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September 14, 2006

Zune: Is there any there there?

Posted by David Hunter at 9:15 PM ET.

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.”

“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.”

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.

Filed under Apple, Argo, Coopetition, Creative, Executives, Financial, General Business, Microsoft, PlaysForSure, Robbie Bach, Technologies, Zune

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