Citing sources inside Microsoft, the BusinessWeek publication claims that the software giant is working on plans to develop its own portable digital media device to rival Apple's iPod.

The article continues saying that Microsoft hasn't decided if it will go ahead, but the company has put together a team that's considering the business end of such an initiative.

Xbox boss Peter Moore said that any Microsoft media device would have to leverage the company's most significant consumer strength, video gaming. "It can't just be our version of the iPod," says Moore, who nonetheless would not confirm that Microsoft is considering making such a device. So in addition to playing music and videos, a Microsoft device would include games. Microsoft would probably use the Xbox brand to market the gadget.

True, perhaps, but also risky. If the new device comes with the Xbox brand, most consumers will view it as a game player, like Sony's PlayStation Portable. That might limit its appeal, since the portable gaming market is much smaller than the one for digital media.