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Microsoft Corporation , headquartered in Redmond, Washington, USA, is the world's largest software company (with over 50,000 employees in various countries, as of May 2004). Microsoft develops, manufactures, licenses and supports a wide range of software products for various computing devices. Its best known product is the Microsoft Windows operating system family, which has achieved near ubiquity in the desktop computer market.

The company's aggressive business practices have led to several government investigations, including a 1998 federal lawsuit in which it was found to have illegally leveraged its monopoly power to defeat its competitors; through appeals and negotiated settlements, Microsoft has mitigated the adverse effects of this ruling on its operations and financial status.


Main article: History of Microsoft Windows

Microsoft was founded in Albuquerque, New Mexico in 1975 by Bill Gates and Paul Allen, under the company name Micro-soft, to develop and sell BASIC interpreters (initially for the MITS Altair 8800, whose manufacturer was already in Albuquerque). The name "Micro-soft" (short for microcomputer software) was used by Bill Gates in a letter to Paul Allen for the first time on November 29, 1975. "Microsoft" became a registered trademark on November 26, 1976. Microsoft's second (programming language) product was its Fortran compiler for CP/M, released in August 1977. The third was the MS COBOL compiler (for MS-DOS), released in April 1978. Both Gates and Allen ran a company called Traf-O-Data prior to starting Microsoft.

As the popularity of Microsoft BASIC grew, other manufacturers adopted its syntax to maintain compatibility with existing Microsoft BASIC implementations. Because of this, Microsoft BASIC became a de facto standard and the product dominated its market.

Microsoft's key moment came when in the late 1970s, IBM was planning to enter the personal computer market with its IBM Personal Computer (PC), which was released in 1981. IBM first approached Microsoft about its BASIC and asked them for an operating system. Since Microsoft did not have an OS, they suggested CP/M from Digital Research. IBM then approached Digital Research for a version of CP/M and spoke to Gary Kildall's wife Dorothy. IBM representatives wanted Dorothy to sign their standard non-disclosure agreement, which Dorothy considered overly burdensome. IBM then returned to talk to Microsoft. Microsoft licensed a cloned design of CP/M called Quick and Dirty Operating System, from Tim Paterson's Seattle Computer Products in order to sell it to IBM as the standard operating system for the IBM PC. Microsoft subsequently purchased all rights to QDOS for $50,000, and renamed it MS-DOS (for Microsoft Disk Operating System). Later, IBM discovered that Gates' operating system could have infringement problems with CP/M, contacted Kildall, and in exchange for a promise not to sue, made an agreement that CP/M would be sold along with IBMDOS when the IBM PC was released. The price set by IBM for CP/M was $250 and for MSDOS/IBMDOS it was $40. Obviously, MSDOS/IBMDOS outsold CP/M many times over, eventually becoming the standard. In contracting with IBM, however, Microsoft had retained the rights to license the software to other computer vendors as MS-DOS. The early 1980s saw a flood of IBM PC clones, and Microsoft was quick to leverage its position to dominate the operating system market. By marketing MS-DOS aggressively to manufacturers of IBM-PC clones, Microsoft gained unprecedented visibility in the microcomputer industry, even rivalling IBM.

During the following years, Microsoft used its growing resources to displace competitors such as WordPerfect, and Lotus 1-2-3, among many others. It is alleged (although never explained in detail) that Gates instructed Microsoft programmers to include special code in one of the MS-DOS versions to make Lotus 1-2-3 produce errors, making it appear to the users as if Lotus's software was the problem.

In the late 1980s, Microsoft and IBM partnered in the development of a more advanced operating system, OS/2. The operating system was marketed in connection with a new hardware design, the PS/2, that was proprietary and secret to IBM. On May 16, 1991 Bill Gates announced to Microsoft employees that the OS/2 partnership was over and Microsoft would henceforth focus its platform efforts on Windows and the NT kernel. In the ensuing years OS/2 fell to the side and Windows became the favored PC platform.

