Zune Revenue Plummets

[David Tucker]

<div class='os_post_top_link'><a href='http://www.engadget.com/2009/01/23/microsoft-reports-100m-decline-in-zune-revenue/#comments' target='_blank'>http://www.engadget.com/2009/01/23/...venue/#comments</a><br /><br /></div><p><em>&ldquo;Microsoft's newly-announced layoffs and declining profits aren't the only bad news in Redmond -- according to the company's quarterly statements, Zune platform revenue decreased $100 million, or 54 percent compared to the same quarter last year, due to falling device sales. Mega-ouch. Not all is doom and gloom for the Entertainment and Devices Division, which continues to be profitable with a $151m haul: Xbox 360 and PC platform revenue increased six percent to $135 million. Meanwhile, Apple saw a three percent increase in iPod sales over the same period, so we're anxious to see what Microsoft has planned for reviving the social.&rdquo; (via <a href="http://www.engadget.com/2009/01/23/microsoft-reports-100m-decline-in-zune-revenue/#comments" target="_blank">Engadget</a>)</em></p><p>Can anyone say &lsquo;ouch&rsquo;? Year over year decline in revenue of over half is terrible news. Now I realize we&rsquo;re the midst of a recession but that still doesn&rsquo;t soften a blow like that to a division that needs to show some progress. I&rsquo;m fairly confident the Zune won&rsquo;t be going anywhere anytime soon at least. I believe its too important to Microsoft&rsquo;s entertainment strategy in the long term. It does need to be relevant, however. It may be time that Microsoft looks at its Zune strategy and decide if it&rsquo;s time to change anything.</p><p>I think that if Microsoft could get some very tight integration with Zune and its Windows Mobile 7 platform they could have a real winner. But it has to be great. Windows Mobile is in so many hands right now that tying the Zune to that platform would be a powerful selling point for both WinMo and Zune. I&rsquo;ve recently moved to Android but if WinMo 7 were to be Zune-capable then they could very well get me back.</p>

[ucfgrad93]

Not sure if tying the Zune with Windows Mobile is the answer here. With RIM, Apple, & Palm all making significant strides I think Windows Mobile is the big loser. All 3 of those phone makers have introduced devices that have had large WOW factors while WM hasn't really released a "gotta have it, right now" type of device.

[Espiox]

Man, I'm not liking all this negative Zune news recently. Coupled with the rumours of big layoffs at the Entertainment division (Cesar's departure could be a part of that, I'd guess), I don't like how things are going. I don't think Zune is going to be killed off, but I'm concerned about it's future nonetheless.

[Macguy59]

MS has deep pockets and has demonstrated in the past (Pocket PC's) they will absorb losses to get a platform going. But in the case of PPC's you could see the gradual momentum . . . I don't see any momentum with Zunes. How long will they be willing to lose money on them ? Jason indicated awhile back he was going to share his thoughts on the topic. Either he hasn't done it yet or I've missed it.

[USArcher]

I think that if Microsoft could get some very tight integration with Zune and its Windows Mobile 7 platform they could have a real winner.


I agree with this but they don't have time waiting for WM 7. They need to release this along with WM 6.5 later this year.

[serpico]

What Cesar is gone?!!! OMG
After all this should I be selling my Zune120?! :D Seriously, they need to do something about promoting the Zune. I'm wondering if the recent limited updates to the hardware was a sign.

[Darius Wey]

I think that if Microsoft could get some very tight integration with Zune and its Windows Mobile 7 platform they could have a real winner. But it has to be great. Windows Mobile is in so many hands right now that tying the Zune to that platform would be a powerful selling point for both WinMo and Zune.

Integration with the Xbox is also worth pursuing. There's so much that the Zune and the Xbox 360/Live platforms have in common that it'd be a shame if they were kept separate for years to come. And, of course, they need to start selling the Zune worldwide - but I've said that so many times that I'm probably just beating a dead horse now.

[serpico]

I agree, Microsoft needs to sell their hardware globally. I'm still wondering why they didn't upgrade the hardware, it's a sign I believe. They knew they were losing money and couldn't afford to upgrade the hardware last year. I feel this year will not be good for the Zune. I think they will keep trying to move their zune os into windows mobile devices but they should look into other gadgets too. I don't know anyone who is happy with their win mobile devices.

[USArcher]

Integration with the Xbox is also worth pursuing.

