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Microsoft Takes the Long View With Zune

By Erika Morphy MacNewsWorld ECT News Network
Jul 29, 2006 5:00 AM PT

Finally, the gloves come off. After months of hints and speculation, Microsoft announced that, yes, it is headed for a showdown with Apple.

Microsoft Takes the Long View With Zune

In one corner is Microsoft with its billions to invest in R&D, design and marketing to support its own media player -- one that is expected to tie in closely with its entire product line, including Xbox, Media Center and its entertainment and productivity software.

In the other corner is Apple with its iPod -- a music player that has become nearly as ubiquitous -- and just as essential to many, many fans -- as a cell phone.

In truth, the face-off between these two companies and their products -- in the case of Microsoft, its prospective product -- is not quite as dramatic, or cut-and-dry, as it may first appear.

Even Microsoft seems to acknowledge that it has a way to go before its Zune player might seriously challenge the iPod. The company is going to release one product this year, according to comments made to financial analysts by Robbie Bach, president of Microsoft's entertainment division.

Next year, it will release additional offerings, he said, broadening the product line over time. Along the way -- perhaps over the course of five years or so -- Microsoft will spend "hundreds of millions of dollars."

The question is, will it be enough?

Been There, Done That

It's a lot of firepower to throw at one market segment, especially as there is no guarantee Microsoft will win -- or even establish a sizable presence in this space -- when all is said and done.

"Microsoft has been known to pour millions of dollars of investment into a category and not have anything to show for it in the end," Charles King, principal of Pund-IT, told TechNewsWorld.

There is its purchase of Great Plains software, for instance -- with which Microsoft planned to dominate the SMB marketplace. Even reasonably successful endeavors, such as Xbox 360, have cost Microsoft more than it has made. "That division is still in the red," King said.

"Microsoft has a ton of money and a lot of smart people working for it -- it can create great products. But they haven't always been able to leverage those resources into new market domination," noted King. "Yes, they still dominate on the desktop and in office productivity, and they probably will for a long time to come."

Not Enough Information

Leaving its hit-and-miss track record aside, Microsoft has not revealed enough about its Zune strategy to support any reasonable conclusion that it has a winning product -- or a dud, for that matter -- in the works.

"Without more data it is impossible to deliberate whether Microsoft will succeed -- no matter how much they spend," Yankee Group analyst Mike Goodman told TechNewsWorld. "We don't even know all of the functions the device will have -- what its user interface will look like, its navigation capabilities. All that has to be answered."

Even if Microsoft were to deliver a product equal in every respect to the iPod, that might not be good enough, he suggested. "Microsoft won't do any better than any other player if it just downloads and plays music. It has to differentiate itself in some way."

Home Court Advantage

It is important to remember, when comparing Microsoft's yet-to-be-released product to the iPod, that the iPod took a while to gain serious market share, JupiterResearch analyst Joe Wilcox told TechNewsWorld.

"Even as recently as 2003, the iPod was doing well, but Microsoft's Windows Media Player strategy was going on all cylinders too. It was a long road for Apple in the beginning. Microsoft can expect the same -- even without the iPod as competition to consider."

Microsoft does have some advantages though, Wilcox noted. "To succeed after the iPod, Microsoft will have to deliver the best music experience imaginable on Windows, where it has home court advantage." This does appear to be part of Microsoft's blueprint. Bach, for instance, stressed the complementary relationship Zune would have with other products.

Microsoft also has some wiggle room in that this market is relatively new, King adds. "The whole delivery and playback market is still very much emerging, and if Microsoft comes out with a solid product with interesting content, I think that would give Apple a run for its money."

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