Software running on PC hardware was not necessarily technically better than the mainframe software that it replaced, but it was much less expensive. Microsoft's success rode on the PC boom.

Microsoft, now highly profitable, diversified into a wide variety of software products including:

In many cases, early versions of Microsoft software were buggy and inferior to their competition, but later versions improved rapidly and eventually overwhelmed their competitors by offering more features for a lower price. The best example of this is probably that of WordPerfect, which in the early 1990s appeared to have an unassailable dominance over the PC word processor market but eventually found itself in a distant second place.

Microsoft's focus on software usability was a large factor in its early successes. Some key aspects of this were:

  • A common user interface: all Microsoft applications used the same menu commands, shortcuts, and procedures for similar tasks. This reduced the barrier to learning and using new software.
  • Backward compatibility: Microsoft made sure that older code and data would work on newer systems. In contrast, until about 1986, some major manufacturers of hardware-software combinations would periodically introduce new machines with new operating systems giving little or no compatibility with the previous ones. A common Microsoft demo was to show old Visicalc software running on the latest version of Windows.
  • Interconnectedness: generally, and especially in Microsoft Office, data prepared with one Microsoft application can be brought into other Microsoft applications. A common example is creating a diagram in Excel and pasting it into a Word document.

Microsoft has devoted large amounts of money and effort to developing, integrating, and marketing its products and services. By the turn of the millennium, many of Microsoft's software products dominated their markets.

Business culture

The software developer

Microsoft has often been described as having a developer-centric business culture. A great deal of time and money is spent each year on recruiting young university-trained software developers who meet very exacting criteria, and on keeping them in the company. For example, while many software companies often place an entry level software developer in a cubicle desk within a large office space filled with other cubicles, Microsoft assigns a private or semi-private closed office to every developer or pair of developers. In addition, key decisionmakers at every level are either developers or former developers.

In a sense, the software developers at Microsoft are considered the "stars" of the company in the same way that sales staff at IBM are considered the "stars" of their company.

"Eating our own dog food"

Within Microsoft the expression "eating our own dog food" is used to describe the policy of using Microsoft products inside the company. It can be very difficult for management, support staff, and even software developers to get permission to use software from Microsoft competitors.

Long term wariness

Microsoft fosters a general attitude of long term strategic wariness in its managers, who are expected to be ready for any challenge from the competition or the market. In this frame of mind, being the largest software company in the world is not seen as a form of safety or a guarantee of future success; for instance, future competitors could rise from other industries, or computer hardware companies could try to become less dependent on Microsoft, or consumers could decide not to upgrade their software as often. Microsoft requires its managers to maintain vigilance and sustain a dynamic expansion in new markets.

Microsoft takes security as a very serious issue. If it did not secure its software and hardware secrets successfully (such as the source code to software) then it could stand to lose its market position. The Microsoft Security System is therefore very complex.

Monopoly and legal issues

Microsoft Windows has an effective monopoly in the desktop operating systems market; this was established in the "findings of fact" during the antitrust case. Almost every PC sold has a copy of Microsoft Windows pre-installed.

In the 1990s, Microsoft adopted exclusionary licensing under which PC manufacturers were required to pay for an MS-DOS license even when the system shipped with an alternative operating system. It also used predatory tactics to price its competitors out of the market, and erected technical barriers to make it appear that competing products did not work on its operating system. An investigation by the United States Department of Justice on August 21, 1993 determined this behavior to be illegal; in a consent decree issued on July 15, 1994, Microsoft agreed to a deal in which, among other things, it would not "tie" other Microsoft products into its operating system.

After bundling the Internet Explorer web browser into its Windows operating system in the late 1990s and acquiring a dominant share in the web browser market, an antitrust case was brought against Microsoft, and the company was convicted by a United States federal court for violating its earlier consent decree and abusing its monopoly in the desktop operating systems market. However, the proposed remedy (dividing Microsoft into two companies) was overturned on appeal, and Microsoft has since reached a settlement with the Department of Justice and some of the states which brought suit against it. Meanwhile, several class-action lawsuits filed after the conviction are still pending.

