Microsoft Looks to Challenge the iPod

indexfrontside20060607.gifBack in 2001 when I bought my first Apple computer (PowerBook G4 Titanium), I made the decision to add another item to my purchase during the online check-out. That item was the first-generation iPod. (My iPod was the 2nd being manufactured by Apple. The very first had 5 Gigabyte hard drive — my re-release several months later had a 10.) When I first started using it, it got a lot of attention. At the time it was only compatible with Apple computers and with Apple ownership relatively low at the time, it was an exclusive club of ownership.

Turn the page five years and now the more exclusive club among the 15-30 year old demographic are the folks who don’t have an iPod. It’s an amazing achievement when you consider not just the success of the iPod (which wasn’t the first mp3 playing device) but the success of the iTunes Music Store, which has revolutionized the way that many people buy music. Each Tuesday when albums are generally released, instead of going to a Best Buy before work or during your lunch hour to hear that new OutKast album, you can buy it digitally and listen to it on the commute to work. Not to mention the storage space music lovers have saved by not having to find a place for all of those CD jewel cases. The iPod and iTunes have helped to change our digital lives (and I would say for the better.)

While all of this is happening, Microsoft has been watching……and waiting. Microsoft’s early attempts at entering the digital music market have been moderately successful. Shortly after the release of the iTunes Music Store, they partnered with several music content companies (namely, Napster and Rhapsody) and digital device makers (including Samsung and Creative) to create a platform called PlaysForSure. PlaysForSure’s advantage was that it gave customers a larger selection of digital devices and music services.

The reason why PlaysForSure didn’t succeed where Apple did can be debated. Most would argue that Apple did a few things right. First, they offered simplicity to the buying public in terms of device selection. When you walk into an Apple store, you see three devices: a low end iPod (the Shuffle), the thin-and-sexy-but-small-in-capacity iPod (the Nano) and the larger full-sized iPod (iPod with Video) each of which have generally always been offered in only two configurations. (Apple understands the value in not confusing the buyer with too many options.) This is where the model PlaysForSure falls down. There are several really nice devices that have been offered throughout the years, but none has truly emerged as the market leader. Mainstream consumers who wanted to invest in PlaysForSure never knew quite which device to purchase.

The other big factor in iPod’s success has been the decision to offer the iTunes Music Store as a buy-to-own option with an easy to remember price of 99 cents per song and $9.99 per album. I recall Steve Jobs saying that customers don’t want to rent their music — they want to own it. After having sold over a billion songs, he must have been right. PlaysForSure does offer the option to purchase music for ownership, but it also offered the option to pay-as-you-go (where you can stream the majority of the library of songs or download almost any songs in the library and sync them to your device — buy only for as long as you are paying the monthly rental fee.) Here is another area where customers were confused about which of the PlaysForSure music stores they should subscribe to.

microsoft_argo_player.jpgIf you’ve been watching the news lately, you’ve heard about Microsoft’s rumored competitor to the iPod. Code named the “Argo”, it is allegedly being developed by Jay Allard (one of the masterminds behind Microsoft’s successful Xbox brand). The image (left) was secured by Engadget and seems to be an accurate depiction of the forthcoming device. Engadget was also able to secure information about the possible name of the device — The Zune. The screen on the Zune is much larger than the one on the current iPod and it seems to be taking a page from Apple in design and simplicity. Among it’s unique features will be the ability to share music wirelessly with other Zune owners. Other features are being speculated right now, but among those floating around the internet is the fact that the device will have some form of video game functionality. (Whether that means gaming at a mobile phone level or at the GameBoy/Nintendo DS/PSP level is not known.)