Good point. They really need to find ways to make Zune an essential companion to XBox. Here are a few ideas...

- Expand Zune Pass to include XBox Gold access.
and/or
- Expand Zune Pass to include a number of TV show downloads per month (perhaps 10/mo).
- Merge XBox and Zune marketplaces and allow XBox to stream music from marketplace.
- Create a hyper social environment combining both XBox and Zune worlds.

I think every XBox Gold subscriber would find value in bumping up to Zune Pass.

[serpico]

I think opening up the device for drag n' drop function would help. I've read many people don't like the zune software due to performance issues. It's beautiful software but I need to use it with graphical features turned off.

[Janak Parekh]

Integration with the Xbox is also worth pursuing. There's so much that the Zune and the Xbox 360/Live platforms have in common that it'd be a shame if they were kept separate for years to come. And, of course, they need to start selling the Zune worldwide - but I've said that so many times that I'm probably just beating a dead horse now. Is the Xbox userbase large enough to propel the Zune? I haven't looked at the numbers, but isn't the MP3 market potentially a much bigger pie?

--janak

[Adam Krebs]

Is the Xbox userbase large enough to propel the Zune? I haven't looked at the numbers, but isn't the MP3 market potentially a much bigger pie?

Good point. Wikipedia says Xbox 360 has 28 million worldwide, whereas iPods are 173 million. They need to make Zune as integral to Windows as iTunes is to OSX. Unfortunately, I don't think Microsoft would ever integrate it that tightly.

[doogald]

If you are the market new guy trying to gain share, in addition to opening it up internationally, why aren't you doing things like making the Zune software available for Linux and OS X? Is it so important to lock customers in to Windows that you only let Windows users sync the device?

[Janak Parekh]

If you are the market new guy trying to gain share, in addition to opening it up internationally, why aren't you doing things like making the Zune software available for Linux and OS X? Is it so important to lock customers in to Windows that you only let Windows users sync the device? The same argument applies, though, as with the Xbox. OS X and Linux are small markets, and there's a nontrivial section of each userbase who would never buy the Zune, making the potential gain even smaller.

Someone earlier pointed it out best: the problem is that Apple has equated MP3 with iPod in many consumers' minds. To compete effectively, they need to break the paradigm in a new direction and/or establish a different market/niche.

--janak

[Janak Parekh]

Good point. Wikipedia says Xbox 360 has 28 million worldwide, whereas iPods are 173 million. They need to make Zune as integral to Windows as iTunes is to OSX. Unfortunately, I don't think Microsoft would ever integrate it that tightly. Actually, this is interesting stuff. If Microsoft could make all Xbox owners purchase a Zune, that's a great slice of the pie; however, making such a compelling device might be tricky.

Integrating into Windows is another interesting dynamic. They could have done it, too: make the Zune work on WMP and continue bundling WMP with Windows. However, I think Zune is organizationally separated from the Windows division deliberately. Whether that strategy plays out has yet to be determined.

--janak

[David Tucker]

I think that the Zune needs to go into territory not touched by Apple. The same territory that the XBox has become very strong in. If MS were to seriously take the Zune platform into gaming (while keeping its strong DAP abilities) I think you'd have something.

To me I just don't understand the iPod - Phone pairing of the iPhone. I've never thought, man, if only I could have a device that I could take phone calls on AND watch movies.

Now I have thought, when I'm traveling with multiple entertainment devices like the Zune & my DS that it would be nice to only have one device for everything.

[Janak Parekh]

I think that the Zune needs to go into territory not touched by Apple. The same territory that the XBox has become very strong in. If MS were to seriously take the Zune platform into gaming (while keeping its strong DAP abilities) I think you'd have something. The problem is that this will (a) require a lot of work by the Zune team (expanding their API, store, presence, brand for gaming) and (b) will result in entering a very crowded market (DS, PSP, and even the iPod touch platform). So, while this is a lucrative area, I'm not sure if the Zune can carve out a distinct niche.

To me I just don't understand the iPod - Phone pairing of the iPhone. I've never thought, man, if only I could have a device that I could take phone calls on AND watch movies.

Now I have thought, when I'm traveling with multiple entertainment devices like the Zune & my DS that it would be nice to only have one device for everything. Haven't you just answered your own question? Also keep in mind the iPod isn't just for watching movies; listening music is a killer feature, one that integrates with the phone and other tasks nicely. I'm often on the street listening to music, and if the phone rings, the unit nicely fades out the music, lets me have a conversation, and seamlessly resumes the music once the call ends.