In early 2002, Microsoft proposed a settlement to end the private lawsuits against it by donating $1 billion in money, software, services, and training, including Windows licenses and refurbished PCs, to about 12,500 underprivileged public schools. This would have been a windfall for Microsoft, not only in educating schoolchildren on Microsoft solutions but also in collecting additional license and service fees if the schools ever wanted to upgrade; but after protests from Apple Computer, which feared further loss of its educational market share, a federal judge rejected the proposed settlement.

In 2003-2004, the European Commission investigated the bundling of media player software into Windows, a practice which rivals complained was destroying the market for their own products. Negotiations between Microsoft and the Commission broke down in March 2004, and the company was subsequently handed down a record fine of €497 million ($613 million) for its breaches of EU competition law. The ruling is subject to appeal in the European courts. Separate investigations into alleged abuses of the server market were also ongoing at the same time.

In March 2004, during a consumer class-action lawsuit in Minnesota, internal documents subpoenaed from Microsoft revealed that the company had violated nondisclosure agreements seven years earlier in obtaining business plans from Go Corporation, using them to develop and announce a competing product named PenWindows, and convincing Intel to reduce its investment in Go. (After Go was purchased by AT&T and Go's tablet-based computing efforts were shelved, PenWindows development was dropped.)

In May 2004, after a California court penalized Microsoft $258 million for having overcharged its customers in that state, Microsoft warned that the court's decision would result in higher charges to consumers to pay for the penalty. A Microsoft attorney said, "Somebody ends up paying for this. These large fee awards get passed on to consumers."

In July 2004, Japan's Fair Trade Commission warned Microsoft to remove a provision from its licensing contracts whereby PC makers would not be allowed to file patent infringement suits if future versions of Windows add features similar to their own technology. Microsoft plans to appeal the warning.

Microsoft has also fought legal battles against:

Linux and open source

In recent years Linux has become an increasingly popular server operating system, particularly for the low-margin, price-sensitive hosting market, and it has begun to make inroads to the desktop market. Wal-Mart now sells a cheap consumer PC running Linspire (formerly known as Lindows, renamed after a trademark challenge from Microsoft), which is a version of Linux made to look and work like Microsoft Windows. Recently, several governmental users have announced the conversion of their desktop computers from Windows to Linux, including the country of Brazil; the city of Munich, Germany; and France's Ministry of Equipment and Transport.

Microsoft CEO Steve Ballmer has stated that Linux is a "tough competitive force... It's non-traditional, it's free and it's cheap. We have to educate people why what they pay for [our offerings] is more than offset by the value we deliver. We used to be the cheap guys. We were cheaper than Novell, cheaper than Oracle. We can't do that with this one." (Reported in, June 17, 2002)

Microsoft has been using various channels on the Internet and in popular media to fight the open source movement, usually with the help of think-tank organizations funded by Microsoft. One of their main claims is that the GPL license (the copyright license that Linux and much open-source software is released under) is a viral license that threatens intellectual property. They also argue that open source software is less secure, more expensive, and more attractive to terrorists than proprietary software. Supporters of open source assert that Microsoft's tactics amount to a campaign of FUD (Fear, Uncertainty, and Doubt).

Microsoft has also facilitated a legal attack on Linux companies by licensing Unix from The SCO Group SCO, which is currently suing IBM and other defendants, claims that IBM devalued the SCO operating system by taking SCO proprietary code and releasing it as part of Linux.