Among the strangest rumors around the new Zune has been related to copyright-protected music (also known as DRM or ‘Digital Rights Management’). Many current iPod customers would probably not be inclined to leave the iPod format simply because they have invested so much money in the iTunes Music Store and cannot play their Apple DRM songs (Apple’s system is called FairPlay) on a non-iPod device. Knowing this, Microsoft is allegedly looking to replace all of the “Zune-switchers” iPod-compatible songs with Zune-Compatible versions of the same songs! (This is only a rumor, but if this is true, this demonstrates just how badly Microsoft wants to win the portable music device war.) If this is true, how they are going to go about this is still unknown. (Are they going to scan everyone’s hard drive? Will they give you a set number of free songs?) Also, this could get expensive. Everyone knows Microsoft has deep pockets, but at 99 cents per song for a customer who has 300 songs (not really that much — 30 iTunes albums, each with an average of 10 songs), is Microsoft making any money at all on the device?

The big question which remains is: Given what we know about the current landscape and the rumored Microsoft plans, can they really overtake this market? (Or even put a substantial dent in Apple’s iPod empire?) What do you think? Click on the comments link below and share your thoughts. And stay tuned for my thoughts on who will win this war and what the key factors to success will be.

Story credit: Engadget


9 Responses to “Microsoft Looks to Challenge the iPod”

  1. 1 Jeff T
    July 19, 2006 at 2:51 am

    You mention “The reason why Plays For Sure didn’t succeed where Apple did can be debated.” What logic or facts are you using to say PlaysForSure failed at all?

    Also to correct you, introducing PlaysForSure was not an attempt at entering the digital music market, to enter that market would require you to make money off the sale of the music which MS was not doing with the PlaysForSure initiative. They may have affected the market but they did not enter it yet.

    You also mention “Mainstream consumers who wanted to invest in Plays For Sure never knew quite which device to purchase.” So tell me how can these mainstream users not know which device to purchase when the main point of PlayForSure program is to look for the logo on the devices packaging?

    The fanboyism comes out alittle when you say “Apple understands the value in not confusing the buyer with too many options”. How many is too many options. Some would say that during the Xbox 360’s launch some people were confused between the 2 options Microsoft offered were confusing, but you say Apple with 3 choices is not confusing. And on top of that fact, yes there are 3 types of iPods but within that there are multiple sizes, which can be quite confusing to some I have been asked many times by people wondering which iPod should they buy and also what size.

  2. July 19, 2006 at 6:58 am

    Hey! First comment! Thanks!

    I’m basing my conclusion that the iTunes/iPod strategy succeeded where Plays For Sure didn’t chiefly on one thing — market share. (Depending on who you ask, roughly a 70% market share overall – Bloomberg numbers.) I don’t think it’s debatable that the dollars generated from the sale of Plays For Sure devices and songs pales in comparison to the sales of songs on iTunes Music Store and iPod devices. So I’m qualifying success based on market share/dollars and brand awareness.

    Actually, Plays For Sure was in fact part of a bigger strategy which did involve Microsoft entering the market with their own service — MSN Music. So they are, in fact, in the market.

    When I mentioned that “the mainstream market was never quite sure which device to purchase”, I’m again basing it on market share. The assumption being that based on sales, consumers saw something in the iTunes/iPod value proposition that they didn’t see (or possibly didn’t consider) in the Plays For Sure scenario. To dig a little deeper into my interpretation of why I think this is, I think it speaks more to the “killer app” aspect of digital device purchases. “Plays For Sure” was a branding that was designed to provide assurance that regardless of what device the consumer purchased, it would be compatible with other branded players and branded music stores. But having too much choice (IMHO) seems to be the issue. There were a few devices (Creative Zen, more recently the Toshiba Gigabeat) that were popular, but certainly nothing with the mainstream icon status of the small white box with the clickwheel and the white earbuds. I think from a business standpoint one has to wonder whether having a single well marketed player combined with a single unified strategy would have led to a different outcome (as far as market share). I think the Zune is possibly Microsoft’s effort to correct that. (Single player, simple theme, single marketing strategy.)

