Can the Zune Capture the iPod’s Market Share? (Part 2)

player_zune.jpgIn a previous posting, I talked a bit about the rumored Zune digital music player that should be announced sometime around January 2007 (probably just in time for CES). If the rumor is true, this is a significant step for Microsoft in an apparent attempt to capture market share from Apple. Keep in mind that I’m totally speculating here. This device may turn out to be a huge hoax or possibly a false leak to take the attention away from what the real player is. After all, we don’t have confirmation from anyone outside of Engadget and a few other leaked sources that this is even a real product. But if it is true, the big question is, “does this thing really have a chance”?

One thing that makes this a significant step forward for Microsoft is simply the fact that it’s a hardware device. During most of the recent keynotes that Bill Gates and Steve Ballmer have given, they’ve emphasized the fact that (with a few exceptions) Microsoft is primarily a software company. Their keyboards and mice are about as good as any on the market and the Xbox 360 is not only a great gaming machine, but has the potential to be a great home media solution. With those exceptions and a few other examples over the years (MSN TV boxes and Microsoft-branded wireless routers come to mind…) any effort to produce hardware seems to indicate that Microsoft is serious about winning this battle. So, do they honestly have a chance here? (Unlike the 11pm news…. which baits you for 3 commercial breaks until they finally reveal the story about the “talking dogs”……which turns out to be a 10 second video ….. at 11:29. I’ll kill the suspense….)

Absolutely. Quite frankly, I think they have an excellent opportunity for success.

Here are seven (7) reasons why I believe Microsoft may eventually claim the dominant market position from the iPod with the rumored Zune device…..

1. Product being developed by one of Xbox’s creators, Jay Allard. In a recent episode of Leo LaPorte’s This Week in Tech podcast (http://twit.tv), technology pundit John C. Dvorak claimed that Microsoft will not be able to compete with iPod/iTunes offering because, to paraphrase, they’ve always been associated with business applications and they’ve never been regarded by young people as being “cool”. I think it’s clear that Microsoft is aware of this perception, which is why they made the smart decision of involving Jay Allard, one of the instrumental members of the Xbox and Xbox 360 launch teams, to be part of the Zune team. And while some may debate the reputation of Microsoft among the digital device buying public, the Xbox brand does resonate very well among the Gen-X and Gen-Y demographics. If the branding and marketing is somewhat closer to the Xbox 360 than to the traditional Microsoft brand, this should not be a problem.

2. New wireless functionality may open up unique uses. As of right now, there have been no strong indications on several of the Apple rumor sites of Apple’s plans to add wireless functionality to the iPod. This doesn’t mean that Apple has no plans of revealing a “wireless-enabled iPod”. But as of right now, there seem to be no strong indications that this will happen soon. If the Zune launches and can claim that it is the only platform with wireless functionality, this can be a big competitive advantage. More importantly, if Microsoft can do some interesting things with wireless integration, they might really open up some eyes. Think about it — MySpace integration? Sharing of music with other Zune users? No need for a “dock” to synch music and video? Buying songs via the player without needing your computer? This could be big.

3. Bribing me by giving me all of my purchased iTunes songs in the Windows Protected Format wouldn’t hurt. With all the money that has been spent in the iTunes Music Store, (I know that they must have taken $80 of my money… at least!) many have said that ‘iTunes users have invested too much into the platform to move to another device.’ Well, the rumor that Microsoft will provide all new Zune users with Zune-ready versions of their iTunes Music Store stores certainly won’t hurt. (No details have been released about exactly how they plan to do this. This could be something as simple as providing a $50 credit or as complex as actually scanning the hard drive for songs and crediting the amount at the Zune-ready store.) Personally, I don’t even need that kind of philanthropy to be lured into pulling out my MasterCard (but then again, you guys know that’s just me!) But I think most techies will agree that if it’s cool and if we see the value, we’re there! But an offer like this (if it’s true) certainly sweetens the pot.

