Microsoft's official unveiling of the Zune has received mixed reviews. Served up in three colours (white, black and brown) the 30GB device seemed to grab the most attention for the 'brown' colour. This rollout comes close on the heels of Apple unveiling a revamped iPod line-up.
The minimalist feel of Zune closely resembles Apple’s iPod. Manufactured by Toshiba, Zune comes with a 30GB drive, with a duotone approach on each, FM tuner, 13 first party accessories, and a 50% larger screen than the iPod with video.
Microsoft Zune 30GB will cost USD 399. Apple sells iPod 60GB for the same price, whereas iPod 30GB costs USD 299. Microsoft, however, believes that customers will be eager to pay more for its Zune player because it has broader feature-set, including ad-hoc music sharing between a group of people in the range of the device as well as digital radio.
Zune Key to Microsoft’s Overall Entertainment Ambitions
Microsoft has said that Zune is key to the software maker's overall entertainment ambitions and that it will capitalise on and tie into the company's other entertainment offerings. These include the Xbox video game console, Microsoft's television technology, and the media-focused version of the Windows operating system that lets people do things like record and watch live television.
Still, Microsoft is expected to face tough competition from the iPod and iTunes juggernaut. Other hardware manufacturers, including Creative Technology and Samsung Electronics, offer portable media players using Microsoft's software, although they've had little success against Apple.
Zune represents a departure from that past strategy, with the company designing the device and music service itself. Publicly, at least, Microsoft executives have cautioned that taking on the iPod will be a long, difficult project. Robbie Bach, president of the company's Entertainment and Devices Division, told an audience of financial analysts in July that the project would require an investment of hundreds of millions of dollars over the next few years.
Bryan Lee, corporate vice president in Microsoft's Entertainment and Devices Division said, "We see this space as having the potential scale not of today's market, which sells 30, 40 million devices, but of something closer to the cell phone market, where you sell hundreds of millions of devices."
Microsoft Zune Marketplace Vs. Apple's iTunes
Zune will be accompanied by a complementary music service, Zune Marketplace, the equivalent of Apple's iTunes, will "enable music fans to discover new music. "You can browse the huge selection of music designed to work seamlessly with your Zune in the Zune Marketplace. When you find new music that you love, it’s simple to buy it and sync it on your player. The Zune Marketplace works with the Microsoft Points program so you can purchase music online without a credit card.
The Marketplace will allow both à la carte and subscription purchase for buying music. Zune devices also come preloaded with music from record labels including DTS, EMI Music's Astralwerks Records and Virgin Records, Ninja Tune, Playlouderecordings, Quango Music Group, Sub Pop Records, and V2/Artemis Records.
Music tranferred to you by other Zune users will be DRM'd and have a 3 day/3 play restriction on it. This goes for any and all music. Free and legal, pirated, etc. If it was transferred to you, it's 3 days or 3 plays. You can then buy it through the Zune store (called The Zune Marketplace) if it's available. Transferred pictures have no limits placed on them.
If the Zune store sports easy usability features like iTunes, offers an impressive and flexible array of content for Zune owners, and if it evolves to have different kinds of video and audio media available similar to iTunes, the Zune marketplace has the potential to become a decent competitor to the Apple iTunes universe.
It’s All About the Music
While video has grabbed the digital media spotlight in recent days — Seattle-based online retailer Amazon.com announced a movie downloading service last week — Microsoft made clear that despite Zune's ample screen, this player is about the music.
"When we decided to approach this thing, we decided to celebrate the experience of music," said Lee, the Microsoft entertainment executive.
The device plays videos, even orienting the playback in landscape format to take advantage of the larger screen. But the focus is on content that complements the music, such as album covers and music videos. No television episodes, movies or other video content available through services including iTunes will be sold on the Zune Marketplace, at least initially, Lee said.
Microsoft's music-focused approach extends to its marketing of Zune. The company plans to promote the platform with emerging and independent artists, such as Band of Horses and CSS, a Brazilian group whose tour is sponsored by Zune, said Chris Stephenson, a former recording-industry executive who joined Microsoft in March as its general manager of global marketing.
"We're not going to have the big advertising campaign on Sunset Boulevard, connected to major artists, we're not doing that," Stephenson said. "We're helping artists grow."
He added that the Zune Marketplace would debut with more than two million songs and feature big-name artists, which he called the industry's "bread and butter." Microsoft is preloading music from many of the major record labels on Zune devices.
The company also plans to help unsigned musicians get their content on Zune Marketplace, he said.
Zune marketing will trade on Seattle's prominent place in the music industry. Stephenson mentioned partnerships with Seattle's Sub Pop Records, which recently signed CSS, and local independent radio station KEXP-FM (90.3).
Like Stephenson, several members of the Zune team have recording-industry experience. There are about 170 people working on the project in Redmond, though the group draws on expertise from all over the company, he said.
"Zune is much closer to a record company than a software or hardware company right now," said Rob Enderle, principal analyst with the Enderle Group. "That gives Microsoft a skill set that is unmatched, including with Apple, in terms of the market."
Social Networking & Inter-connectivity Sets Microsoft Zune Apart from Apple's iPod
Microsoft's 30GB digital media player with a twist may have just stolen the thunder from Apple's iPod with its unique social networking feature. Dubbed the "iPod killer" by blogwatchers and industry watchers alike since the time of its announcement, the two features that could indeed establish Zune as the "iPod killer" is its social networking capability and the ability to connect across a network of devices.