    I’m sure my personal thoughts come out in just about every one of the postings. Each story I cover will be written with my own interpretation of what this means based on my experience, much like Dvorak (dvorak.org/blog) or Scoble (scobleizer.com) or Jim Louderback (http://blog.pcmag.com/blogs/wnn). Having studied Apple for a few years, I think it’s clear that they do understand the value of simplicity in the marketing message. This is a theme in just about every promotion they’ve run. It may sound a bit fanboyish, but I think most would agree (based on their market share) that simplicity has been one of their biggest competitive advantages. Do you disagree that with the Shuffle, Nano and iPod with Video that Apple has positioned each player well? (i.e. Does the mainstream consumer have an easier time selecting among iPod devices or Plays For Sure devices?)

    I think the Xbox 360 analogy you raise is a good example of what I was trying to get at. From a marketing standpoint, it’s not the amount of options. It’s how well positioned each is, as to provide a clear choice to the customer as to what he/she is gaining or losing with each. Car companies seem to do this well. If you’re looking to buy an automobile and you’re considering a BMW, the choices are clear: If you want a compact sedan, you buy the 3-Series. If you want a mid-sized car, you buy the 5-Series. If you want large sedan, you buy the 7-Series. If you want an SUV, you buy the X5. Small SUV? X3. And so on. And for just about every other automobile company has their offering broken out similarly. I think Apple has done the same thing (Shuffle = iPod on if you’re on a tight budget. Nano = Thin, Gain a color screen, slighty more storage. iPod – Larger size, even more capacity for music and the addition of video.) Just my opinion, but I don’t think the Plays For Sure market is as clear in choice — hence the Zune.

    I think this is smart move and probably a good opportunity to capture market share. Apparently the player isn’t due until next year (probably annonced at CES). Should be an interesting CES.

  3. 3 Jeff T
    July 19, 2006 at 3:21 pm

    If you recall MSN Music was introduced way before Plays4Sure so if you were to compare that effort with iTunes then that would be more accurate. But as I said before PlayForSure was not an effort to ‘enter’ the digital market as you mentioned.

    I still maintain that you can’t compare the success or lack of success of the Plays4Sure devices with an iPod. You’re lumping the devices that are certified Play4Sure as Play4Sure hardware, the devices are Mp3 players which can all play the same purchsed songs due to Play4Sure. It’s just an attempt at unification. It’s basically the same as saying if you buy a DVD it can play in all DVD players, when you see the DVD logo you know it can play in all devices that have the logo. If you buy music in the iTunes store that format can’t be played on a wide number of devices. Herein lies the biggest difference.

    People are not buying the Play4Sure certified devices because they are Plays4Sure certified in my opinion they are buying them for style and personal preference. If a crappy mp3 player that is PlaysForSure certified doesn’t sell well can you say it’s because it was a PlaysForSure device or maybe it was because the device was ugly or it was too big etc? It’s debatable but the iPods’s success and market share as you call it could also be attributed to it’s wonderful visual style and it’s unique clickwheel not at all because it plays music better than another mp3 player.

    Lastly as for your comment “It may sound a bit fanboyish, but I think most would agree (based on their market share) that simplicity has been one of their biggest competitive advantages.” You really can’t tout marketshare as a measure of simplicity, marketshare has many possible components, it could be brand recogntion, style, simplicity, fad or a number of other factors. To say they have marketshare because they have simplicity is speculative at best. Microsoft has the biggest marketshare in OS and Office software but should I say the people have spoken and this marketshare is due to the simplicity of that software? No. Only surveys can determine why people do the things they do, because things sell well does not imply why they do.

    I do understand that a blog like many other blogs on the net contains the opinions and thoughts of the author. But as with those blogs people often different or contrary opinions and interpretations, so consider this just another comment entered after clicking on the comment button. The one thing about blogs because they are personal, even if new information or facts are given, the author will almost never recant or change their opinion. So I don’t expect you to agree with me 🙂 Congrats on the blog and I look forward to reading more articles.

  4. July 19, 2006 at 10:50 pm

    Points well taken. Appreciate the feedback.

    These are press releases announcing both the launch of MSN Music and PlaysForSure branding in 2004 on October 12. (Same day.)