4. Simple design. We have only one photo (which might not even be the real device). But if, in fact, this is the design of the new device, it looks an awful lot like an iPod — which isn’t a bad thing. A clean design where the majority of the device’s real estate is dedicated to the display might make watching movies a more enjoyable experience on the Zune as compared to watching movies on the current iPod with Video. The photos provide no true sense of scale, but the Zune’s display appears to be roughly twice as large as the iPod’s.

5. Tech sector is somewhat fickle. Some have said that Apple users are really passionate about their iPods. That may be true for some, but as for the hardcore tech market, they’re about as fickle as they come. Just compare how people felt about AMD processors two months ago versus how techies feel about them now that Intel has released their more powerful Core 2 Duo/Extreme processors. Heck – just compare the number of times iPod techies will go from loving their 4th generation iPod Photo in December to completely wishing it would die in January after the annual MacWorld/Steve Jobs keynote when the slimmer model with the larger capacity hard drive that is also offered in black is announced. Bottom line — if the Zune is a better device and if it can manage to build a buzz, hard core tech folks are going to be all over it. And my philosophy is that if the hardcore tech folks embrace the device… it’s only a matter of time before the rest of the worlddsc_3187.JPG follows suit.

6. Live Anywhere – At this year’s E3 (Electronic Entertainment Expo) video game conference, Microsoft announced that they were moving forward with their ‘Live Anywhere’ platform. Live Anywhere is supposed to create interoperability between the Xbox 360, Windows Enabled PCs and Windows Mobile devices. (i.e. Xbox 360 folks can play games against Windows Vista folks, Windows Mobile folks can synch data to their Windows Vista machine, etc.) I see great potential for this device when coupled with Live Anywhere. A single sign-on might mean that as soon as you bring home and unbox the Zune, you have a zero-configuration situation….it might wirelessly import settings from your Xbox 360 or your Windows Vista account over to the Zune. Picture this scenario: You take your Zune to the movies….. you hear a song that you really like in the film…. after the credits roll, you walk out of the theater, take out your Zune, (rub your buttery hands on your jeans, as to protect the precious Zune), search the Zune-compatible store for the song and buy the song right on the device while walking out of the theater (provided there’s a connection somewhere)…… then when you reach home and put your Zune on the kitchen table and go to the computer room, you notice that not only is the song already in your Windows Media Player library….. but when you go downstairs to play your Xbox 360 it’s synched there as well and you can use it as a soundtrack while you’re playing Project Gotham Racing!! Now, aside from the fact that you’d be pretty darn sick of that song by the time you reached your 360, the possibilities with Live seem to huge. And speaking of Live Anywhere…..

7. Gaming anyone? I mean, after all, E3 is a video games event. How nice would it be to have better-than-mobile-phone quality gaming experiences with the device? How about power greater than the Nintendo DS? Or maybe even as powerful as the PlayStation Portable?! Nobody knows what kind of processor will be inside the device, but if it’s powerful enough, there’s a chance that we could see another mobile gaming platform emerge. And the best part seems to be that games can be purchased through Xbox Live! No cartridges, discs, memory cards or (God forbid) UMDs to buy! Adding gaming to the equation, combined with all of the great music functionality, would increase the value proposition dramatically. Microsoft may find that there are some gamers who normally wouldn’t want a device to replace their iPod, but they really want the Xbox Mobile functionality. Vice-versa, folks who are thinking about a new music device may see the addition of gaming as a factor that helps them decide in Microsoft’s favor.

These are just a few reasons that came to mind. I’m sure you have additional reasons I haven’t considered. It would be an interesting idea to revisit this list in a year or so to see if any of these factors were relevant. (And by the way, if you’re reading this list in like 2007 after the device has launched, please keep in mind that this is not a list of what will happen but more of a list of the potential success factors and things that I’m sure Microsoft is planning around.

I’d be curious to hear your feedback on this or possibly hearing your thoughts what advantages Microsoft has.

Stay tuned to the final section of the post where I will reveal my list of obstacles that might prevent the Zune from succeeding! I promise you that it’s a very interesting and possibly controversial read!

Images courtesy of Engadget.com. E3 Coverage of Microsoft’s Press Conference.


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