Microsoft News Tracker

Last week the lawyers for the plaintiffs in the Microsoft Iowa antitrust trial were granted an unusual request.

The plaintiffs in Iowa’s class-action antitrust lawsuit against Microsoft Corp. claim they have uncovered information that indicates the software company is violating its 2002 agreement with the U.S. Department of Justice.

The alleged misconduct surrounds Microsoft’s duty to share software hooks known as application programming interfaces, or APIs, which let disparate programs work together. The Iowa plaintiffs’ attorneys have alleged that Microsoft has not disclosed certain APIs to other software developers who want to make programs compatible with Microsoft software.

Plaintiffs’ attorney Roxanne Conlin asked the judge in the Iowa case, Scott Rosenberg, for permission to tell the Justice Department and the Iowa attorney general what her side knows. Rosenberg responded that she could provide the information if a court order or a subpoena is issued for it.

Why they would need the judge’s permission to drop a dime is explained  better in the legal wrangling starting at page 7654 of the transcript from January 10, but Groklaw summarizes it nicely and observes that the DOJ regularly gets complaints about Microsoft’s adherence to the settlement, most of which are “non-substantive.” It’s hard to tell what the importance of this complaint is without details, but it is apparently making the stock market nervous.

Less serious, but certainly more amusing was the disclosure of yet another frank email from Microsoft executive Jim Allchin (previous revealed missive here). This one from 2003 lamented that Microsoft’s PlaysForSure partners were “sucking on media players” and suggesting that Microsoft open up a dialog with Apple about supporting the iPod.

Amir Majidimehr (Corporate Vice President, Consumer Media Technology Group) responded that they were offering the partners incentives and advice on how to do better; expressed hope for the upcoming Microsoft designed Portable Media Center form factor; and observed that Microsoft might yet have to roll up their sleeves to do it right.

Of course, the Microsoft Portable Media Center initiative sank like a stone along with some more partners and that’s why Microsoft built the Zune. While the PlaysForSure hardware of that era may have “sucked”, today it sure “sucks” to be a Microsoft PlaysForSure partner, not to mention a Portable Media Center partner.

Finally, Microsoft shipping their own personal media player hardware because of perceived partner ineptness sets an interesting precedent. Right now Microsoft seems to be dismissive of the PCs their OEM partners are turning out and currently is in the “help them do better” stage. One can’t help but wonder how soon that will be followed by Microsoft “rolling up their sleeves and doing it right.”

There was a ray of sunshine for Microsoft’s beleaguered Zune last week when it was reported by market research group NPD that Zune was number 2 in sales of personal media players in its first week on the market. The clouds have come out now though as the Zune was reportedly down to 5th in the next week:

Microsoft Corp.’s Zune device dropped to fifth place from second in the U.S. market for digital media players in its second week in stores, market researcher NPD Group Inc. said.

Zune captured 2.1 percent of the market in the week ended Nov. 25, said Stephen Baker, an analyst at Port Washington, New York-based NPD, in an interview today. Baker said Apple Computer Inc.’s iPod remained the leader, with 39.4 percent that week, based on units sold.

Zune’s market share declined as SanDisk Corp. boosted sales with a 50 percent price cut on its media players, taking a 39.3 percent share and knocking Microsoft from the No. 2 spot it occupied in its first week in the market.

Whew, those SanDisk guys play rough - they just missed knocking Apple out of 1st.

Creative Technology Ltd. was third, while Memorex International Inc. was fourth. Walt Disney Co. tied for fifth place with Microsoft.

If the Disney name is unfamiliar in this context, you may not realize that they make MP3 players for kids.

In the prior post I’ve tried to round up all the Zune details revealed today, but the real question is whether Zune has any potential to gain traction in the already crowded personal media player market dominated by Apple’s iPod/iTunes combination. While pricing details haven’t been revealed, barring some sort of pricing subsidy, the Zune is just yet another personal music player and all it really has going for it is Microsoft’s marketing budget and the problematic Wi-Fi music sharing feature.

The marketing budget is certainly worth some market share, but the sharing?