In November 2004, Ballmer stated that Linux violates more than 228 software patents and that "someday, for all countries that are entering the WTO, somebody will come and look for money owing to the rights for that intellectual property. ... We think our software is far more secure than open-source software. It is more secure because we stand behind it, we fixed it, because we built it. Nobody ever knows who built open-source software." He provided no details on which patents have been violated, nor did he mention the patent lawsuits currently facing Microsoft.,1759,1661094,00.asp Microsoft later issued a statement saying that Ballmer was citing a study written by a risk-management company. The author of the study responded by saying that his study found 283 potential patent violations, but that such allegations are a long way from a court finding merit in them, and that proprietary software is at equal or greater legal risk.,1759,1729908,00.asp?kc=EWRSS03119TX1K0000594

Meanwhile, Microsoft has placed three projects under an open source license: the Windows Installer XML (WiX) toolset, the Windows Template Library (WTL) and Flexwiki.


Main article: Common criticisms of Microsoft

Microsoft has been the focus of much controversy in the computer industry, especially since the 1980s. Among the more frequently criticized areas are:

  • Ease of use: Microsoft has been accused of allowing the user interface of its products to become inconsistent and overly complicated, requiring interactive "wizards" to function as an extra layer between the user and the interface. This violates the anti-modality principles of early user interface design (the principle that the user should be forced to do one particular thing as little as possible).
  • Security: Microsoft products (such as Internet Explorer) are seen as overly vulnerable to computer viruses and malicious attacks, both for the simple reason of monoculture, and because of design decisions which value ease of use over security.
  • Business practices: Microsoft is believed to engage in unfair and anticompetitive business tactics. The findings-of-fact from a federal antitrust case have affirmed this, and Microsoft has lost other lawsuits in which competitors accused it of stealing code, making Microsoft operating systems incompatible with their products, or using predatory pricing and licensing tactics.
  • Total cost of ownership: Microsoft software is seen as more expensive to purchase, use, and maintain than competitors' software. As the price of PCs has fallen, the price of Microsoft Windows has not.

As a result of widespread enmity, Microsoft is often referred to in conversation, particularly in chatrooms, by many colorful nicknames, including: "M$", "Microshaft", "Microshit", and "Microsuck".

The future of Microsoft

The next version of Windows in development is code-named Longhorn, which will be an extension of and improvement on Windows XP and Windows Server 2003. Planned features include better interaction with both the user and other devices (such as media players) and an enhanced user interface (Aero). Longhorn was initially to ship during 2003, but has since slipped to 2006.

Microsoft is working to leverage its current success in desktop operating systems into new markets such as media players, server software, handheld devices, web services, and video games, and more recently search engines, with varying degrees of success. Microsoft is now trying to establish PCs running Windows XP Media Center Edition as home entertainment hubs.

It is also looking to move towards a "subscription model" for licensing. Microsoft's current revenue scheme depends on users buying upgrades on a periodical basis, but this is becoming increasingly difficult, as many users continue to use older packages of its software. On a subscription basis, users would pay an annual fee for the use of Microsoft software.

Based on recent Microsoft management comments, it appears that Microsoft is attempting to move up-market, positioning its products and services as high-value rather than low-cost. Steve Ballmer was quoted as saying in 2002, "We are actually having to learn how to say, 'We may have a high price on this one, but look at the additional value and how that value actually leads to a lower cost of ownership despite the fact that our price may be higher.'" (Reported in VARbusiness, July 15, 2002).

Amidst concerns from investors that it will no longer be able to sustain the historical growth rates, Microsoft announced in July 2004 its intention to implement a $30 billion stock repurchase plan over the next 4 years. It also announced a special one-time dividend in December 2004 that would pay Microsoft stockholders $32 billion, by far the largest payout by any company in history.

Products and organization
Microsoft Windows(R) family, the best known product of Microsoft.

Microsoft sells a wide range of software products. Many of these products were developed internally, such as Microsoft Basic. Some products were acquired and rebranded by Microsoft for distribution, including Microsoft Project, a project management package; Visio, a charting package; DoubleSpace; and MS-DOS itself, the basis for the company's success.

