such as the ability to record live television in some versions.
Offering both the hardware and software together could put Microsoft in a more competitive position, says CBS News tech analyst Larry Magid.
But in creating its own music products Microsoft also risks alienating partners such as Creative Technology Ltd. and Samsung, Gartenberg said. Those companies are already using Microsoft's software for their own players, although they've had little success against Apple's juggernaut.
"This is a very tough message," Gartenberg said. "If you're the head of Creative, as of this afternoon you're not just facing Apple, which was bad enough, you're now facing your partner."
He said it could have even deeper repercussions if people in other industries grow wary of partnering with Microsoft for fear the company will decide to launch its own competing product. Microsoft's success has been built on working with hardware manufacturers to make products running its software.
"It's certainly going to cause a lot of fear and uncertainty and doubt in the ecosystem," Gartenberg said.
Gartenberg said Microsoft confirmed to him that it would release a wireless device that would play both music and video this year. The device will have an accompanying content service, Gartenberg said.
It's not clear how the service will fit into Microsoft's existing plans. The company recently partnered with MTV Networks Inc. to launch a music download service to compete with Apple's iTunes. That's in addition to Microsoft's own service, MSN Music, which was launched amid much fanfare nearly two years ago but hasn't garnered much attention since.