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The Long Journey of Zune

The Zune marks Microsoft's second major foray into consumer electronics following the Xbox. If history is any indication, and so far the Zune appears to be following the same path as the Xbox when it launched five years ago, Microsoft is in for a long fight. And that's how the company likes it.

Of course, there are significant differences between Xbox and Zune in terms of target markets. Plus some of Microsoft's success with the Xbox 360 can be attributed to Sony's bungling of the PlayStation 3.

So to some degree Microsoft  has to hope Apple will foul up the iPod as badly as Sony fouled up PlayStation, and there's no signs of that happening any time soon. However, consumers are fickle and many have said they are open to considering the Zune.

Zune is doing respectably well one month after its launch. Or it's doing pitifully, depending on which story you read. Some want to already write the Zune's obituary while others have been a little more fair. All the reports are based on the same source, NPD Group's weekly point-of-sale data collections, but some are written with more negativity toward Microsoft than others.

According to NPD, Zune was the No. 2 portable media device in unit share in the month of November, with all of 9 percent of the hard disk-based portable device market, or 2 percent of the total market when Flash-based devices are accounted for.

Zune
A relatively slow Zune start means little in the MP3 longrun.
Source: Microsoft

Apple's iPod had 63 percent of the unit share, easily putting it in first place. Mind you, that doesn't include sales at Apple's own stores, which are not gathered by NPD.

Steven Baker, the NPD analyst who prepared the monthly report, said Zune is doing "respectable for a mid-November launch. You can't expect it to come in and take the market by storm or put any dent in iPod sales on version one," he told internetnews.com.

The Zune is not more compelling than the iPod at this point, but Microsoft has committed to delivering a family of products going forward. "So it's not fair to judge them on one product release," he said. Right now, Apple wins running away and expects to sell 16 million iPods for the fourth calendar quarter of 2006, while Microsoft expects to break the 1 million units sold mark some time around June 2007.

But that's exactly what Microsoft said it expects -- a slow start. "We entered this market absolutely conscious that this is not a sprint, it's a marathon. We are fully, fully aware it will take some time to have sales numbers that iPod has," said Scott Erickson, senior director of product management for the Zune.

Van Baker, analyst for Gartner who follows the consumer space, agrees that Zune is no threat to Apple at this point. "Right now we think they're doing exactly what we figured they would do, which is to consolidate the non-Apple market. They aren't doing much damage to Apple, but they are stealing business from non-Apple manufacturers, like Creative."

Baker described the launch as a mixed bag for Microsoft. "The player's pretty decent, the user interface is pretty good; the sound quality is very good. Industrial design is a toss-up, some people love it and some hate it. Where they fell down is the initial software. It was pretty clumsy to get it installed with lots of glitches, and there were some problems with the marketplace," he said.

Microsoft launched the Zune in short order: first announcing it in July and putting it in 30,000 stores by November. And not just in the usual retail outlets like CompUSA and Best Buy, but music stores like Virgin Records Megastore and instrument shops like Guitar Center.

One thing Microsoft did that Apple didn't do was engage third-party developers. Zune launched with support from around 30 vendors, with another 150 coming to market with something in the next year with such products as speaker docks, cables and cases.

It was years before the iPod had a speaker dock where you could plug your iPod in and play music through something not connected to a PC, and even then, Apple was the last vendor to come out with a speaker dock.

Now that people have the device, Erickson said Microsoft is altering its plans as it gets feedback and advice from customers. One of the ideas getting more attention is ZunePass, a monthly subscription service with a catalogue of 2 million tracks.

For $14.99 per month, you can download all the music you want, and as long as you remain a subscriber, the song is playable on your Zune. Erickson said Microsoft is "cautiously optimistic" about ZunePass.

"People are saying this is really cool; this is what I want. So we're making sure when they go to the Zune Web site that ZunePass is available," he said.

Both Bakers said that the Zune line needs to be fleshed out, and Erickson agreed, to a point. "I agree the product line does need to be fleshed out, but I would caution of insinuating you need a high-end and low-end in terms of price. The question should be, 'Are hard-drive devices the best solution for someone who goes to a gym or running?' Perhaps Flash works best. So we're looking at what the customers want to do with the device."

NPD's Baker is willing to give Zune time to gain traction. "The fact that it's out on the shelves now is the only way you can judge whether the product is successful. It's not their final solution. It's not their best shot. They don't have the product breadth Apple has. Until they build it up, I'm going to wait and see what they have to deliver."

Gartner's Baker thinks Microsoft will be in a stronger position in six months, because it has Apple's good example to follow.

"Zune is where Apple was five years ago. So the roadmap has been pretty well laid out," he said. "Based on what they've done so far, it's clear Microsoft has taken Apple's game plan and taken it for themselves."