Zune's social networking capability will be based in Zune Marketplace, the equivalent of iTunes. Zune will, in the near future, be able to connect across to the Microsoft PC, Xbox, television, and so on, thus taking a lead over Apple's inter-connection plans with iTV (announced earlier this week). "We feel that music is inherently social. The ability to share music from device to device allows people to discover new options/new experiences, and that is very important. That is how we are going to change the current digital media space.", says Chris Stephenson, GM Global Marketing Zune On the social abilities of zune.
Zune Receives Mixed Reviews
Joe Wilcox says, "Music sharing is one of the differentiating features. I find the approach surprisingly consistent with some other stuff coming out of Microsoft ... Several people have asked me the same question this afternoon. So, I want to ask the question here to Microsoft. Brown? I think if I were buying, I'd buy brown. I like brown ... I have a ton of brown clothes. I think the color is going to matter a lot less than if they had a lot of cool peripherals. What are the default headphones going to look like, for example? The iPod headphones are not good at all. The bigger screen is nice, too."
Mary Jo Foley, from Microsoft Watch said regarding Zune’s sharing features, "I liked it better when I could dub a tape for a friend, or loan them the CD for a while. This is more like forced marketing, with advanced DRM. How long till spyware starts showing up in the code?"
On the other hand, Glenn Peoples said, "I don't get it. Should I be using Napster, URGE, or Zune? Should I be using the Clix or the Zune? Should I be using Windows Media Player 11 or the Zune Marketplace software? There are too many choices, many of which are not interoperable, coming to me from the same company: Microsoft. Instead of simplifying the market, they've made it slightly more complicated with Zune"
Chris Pirillo, a technology pundit said, "Clearly all the data isn't in yet, but this definitely pushes the MP3 player out of the pocket and into the realm of social networking. The question, obviously, is what is Apple going to do about this and, as a corollary, how low Apple and Creative shares are selling as we speak? Perhaps MS could create a 'Zune Inside' logo for those guys? Or maybe fund a halfway house for under connected MP3 players? "
Behind the strategy, Microsoft's looking for new growth engines in consumer electronics, analysts said. Although the Xbox 360 game console proved an expensive endeavour, the company continues to look for next big trick. Senior vice president and chief equity strategist Robert Toomey at Seattle-based E. K. Riley Advisors calls the announcement another step in a broad strategy for Microsoft to build out its entertainment division.
Toomey also believes Microsoft has an uphill battle against Apple in consumer market, but success will come if they can position "Zune as one of many software-driven products in Microsoft's overarching strategy to expand in the home entertainment and consumer market," he said. "As more computing moves to the Internet and small digital devices, Microsoft needs to be there to drive growth in the profitable software business."
Credit Suisse analyst Jason Maynard said it could take time for Microsoft to catch up to Apple's three-year lead, but interesting Zune features that caught his eye are the FM tuner and Wi-Fi capabilities.
Analysts found plenty to pick at with the Zune system as well, "It is not an iPod killer," said Aram Sinnreich, managing partner at Radar Research, echoing the criticisms of other analysts. "The incremental value presented by the sharing features and the Wi-Fi are simply not great enough to overcome the incredible marketing and social cachet of the iPod."
Apple's power to excite the industry, diminish the importance of features its line doesn't offer and play up the benefits of those it does will test Microsoft's marketing, analysts said.
One example is how Apple Chief Executive Steve Jobs set the tech industry buzzing in advance of his announcement Tuesday that the iTunes store would offer movie downloads. He also showed off a set-top box, still in development, that would allow users to stream digital content from the computer to the television.
The Road Ahead
Analysts don't expect profits to come from the hardware, but rather software and on-going services that tie the media player into Microsoft's home media centre through Vista. "I don't think the hardware will become an attractive business," said Walter Pritchard, senior analyst, Institutional Research, Cowen and Company LLC. "The sale of download music hasn't really done much for Apple's iPod business."
And as devices converge into one multimedia platform, some speculate Zune could become the first step toward a cellular phone-like device that would encompass all features. It wouldn't surprise Pritchard to see Microsoft merge Windows mobile and Zune, but he said it's easier to convince people to use their phone as another device, rather then using their music device as a phone.
Microsoft could eventually build a development community around the Zune brand that would allow software developers to create downloadable application, agrees Mark Murphy, managing director at equity research firm First Albany. "There are technical details that aren't known yet about the exact specifications on the hardware," he said. "It looks like more of a software approach, which leaves many options open."
Murphy said look at Microsoft's approach to Xbox 360 that allows gamers to connect and share information, and it becomes apparent to the approach they will take with Zune.
Analysts were fairly positive on the media player's success. But ask Murphy his thoughts on the branded name and you'll likely get another reaction. "I don't think the name is the zippiest thing out there," he said. "The Zune only has one syllable. Most of the names have two: X-box, Walk-man, but I guess it will work."
Microsoft's financial investment in Zune is considerable, and it's not something top executives expect to pay off immediately.
Bach tried to set realistic expectations about Zune and its underdog status. "This not a six-month initiative, and somehow in six months we're going to have captured the marketplace," he said at the time. "This is something that's going to be a three-, four-, five-year investment horizon."
The stock market appeared to view Microsoft's news favourably. Shares gained 35 cents, about 1.4 percent, to close at USD 26.33. Whether consumers will react favourably to Zune, particularly its sharing feature, remains to be seen.
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