The idea of the iPhone and other smartphones is that it they (essentially) all of one's pocket gadgets in one: phone, iPod, gaming device, camera. Some of them are stronger than others (and the camera in particular is exceedingly weak), but all four are present.

--janak

[ntractv]

The same argument applies, though, as with the Xbox. OS X and Linux are small markets, and there's a nontrivial section of each userbase who would never buy the Zune, making the potential gain even smaller.

Someone earlier pointed it out best: the problem is that Apple has equated MP3 with iPod in many consumers' minds. To compete effectively, they need to break the paradigm in a new direction and/or establish a different market/niche.

--janak

Amen Brother. In my biased opinion (I've said it before) the Zune blows the iPod out of the water.:D

[Adam Krebs]

To me I just don't understand the iPod - Phone pairing of the iPhone. I've never thought, man, if only I could have a device that I could take phone calls on AND watch movies.

I honestly don't know who (besides Apple) is saying that the iPhone is a good gaming device. The only decent games for it aren't that interesting, and the control scheme (touch and accelerometer) is just too difficult to use while on the bus or train, e.g., and nearly impossible to use while walking. Lest you think I'm Apple-bashing, the iPhone is my main phone, and has been for the last eight months.

No but seriously, it's actually kind of cool to be able to bring up a YouTube video wherever I want, and a number of the functions integrate incredibly well together. The problem comes (as with most Apple products) when you want to do something not fully supported--send a Facebook friend a YouTube video, e.g.--that the whole "integration" scenarios come crashing down.

[Darius Wey]

Is the Xbox userbase large enough to propel the Zune? I haven't looked at the numbers, but isn't the MP3 market potentially a much bigger pie?

It isn't necessarily about tapping into the Xbox market, nor is it about turning the Zune into a gaming device. The Zune is and should remain a media device.

The Xbox Live Marketplace is loaded with content that the Zune Marketplace can only benefit from. I'm talking arcade games, trailers, documentaries, game guides, movies, and TV shows, all of which would appeal to both gamers and non-gamers.

If Microsoft is willing to integrate the two marketplaces and also integrate the Xbox 360 and Zune experiences, that explosion in content and ease of access may be enough to make an iPod- or Sansa-toting user switch to a Zune. And who knows? It may even make an existing Zune user go out and purchase an Xbox 360 - that is, if they don't already own one.

[Janak Parekh]

I honestly don't know who (besides Apple) is saying that the iPhone is a good gaming device. It certainly doesn't stand up to a DS or a PSP, but it is better than most of the other smartphones/converged devices on the market. That's good enough to target a significant section of the userbase.

The only decent games for it aren't that interesting, and the control scheme (touch and accelerometer) is just too difficult to use while on the bus or train, e.g., and nearly impossible to use while walking. The accelerometer is indeed difficult while moving, but there are enough touch games for someone like me to keep me reasonably busy in those circumstances. There are quite a few games that I actually like, but my requirements are fairly low.

The Xbox Live Marketplace is loaded with content that the Zune Marketplace can only benefit from. I'm talking arcade games, trailers, documentaries, game guides, movies, and TV shows, all of which would appeal to both gamers and non-gamers. Ah! I misunderstood you. Yes, that would be very cool.

Willing to place bets on when Microsoft gets around to said integration? :(

--janak

[inteller]

Man, I'm not liking all this negative Zune news recently. Coupled with the rumours of big layoffs at the Entertainment division (Cesar's departure could be a part of that, I'd guess), I don't like how things are going. I don't think Zune is going to be killed off, but I'm concerned about it's future nonetheless.


Caesar is gone? Wow great Microsoft you are making cuts in the right places! Now just show Major Nelson and Trixie the door and I'll be a happy camper.

[inteller]

Good point. Wikipedia says Xbox 360 has 28 million worldwide, whereas iPods are 173 million. They need to make Zune as integral to Windows as iTunes is to OSX. Unfortunately, I don't think Microsoft would ever integrate it that tightly.


well they should. Windows 7 should eshew with WMP12 and just have Zune as the media player. Make the focus on the device secondary. Of course this means they would have to open syncing up to other devices in the software besides Zune. At the very least preinstall Zune with the OS.