Apple Won't Take Zune Sitting Down
Though Microsoft's Zune player and services represent a clear challenge to the iPod and iTunes, they are only the latest in a long line of would-be competitors to Apple's industry giants. To survive the Microsoft assault, Apple will have to do what all good tech companies do: Obsolete its own product before somebody else -- Microsoft, in this case -- does it for them.
07/26/06 5:00 AM PT
The technology press has been buzzing lately with stories about Microsoft's plan to launch a new MP3 player and online music service under the brand name "Zune," and attention is already turning to what happens next. Many suspect Apple will respond to last week's Zune news by introducing innovations of its own for the online music world.
In all likelihood, Apple will reply to Microsoft's assault on its iPod and iTunes business with new products and offerings in four prime areas -- wireless, content, storage and platforms -- according to Bear Stearns research analyst Andrew Neff.
"Apple needs to be leading edge in these areas," Neff said.
Zune, the Unknown
Though Zune represents a "clear challenge to the iPod, such competition is nothing new -- there are plenty of music players and music downloading services [already in existence]." What Apple must do now, Neff suggested, is what all good tech companies do: Obsolete its own product before somebody else -- Microsoft, in this case -- does it for them.
Microsoft confirmed last Friday that it will launch its first Zune device this year, but the company offered few details about it other than that it will include a WiFi connection -- a feature the iPod does not yet have. With so little known about Microsoft's Zune to date, said Nate Elliott, an analyst with JupiterResearch, it is difficult at best to determine what impact the device and its associated services will have on the digital music market overall, or on Apple in particular.
Microsoft's plans, however, could create some volatility for Apple shares. Neff predicts fiscal 2006, 2007 and 2008 earnings-per-share for Apple of, US$2.16, $2.70 and $3.15, respectively.
Bear Stearns expects Apple shares to "outperform" with a 2006 year-end price target of $88.
More Competition Calling
The Zune isn't Apple's only worry, however. Its biggest competitive threat over the next five years may come not from Microsoft, but from mobile phone manufacturers. Next month, Seattle-based mobile podcasting company Melodeo is planning to announce deals with two major U.S. wireless operators to provide the first streaming podcast and radio service for both the PC, and more than 40 name-brand models of mobile phones. A second deal with a Chinese wireless operator is also in the works for Melodeo, which expects the mobile music phone market to have more than 600 million customers.
Media capable mobile phones can be used to surf Web sites, like Melodeo's, and pick up podcasts and radio shows from such popular outlets as National Public Radio, CNN and ESPN, as well as independent podcasters from around the world.
The ongoing "convergence" of technologies is drawing more and more consumers away from single-use devices like the iPod to the multi-function mobile phone, the one device millions of consumers carry with them everywhere they go.
Nevertheless, there may yet be a place in the future marketplace for specialized, single-purpose devices like the iPod -- providing these devices come at a lower price point.
The developer of the Omni hand-held device, Titan Global Entertainment, is marketing its product as the low-cost alternative to iPods, and its associated portal, Titan Tunes, as an alternative to iTunes.
"Many see Apple as our competitor, and to some extent this is true," said Jim Pugh, chief executive officer of Titan. "From a portal media standpoint, there are many companies providing the marketplace with mobile units. For those consumers who price shop, Omni offers more functionality over the Apple iPod, and when you compare the total purchase price of all the accessories of Apple's unit to those included in our offering -- a total of $656 -- the consumer saves $179."
The Omni, which retails for $499, weighs 260 grams (about 1/2 a pound), has a 4.3-inch LCD screen, and features a hard drive capacity of up to 60 GB. It is capable of playing MP3, OGG and WMA audio files, and MPEG4, DivX and XviD video files. The unit comes with a host of accessories, including ear buds, AV Cords -- both PAL and NTSC -- USB Cable, USB Host Cable and an A/C Power Cord.
Presently, Apple's iPod holds a 50 percent share of the global portable music player market, and the company's iTunes service commands a 70 percent share of the music download business.