Digital Trends: Zune Succeeds at Failing

[Aaron Roma]

<div class='os_post_top_link'><a href='http://news.digitaltrends.com/talkback156.html' target='_blank'>http://news.digitaltrends.com/talkback156.html</a><br /><br /></div><p><em>&quot;For some reason Steve Jobs and his team simply doesn&rsquo;t get this. They tend to block marginal products and spend whatever time is necessary to create music players that people want to buy in large numbers. There are signs they are learning though. The first Shuffle, the ROKR, their handling of the RSS problem. These are things that indicate what may be a growing trend to eventually dominate Microsoft in their quest to create spectacular products that go down in the record books as legendary disasters.&quot;</em></p><p>Digital Trends columnist Rob Enderle takes a satirical look at Zune's less than stellar opening volley.&nbsp; Mr. Enderle is inclined to think the Zune will mimic the likes of Mira and Microsoft Phone rather than follow in the footsteps of PocketPC or Xbox. What seems to be a common theme among most anti-Zune articles, is the lack of any consideration that not only is the Zune as we currently know it the first of many offerings in an entire product family, but also only the first stop on a long roadmap of future products and services.&nbsp; It seems the never-ending pre-launch hype about the fabled &quot;iPod killer&quot;, whether prompted by Microsoft or the press, raised the industry's expectations too high. When November 14th finally rolled around, and iPod owners were not lined up by the thousands ready to convert, then suddenly the Zune is a complete failure.&nbsp; Did any really expect a mass migration in week one? The Zune plan is long term. Offer a competitive marketplace and viable hardware choices. Then, as users cycle through products, begin shifting&nbsp;the market.</p>

[LPD]

Hype. Everyone has something to sell. If you are a blogger or a columnist you need "iPod Killer?" as a headline to sell your thing. Frankly, most people don't care that much about MP3 players to spend a lot of time reading about them or the companies that make them.

The fact is that current users of MP3 players have large investments in their current player, player accessories, and purchased music that will play on them. That means that you have slow migration regardless of how cool or wonderful the new player is. Its common sense and Microsoft, Apple, SanDisk, Creative, Rhapsody, etc., all know it.

The myth in all this is the notion that Microsoft must outsell Apple to win. That is simply wrong. If Microsoft grabs 30% of the market it will be successful. If the herd thins out, as they always do, Microsoft and Apple will be left standing with one or two other players. That mean more business for both.

Cost of electronics will continue to fall. A 500GB player with one week battery life (if you turn it off when you sleep) will cost way under a $100 dollars in the not so distant future. Selling content and connectivity infrastructure is the commercial future. Think automobiles and gasoline: which do better car companies or oil companies? I'd rather be Exxon then Ford.

Don't forget about the content providers. The record labels have a lot to say about what goes on. They do not want Apple to hold so much power for obvious reasons. The labels will work to help Microsoft because they have the best chance to scale down Apple's market share. Oddly enough I did some calculations and based on Apple's own numbers, they only sell 14 songs per iPod sold. That seems freakishly low, I can't it explain it.

The market is growing. Microsoft can grow into the market by marketing to younger users. If the marketing works younger users will not want to use their "fathers iPod", they will claim a new brand as their own. The sharing ability of Zune could cause non-Zune owners to want Zune so they are not left out. Critical mass is required but that can be measured more than one way. Overall sales is not as important as the number of user clusters. Image if just 10% of the market was Zune but concentrated into high density clusters of users. Those clusters would ripple and Zune would grow more like bacteria; in spots that get bigger and bigger.

One other greatly overlooked user group: people over 50. These "baby-boomers" are the first heavy duty into music generation. And they all start to need reading glasses to see anything close. The Zune's big easy to read screen will be a big selling point and there are twice as many of them as their are any other age group in the US. They should not be overlooked.

One thing is vital, Microsoft must get the wireless fully featured and functional ASAP. It must be done before Apple does it and does it right. Microsoft must be doing it right first or all will be lost. This is more important than the zPhone or the iPhone.
No one is going to buy a Zune Phone at Verizon unless its half the size of a Zune anyway. Personally I'd rather see a Zune with bluetooth that acts like a BT headset so I can answer calls via my Zune (with auto music pause).

[bigsid]

Very nice reply.

[Janak Parekh]

The myth in all this is the notion that Microsoft must outsell Apple to win. That is simply wrong. I agree with most of your post, but public perception is also important. If the public thinks the Zune is DOA, it may kill the brand for future products. There have been several instances in the past where the brand was effectively killed by a weak first unit (the Newton, ironically, springs to mind) and the line never recovered, despite serious improvements in later units.

Fortunately, the Zune hardware is pretty decent. What Microsoft needs to do is (as you mentioned) eliminate the needless restrictions on the more promising aspects, like WiFi... and to improve the desktop experience (which I am repeatedly hearing is subpar at best).

--janak

[Dyvim]

Think automobiles and gasoline: which do better car companies or oil companies? I'd rather be Exxon then Ford.

Bad analogy. It really only applies to subscriptions and then not all that well. Cars always need gas to run and the more you use them the more gas you need. MP3 players don't need a constant supply of new music - many consumers are happy ripping their existing CD collections and not making any (or only a few) online purchases. You can use them just fine without buying additional music and none of it needs to be purchased online. Granted, music subscription is an ongoing source of revenue (albeit constant and not use dependent); time will tell how well Zune's subscription service will sell.

Apple belies this analogy - the make much more on their hardware than they do on the iTunes store- there's really not that much profit margin on $0.99 tracks once the record companies get their cut and you figure out the cost or running the online store. So I'd rather be Apple than iTunes ... oh wait - they're one and the same.

[LPD]

To Dyvin,
You made some valid points. I guess I was thinking longer term on content and did not articulate how I see technology longer term. I agree as things are now ripping CDs is where most of us are at. It is my guess that CDs will slowly go away. The download distribution model is so much cheaper but obviously DRM is critical. It seems that eventually every DRM gets broken, but we will have to see. So eventually I see most of us being forced to purchase most of our music via download. (As a side note, its evironmentally friendly if nothing else.)

Secondly, I see WiFi and WiMax greatly expanded. One problem is the guys that own too much cooper and fiber (in the neighborhoods). The telcos and cable companies have spent billions and they are spending millions to stop WiMax. They are trying everything possible because WiMax could kill them. I don't think they can stop WiMax just really slow it down. I don't know how much power a Zune would burn communicating with WiMax but assuming its feasible that would make one hell of Zune interconnect someday. I mention the WiMax thing only because if you have that kind of connection it opens the door for impulse buying and instant gradification. You might even stopping thinking how badly you got screwed because they stop selling CDs. It would also put your Zune Markplace subscription online whereever you are. That would worth $15 a month. All that being said, obviously the cell phone guys want in but personally I hate the idea of paying a cell phone companies for music. Hybrid products like mp3 cell phones have a history of poor functionality and trade-offs.