In April 2002, Microsoft reorganized into seven core business units, each with its own financial reporting to delegate responsibility and more closely track the performance of each unit. These business units are:

  • Windows Client (managing the Windows client, server, and embedded operating systems)
  • Information Worker (managing the office software products)
  • Microsoft Business Solutions (managing the business services and process applications)
  • Server and Tools (managing developer tools and integrated server software)
  • Mobile and Embedded Devices (managing palmtop and phone devices)
  • MSN (managing web-based services)
  • Home and Entertainment (managing consumer hardware and software)

There also is a Macintosh Business Unit which makes Microsoft the largest developer of Macintosh software outside of Apple itself.

Windows Client group

Microsoft's flagship product is the Windows operating system. It has been produced in many versions including Windows XP and Windows Server 2003. Almost all IBM compatible personal computers are sold with Windows pre-installed. (See History of Microsoft Windows.)

Microsoft integrated the Internet Explorer web browser and the Outlook Express email client into Windows. The act of integrating Internet Explorer with Windows helped to defeat Netscape Communications Corporation's rival product Netscape Communicator, and formed the central point of the Microsoft antitrust case brought by the United States government in 1998.

Information Worker group

Microsoft Office is the company's line of office software. It includes Word (a word processor), Access (a personal relational database), Excel (a spreadsheet), Outlook (Windows-only groupware, frequently used with the Exchange server), PowerPoint (presentation software) and Microsoft FrontPage, a WYSIWYG HTML editor.

With the release of Office 2003, a number of other products were brought under the Office banner, including Microsoft Visio, Microsoft Project, Microsoft MapPoint, Microsoft InfoPath, Microsoft Publisher and Microsoft OneNote. Microsoft also produces Microsoft Office for Apple Macintosh computers, Microsoft® Office 2004 for Mac. The Mac version of Office includes the Mac-only Entourage instead of Outlook.

As with many common and popular software products third-party developers have created applications that allow the Microsoft Office Suite of applications to be run on previously unsupported operating systems. Such operating systems include Linux, and Sun Microsystems' Solaris.

Like Windows, Office has grown to dominant share in many markets.

Microsoft Business Solutions group

The Business Solutions Group was created in April 2001 with the acquisitions of Great Plains. Subsequently, Navision was acquired to provide a similar entry into the European market. (The acquisition resulted in the planned release during the week of 18 October 2004 of Microsoft Navision 4.0.) The Business Solutions group focuses on developing financial and business management software for companies.

Server and Tools group

Microsoft Visual Studio is the company's set of programming tools and compilers. It is GUI oriented and links easily with the Windows APIs, but must be specially configured if used with non-Microsoft libraries. The current version is Visual Studio .NET 2003.

Microsoft also have a line of server software, the current version being Windows Server 2003.

Systems Management Server is a collections of tools that provide remote control, patch management, software distribution, and hardware/software inventory.

The .NET initiative is an important marketing initiative by Microsoft, covering a number of different technologies. Microsoft's definition of .NET continues to emerge over time. As of 2004, .NET encompasses:

  • Easing the development of Microsoft Windows-based applications that use the Internet, through use of a new Microsoft communications system called Indigo;
  • Correcting some problems previously introduced by Microsoft's DLL design, which made it difficult to manage and installing multiple versions of complex software packages on the same system (see DLL-hell);
  • Providing a more consistent development platform for all Windows applications (see Common Language Infrastructure, also known as CLI)

It was previously believed that .NET would also include a login and authentication system that could be shared among different websites and .NET programs. This functionality was previously codenamed "Microsoft Hailstorm" and is related to the Microsoft Passport service.

Mobile and Embedded Devices group

Microsoft has attempted to leverage the powerful Windows brand into many other markets, with products such as Windows CE for PDAs and its "Windows powered" Smartphone products. Microsoft initially entered the Mobile market through Windows CE for handheld devices which today has developed into Windows Mobile 2003. Microsoft works with companies such as HP, Motorola and Dell in providing the operating system for these devices and reference designs.

