On the eve of Microsoft’s launch of its Zune digital entertainment player, chief executive officer Steve Ballmer spends some time with Reuters to discuss how he plans to gird for battle against Apple Computer’s iPod player. He talks about everything from why Microsoft sees a competitive edge with the Zune’s wireless music sharing capabilities and its landmark decision to pay a fee to Universal Music to what’s on his own Zune.

A link to Reuters coverage can be found here. The following is an edited transcript:

Reuters: How would you measure success for Zune?
Ballmer: The early going will probably be the easiest. This year, we’re launching the product. We want the product to get great reviews and I want consumers to pretty much buy what we can make here in the U.S. and I want them to like what they bought. If all that happens, we’d have to say that was a great Christmas and then we go from there.

Reuters: You’re already supporting portable music player market with the “PlaysForSure” program, why does Microsoft need its own hardware product?
Ballmer: PlaysForSure gave us a spot in what I might call disconnected entertainment, but it’s really hard to pull that together around the central service unless we take a little bit more of an end-to-end process. While we continue to support our PlaysForSure partners, we wanted to make sure we can introduce this notion of community, which is tough to do with quite the same model which is called the OEM model in PlaysForSure. Of course, between us and our PlaysForSure partners, we certainly have upside opportunities in terms of market share in portable devices. We think this innovation, this approach, probably mandated a little bit different cut at it and, in fact, it gives us a chance with our PlaysForSure partners to expand our share of the market.

Reuters: Will Zune be the future platform for everything mobile?
Ballmer: I think a Zune is a highly entertainment-oriented experience and over time we’ll want our entertainment experience to include movies, music, etc. We’ll start out with music. We’re going to want to add more entertainment types to the Zune experience. We’re going to want to add more capabilities based on wireless. Over time, as you suspect, we’re going to want people to participate in the Zune community from devices besides the PC and the portable music device. When we have something to say about that, we will.

Reuters: Given that you are entering a market with such an entrenched competitor, what is the total vision for Zune?
Ballmer: We and Apple both have a zero installed base today of connected entertainment devices. We start out with zero. The world of the future is not a world of entertainment without community. The world of the future is a world of entertainment and entertainment with community, with my friend. It’s a social experience. You could say, ‘yeah we’re starting out umpty-ump millions players behind’ or you could say ‘hey look, there is a whole new paradigm that is going to happen in this business and we’re jumping in at the beginning. Who knows when Apple will jump in? It’s a good company. I’m sure it won’t take (Apple) forever. New applications, new scenarios. We saw that in video game consoles. For all of the innovations in game, the place where I say we left Sony in the dust, frankly, is in the social nature of the experience because of Xbox Live. We get first-mover advantage, in a sense, with Zune.

Reuters: Apple makes its profit off the iPod hardware. Will it be the same case for the Zune?
Ballmer: In a sense, we have certainly embraced in the case of the Zune, the business model of the market leader. We tried with a different business model. We got some success with PlaysForSure, which is more of an OEM-oriented business model. In this case, we have a model like Apple’s. You ought to expect then the economics to come from not that dissimilar of a place.

Reuters: Why did Microsoft feel the need to do a revenue-sharing deal with Universal when Apple doesn’t do that?
Ballmer: We need strong support from the content industry. We know the content industry. The music industry, specifically, is in a transition point and we wanted the music industry to support us enthusiastically as opposed to begrudgingly. We think we’re in very good shape with that. For Apple’s issues with that industry, you have to talk to Apple.

Reuters: What advantage does that give you?
Ballmer: I think you want the guys who make music to be enthusiastic about encouraging their consumers to this experience and this social platform. And certainly, having an economic tie is not a bad thing.

Reuters: Some early reviews have not been stellar. One common theme is that it is derivative of the iPod and Microsoft usually does not get it right the first time with a new product. Does that kind of reputation bother you?
Ballmer: At the end of the day, it’s about what consumers want. I think if anybody else had come out with Zune, a small little start-up, people would say ‘wow, isn’t this wonderful, isn’t this innovative, isn’t this creative. They’ve taken this basic concept and built in wireless. Look at what that can bring you. Isn’t that super, etc.’ We have to remember at the end of the day it’s about — and in this case, it’s not even about companies — the product. So far, the reviews on the product have been by in large pretty good. Not perfect, but by in large pretty good.”

Reuters: What do you listen to on your Zune?
Ballmer: What do I listen to? I’m an old guy, I listen to old guy music which in my case is stuff like the Supremes and other late sixties and seventies music. A little Motown, I’m a Detroit native.