    I see your point about the success of PlaysForSure. (And perhaps Toshiba and Creative execs are satisfied with the anticipated sales of the Zen and the Gigabeat — which may also qualify as success.) But I think you’re missing my point. I’m looking at the bigger picture and playing the “what if” game. I’m sure from a business standpoint, the goal of 99 cent stores and DRM devices is to compete with the market leader. And 2006 market share data would suggest that they haven’t recovered as much of that market share. Looking at this as purely a business case study, I believe the folks at Microsoft would agree that creating a single, identifiable, well-marketed device and a single well-marketed music store might have been a better strategy (as far as capturing market share) than offering the diverse choice in the current model. Unless the Zune is a prank, clearly this is the strategy they plan to employ.

    You raise an interesting point regarding why consumers bought the iPod en masse (and actually I’m stealing a bit of my own thunder for the follow-up). I wouldn’t even say that the iPod is the most advanced or best designed digital music device. I think the key to reaching their position was initially offering the tech savvy market an alternative to (at that time) what was a poor selection of devices. Once it caught on with the Mac folks and opened up to Windows users, it was popular among the tech community. Once the tech community caught on, I think the “big brother” syndrome took over. Folks saw the marketing and saw other techies with the devices and that, combined with aggressive marketing, led to consumer confidence in knowing that they were buying a well established brand.

    I think Apple could have very easily screwed this up. Imagine if after the initial success of the iPod, Apple released 8 new styles of iPod — each one shaped a bit different with different functionality — all released at the same time. I think this causes consumer overload. People stand and look at all the boxes and wonder “which one should I buy?” This is why I say, from a marketing standpoint, sometimes too much choice is bad. (Again – these are just my thoughts.)

    Again, because this blog is my opinion (check out some of the stuff Dvorak and Scoble write that stir people up) I can reflect on a product’s success and pin a plausible reasoning behind it. This isn’t an exact science. So I actually can tout my reasoning behind why I believe iPod market share is 70%. I don’t have to give every reason or even the most popular reasoning. It’s the same as arguing whether it was pitching or defense that won a game. More often than not, it’s some of some of both. There’s no right answer in giving your opinion to explain an outcome. IMO – Marketshare gain was one result of a simple campaign. People bought all those iPods last year as gifts after most had done no research. Again — my opinion, but based on my observation, most people bought because it was a safe gift. Who complains that they got an iPod?

    I think with the Microsoft example you misunderstand my point. In any business analysis, the writer doesn’t have to be all encompasing with regard to why a product is successful. Also I’m not hanging 100% of every tech devices’ success on simplicity. I’m not even saying that the only reason for the iPod/iTunes business model’s success was simplicty. I’m saying that it was a huge factor in the success of this product. Microsoft’s OS and Suite apps are a whole different discussion. (I do have thoughts as to why those apps have been successful.)

    I think we might be splitting hairs here a bit. I think the more interesting debate is not whether iPods are succesful (a generally accepted thought) or whether the PlaysForSure strategy was unsuccessful. I think the intriguing question is whether anyone thinks that the rumored Zune has a chance to compete with the iPod business model. What are your thoughts? (Article was halfway done on Monday — I’m just about finished now and preparing to post. .

  5. 5 Jeff T
    July 20, 2006 at 12:11 am

    Points taken. I do have to post these two links which mention the MSN Music service was launched in 2002 and since then has had a few reintroductons and an ‘official’ release.



    I never disputed the iPod’s success (90% of the people I know who have mp3 players have an iPod) I only offered a contrary plausible opinion as to why I felt it was successful.

    As for the ‘Zune’ I have not done any research and I have not seen any MS confirmed information on it. I do think it will have an impact when it arrives, because it will be the ‘new hot thing’ just as long as it works. But I do not think that it can compete long term with the iPod’s business model. The iPod has already positioned itself as a stylish cool device(based on the commercials and subway ads), MS is the big bad wolf to many so they some won’t be so quick to embrace. My iPod is finally dying and I will need to purchase a new one(not sure which to choose too many choices/sizes) or a Zune if it ever arrives in time.

  6. December 30, 2006 at 6:31 am

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