Nov. 14 (Bloomberg) -- Microsoft Corp. Chief Executive Officer Steve Ballmer says he can break the dominance of Apple Computer Inc.'s iPod in the digital music market with the Zune player that hits stores across the U.S. today.

``We can beat them, but it's not going to be easy,'' Ballmer said in an interview yesterday from Redmond, Washington.

Zune is Microsoft's first attempt to thrust itself into the $4 billion U.S. digital music device market controlled by Apple's iPod. The world's largest software company marked the release with free concerts by artists including rapper T.I. and rock group Red Hot Chili Peppers that were aimed at solidifying Zune's credentials among music fans.

``The market will have two big players for a long time, us and Apple,'' said Ballmer, 50. ``Obviously we're the David in this one. Apple's the Goliath.''

Zune will sell for $249.99 in the U.S., the same price as an iPod with comparable storage space, and will compete with new video iPods released in September. Microsoft, trying to promote Zune as a social experience, has added an FM radio and the ability to beam songs from one device to another.

Microsoft shares slipped 13 cents to $29.12 at 12:35 p.m. New York time in Nasdaq Stock Market composite trading.

Ubiquitous and Cool

Even with music sharing features, Microsoft may struggle to win sales. The iPod is used by everyone from Queen Elizabeth II to Pope Benedict XVI, according to the Catholic News Service. Its ubiquity hasn't diminished its cool among teenagers. Apple has sold more than 67.6 million iPods since Chief Executive Officer Steve Jobs introduced the device in 2001, with 39.4 million players shipped in the past year alone.

``They're not going to take a lot of share from Apple,'' said Matt Rosoff, an analyst at Kirkland, Washington-based Directions on Microsoft. ``If they get double-digit market share overall in a year they'll be very pleased.''

Microsoft may take 5 percent to 10 percent of the market in the first year, said Eugene Munster, who follows Apple and Microsoft for Minneapolis-based Piper Jaffray.

In a survey of almost 1,000 high school students, Munster found that of those who planned to buy an MP3 player in the next year, 76 percent planned to buy an iPod. The survey was conducted after Microsoft announced its plans for Zune and before the company began television, print and outdoor ads.

To match Apple's song selection, Microsoft had to offer Vivendi SA's Universal Music Group a cut of Zune sales, an offer it has now extended to other providers of tracks for Zune.

Apple's `Halo'

Challenging Apple's iPod, which controls 75 percent of the U.S. market for digital music players, may be tougher than it was for Microsoft to break Sony Corp.'s hold on the video-game console market, said Microsoft Vice President J Allard, who owns nine iPods and is leading the effort to sell Zune.

``Apple has this halo around it where they can do no wrong,'' said Allard, who previously helped oversee the Xbox console's battle with Sony's PlayStation. ``People could see Sony failing.''

Apple spokesman Steve Dowling declined to comment.

Ballmer, who gave his son a white Zune for his birthday over the weekend, said for Zune's first Christmas on the market he has tasked employees with getting great reviews for the product and selling ``about as many devices as we can make.''

Zune Versus iPod

The Zune team, which includes staffers from MTV and Seattle public radio station KEXP, is trying to gain entry to the market by going after fans of independent and emerging bands that can grow in popularity. According to a survey by market researcher NPD, 58 percent of consumers planning to buy a new music device say they will add Zune to the brands they are considering.

Getting them to select a Zune over an iPod may be harder. A.M. Casey, a 24-year-old photographer who attended last night's promotional concert by Queens of the Stone Age in New York, said his next music player will probably be an iPod since he uses a Macintosh computer. Zune will have to be easy to use and have better customer support than Apple to win users, he said.

Microsoft Vice President Bryan Lee said today in an interview that consumers are willing to try something different that allows for social interaction. Songs transferred wirelessly to other users over Zune expire after three days or three plays.

To maintain its lead, Apple introduced updated and cheaper versions of its pencil-thin Nano and video iPod ahead of holidays. A new model of the Shuffle, the company's lowest- priced player at $79, began shipping Nov. 3.

Market Leader

Apple may sell 15.6 million iPods this quarter, topping the record 14 million sold in the 2005 holiday season, said UBS AG analyst Benjamin Reitzes in New York. Jobs, 51, will likely introduce a new video iPod with a larger screen as early as January and an iPod phone in 2007, Reitzes said.

Apple today signed agreements with six airlines so passengers can watch videos stored on iPods from seat back monitors.

Acknowledging Apple's record growth, Microsoft said in September that it expects Apple to continue to lead the market for the next six to 12 months.

``The most important thing for us is to be relevant,'' said Chris Stephenson, who joined Microsoft from concert operator House of Blues to lead the marketing for Zune. ``We would like people to say there's a clear No. 2 in the marketplace.''

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net.

Last Updated: November 14, 2006 17:51 EST