Robbie Bach, president of the entertainment devices division of Microsoft, said the appeal of Zune is simple — and has little to do with the elite, isolationist iPod culture.

“Actually, I think its something quite different,” Bach said. “We’re trying to create a social experience, the idea that people can share their music. The iPod is something that’s very much about an individual. It’s a very solitary experience — and when you look at the generation in the marketplace today, they’re a very social group.”

That’s swell, but I’m still trying to envision the exact scenarios for social interaction where users listening to their personal music players via earphones get around to swapping limited use (at most 3 plays in at most 3 days for all content) music tracks. The story gets more believable if both users are listening to one’s Zune via a speaker accessory and the other wants a copy, but the limited usage for even personal content still makes this dubious in my mind. Jupiter Research’s Michael Gartenberg tries to apply some science to the question:

The key differentiator is the sharing feature. I can share any song on the device to any other device in range. DRM content or plain MP3s but don’t get too excited. I can share the same song with the same device only once and it can be played three times or expires after three days, whichever comes first. It’s an important feature that isn’t in the iPod and will likely have some appeal to the target demographic of 18-24. We know that sharing files legally device to device is of interest to about 11% of consumers and in the 18-24 range jumps to about 18%.

So without the restrictions, it’s an interesting feature for less than 20% of consumers and I would expect the number to be rather lower with restrictions. Moreover, Wi-Fi is a notorious battery killer and is likely to be used sparingly. (No battery life specs were released today.) Sorry, the Zune sharing feature just doesn’t cut it and it seems to be the basis for most of the marketing and all of the uniqueness.

So where does that leave the Zune? Gartenberg believes that Zune will steal share from the little personal music player vendors and not even give Apple’s iPod “a bad case of the sniffles” in the short term and I think that’s probably the most optimistic take given reasonable pricing. Rex Crum at MarketWatch:

“Microsoft is a threat simply because of the supply of money it has to put toward this,” said Gene Munster, of Piper Jaffray. “But, at the end of the day, Apple has the market, and Microsoft has a hard road to go down.”
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“Apple has shown what it means to have a great product that is easy to use,” said Ted Schadler, vice president and analyst at Forrester Research. “And that must be frustrating for Microsoft.”
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But none of that technical wizardry impresses Schadler. “Apple has an ecosystem in place, and Microsoft needs to build its marketplace, not just displace Apple’s,” he said. “Technical features like that have never, ever been enough to displace a technology like Apple has in place.”

It’s still possible that Zune will sink like a lead balloon, but presumably the marketing budget is insurance against that. Longer term, all things are possible, but you mostly have to wonder why Microsoft insists that this is a good business to be in and about the motivations of the long-suffering Microsoft PlaysForSure partners like Creative who announced a new widescreen Zen video and music player today in the midst of the Zune storm.

Tom Krazit at ZDNet:

Apple Computer and Creative Technology have agreed to settle their legal dispute over music player patents for $100 million, the companies announced Wednesday.

The $100 million, to be paid by Apple, grants Apple a license to a Creative patent for the hierarchical user interface used in that company’s Zen music players.

Sounds fairly straightforward, right? Wrong - there are some twists:

The patent covers an interface that lets users navigate through a tree of expanding options, such as selecting an artist, then a particular album by that artist, then a specific song from that album, said Phil O’Shaughnessy, a Creative spokesman. The patent applies to portable media players, which includes devices like the iPod or cell phones that have the ability to play music, he said.
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Apple can get back some of the $100 million payment if Creative is able to secure licensing deals with other MP3 player manufacturers, said Steve Dowling, an Apple spokesman.

That’s a nice touch, since Apple in some sense has just validated the patent. I bet the Apple legal staff is just itching to help Creative work on the letters to all the player manufacturers right now. But wait, there’s more:

As part of the agreement, Creative will also enter Apple’s Made for iPod program as an authorized seller of iPod accessories. Creative will be able to affix the “Made for iPod” logo to its speakers, headphones and other related products, O’Shaughnessy said.

You think maybe Creative decided that there wasn’t much future in being a Microsoft PlaysforSure partner in view of the Zune and decided to diversify a little?

Update: For reference, see also the Apple press release.