Microsoft recently moved the embedded group and the mobile group under one team. The embedded group focus is on devices where the OS may not directly be visible to the end-user, e.g. appliances and cars. The company also bought WebTV (subsequently renamed MSN TV), a television-based internet appliance.

MSN group

In the mid-1990s, Microsoft began to expand its product line into the networked computer world. It launched its online service MSN (Microsoft Network) on August 24, 1995 as a direct competitor to AOL. MSN became an umbrella service for all of Microsoft's online services.

In 1996, Microsoft and NBC, an American broadcasting network, created MSNBC, a combined 24-hour news television channel and online news service. Microsoft also owns the online magazine Slate.

At the end of 1997, Microsoft acquired Hotmail, the first and most popular webmail service. It was rebranded MSN Hotmail and was used as a platform to boost Passport, a universal login service.

MSN Messenger, an instant messaging client, was introduced in 1999 to compete with the popular AOL Instant Messenger (AIM).

Home and Entertainment group

Microsoft sells computer games that run on Windows PCs, including titles such as Age of Empires and the Microsoft Flight Simulator series. Also produced is a line of reference works, such as encyclopedias and atlases, under the name Encarta.

Microsoft entered the multi-billion dollar game console market dominated by Sony and Nintendo in late 2001, with the release of the Xbox. Currently the console ranks second only to Sony's PlayStation 2 in market share. Microsoft develops and publishes its own video games for this gaming console, and in addition, "third party" Xbox video game publishers such as Electronic Arts and Activision can pay a license fee to publish games for the system.

The Xbox is widely regarded as the most powerful game console currently available. Rumours abound regarding the successor to the Xbox (suggested names include Xbox 2, Xbox Next, and Xenon), its technical specifications, and when it will be released.

Other offerings

The product which allowed Microsoft to generate its enormous wealth was the MS-DOS operating system. All versions of Windows prior to Windows NT (for business systems) and Windows XP (for business and home systems) were based on an MS-DOS foundation.

Microsoft Bob, a program manager add-on for Windows 3.1 and Windows 95, was short-lived and widely ridiculed in the press.

In the early 1980s, in cooperation with a large number of companies, Microsoft created a home computer system named MSX. It became fairly popular in Japan and Europe, but the IBM PC became increasingly dominant through the late 1980s and the early 1990s, bringing an end to the MSX and many other systems like it.

Microsoft has launched the Next-Generation Secure Computing Base (formerly known as the Palladium operating system, also known as Trusted Computing) as its solution to computer insecurity. Opponents have characterised it as another exercise in entrenching and extending Microsoft's dominance, effectively allowing the company to control all uses of PC technology. In particular, they have accused Microsoft of using it as a way to combat the emergence of free software.

Microsoft has established a set of certification programs to recognize inidivuals who have expertise in their products and solutions. Similar to offerings from Cisco, Sun, IBM and Oracle, these tests are designed to identify a minimal set of proficiency in a specific role, which can include developers ("Microsoft Certified Solution Developer" MCSD), system/network analysts ("Microsoft Certified Systems Engineer" MCSE), trainers ("Microsoft Certified Trainers" MCT) and administrators ("Microsoft Certified Systems Administrator" MCSA).

Microsoft also produces a number of computing related hardware products including mice, keyboards, joysticks, and, until mid-2003, gamepads and other game controllers.

Microsoft took over Connectix Corp., on February 19, 2003. It acquired the virtual machine solutions of privately held Connectix Corp., a leading provider of virtualization software for Windows- and Macintosh-based computing. Microsoft purchased the following products and technologies: Virtual PC for Windows (now called Microsoft Virtual PC), Virtual PC for Mac and Virtual Server. Microsoft also brought on board key members of the Connectix team to continue developing these products. Microsoft has continued development of all three of these virtual machine solutions from Connectix. Microsoft Virtual PC 2004 was then released which is the next generation release of Connectix Virtual PC for Windows.

See also

External links




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