It wasn’t an announcement. It wasn’t a demo. It wasn’t even a preview. But via an interview in Billboard magazine and a plethora of press statements, Microsoft confirmed the gist of the rumors and ‘fessed up to be working on a family of personal media players and an associated online media purchasing service under the brand name Zune. The best roundup of all of the press sources (official and unofficial) I have seen is from Ryan Block at Engadget. The net: Zune is coming this year and not only targeting Apple’s iPod and iTunes, but also emulating Apple’s business plan:

-The Zune brand is intended to be an entirely vertically integrated end-to-end solution, not unlike the iPod / iTunes / iTunes Music Store triumvirate.

- The service and device will not be PlaysForSure compliant, meaning you will not be able to use your Zune player with Napster or Vongo, for example. This will be an entirely new system. Microsoft will continue to support and develop for their PlaysForSure initiative, but all things PlaysForSure are handled by two (sic) entirely separate division that will not have any crossover.

The latter point - that Microsoft’s erstwhile PlaysForSure partners are left out in the cold by the Zune - is one nail that I can never resist hammering (e.g. [1], [2]) and it seems to be quite a popular target:

Om Malik:

More on that some other day, but the real and perhaps the only story in the news is that Microsoft’s partners - from device makers to music services - just got double crossed by the company they choose to believe in.
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Let me break this down: Zune - the devices, the platform, and the store/service - will compete with everyone from Apple (of course) to Creative Technologies, iRiver, Samsung, Archos, Rhapsody, Napster, Yahoo Music and anyone dumb enough to buy into Microsoft’s visions of Urge, Media Player, PlaysForSure etc.

Microsoft could argue that Zune would be unique and those others can still do business. But it is also a classic example of why Microsoft is lumbering bureaucratic morass wrapped in a can of conflicts. A modern day version of medieval fiefdoms, perhaps? Take for instance, Urge which is built into Windows Vista, and is what I guess you could call an almost integrated experience. What happens to consumers when faced with the choice of Zune or Urge!!! Answer - iPod.

Jupiter Research’s Michael Gartenberg:

Early market share, however, isn’t likely to come from disgruntled iPod users looking to switch. The real losers in the short term are likely to be the likes of Creative, iRiver and other former partners that have failed to deliver to market share from Apple and will now find themselves not only competing with Apple but with their former partners from Redmond.

As uncomfortable as the position in which Microsoft finds itself is (and perhaps also dangerous to other future partnership ambitions as well), going it alone on personal media players is also likely the only way to succeed in that market as Nicholas Carr succinctly explains:

The Windows way worked for PCs because PCs are general purpose devices that become more attractive as more software and peripheral devices become available. An open architecture encouraged the development of lots of software and devices that expanded what a PC could do in ways that customers valued. They were even willing to put up with crashes and reboots and driver conflicts and all the other annoyances inherent in managing complex, heterogeneous systems. A special-purpose device, like a music or media player, is a different beast altogether. Customers want it to do what it’s supposed to do, and do it really well - and look good while it’s doing it. It’s fine - and in fact valuable - to have a lot of compatible accessories, as long as those accessories don’t mess up the internal workings of the core system itself. That’s been the Apple way with iPod, and now it’s the Microsoft way with Zune.

Some folks would argue that the Apple way is pretty good for consumer PCs too, but I digress.

After the startup turmoil gets cleared away and assuming Microsoft can deliver product on time, the question remains whether even Microsoft all by itself can make a credible play in consumer electronics where cool is just as important as functionality. Looking at the bizarre “viral marketing” video at Microsoft’s promotional site, comingzune.com, suggests that they have a long way to go. Who do music fans want to identify with: some weird guy with a rabbit or the folks rocking out in the iconic white earphones ads?

Finally, speaking of Web sites, Microsoft has two employees “Zune blogging” at Madison and Pine and Zune Insider; and spending a few minutes nosing around the web shows that a Zune ecosystem has already started with sites of varying quality like Zune Nation, Zune Owners, Zune News Site, Zune Zone, Zune Info, and Zune MP3 Player Deals jumping aboard for the ride.