Zune: Why Microsoft is challenging Apple’s iPod.


The Microsoft Zune…. iPod killer or just another iPod casualty?

Wednesday, December 20, 2006

Just in time for the holiday season, Microsoft has entered the mobile music player market with its product, Zune. In order to understand Microsoft Zune’s chances for success, it’s important to understand the history of the market Zune is competing for. This analysis is based around the pivotal moments in the market. As such, much of the focus is in relation to the market leader, Apple’s iPod. It’s important to understand the timing of product launches along with reasons why some products were successes and others were failures. Has Microsoft learned from history, or are they doomed to repeat mistakes that were previously made?

In the beginning…

In the [very] late 90’s, MP3 formatted music was all the rage because it allowed people to accumulate a large collection of music in one central location. That, combined with the advent of peer to peer (P2P) file sharing programs [Napster was the most popular at the time], a revolution in the music industry was in progress. With the right software, every home computer automatically became a music jukebox of sorts. There was a perfect storm of events: MP3 compression (typically 10:1) made storage of a reasonable sized music collection feasible; music jukebox software used to manage this collection of music began to emerge; the internet was just becoming popular and P2P networks naturally followed; hard drive storage was just getting large enough to make all of this possible. None of the bigger computer companies (Apple, Microsoft, etc.) saw this coming. In fact, Apple for example was one of the first of the larger companies to recognize this trend and scrambled to become a player in this field as soon as possible. To make that happen, Apple purchased one of the leading music juke box packages, Sound Jam, and turned it into iTunes 1.0 at the January MacWorld expo in 2001.

On the Mac, a strong competitor to Sound Jam was a product called Audion. Given iTunes success, not to mention free price, Audion is no longer being maintained. A very interesting story can be found on Panic’s web site: http://panic.com/extras/audionstory/. This story chronicles many of the events that happened around the Sound Jam / iTunes story.

This was just the beginning though. While companies like Microsoft were talking about merging the computer with the TV, etc., Steve Jobs coined the phrase “digital hub”. This meant that the computer was intended to be the digital hub for multiple forms of media (music, photos, movies, telephone, etc.). This direction was in strong contrast to what was being proposed by others at the time. This is relevant because it shows a clear direction that Apple was taking which was in strong contrast to the direction Microsoft was heading. Apple expanded on its “digital hub” concept with a suite of multimedia applications bundled in its “iLife” product. This was combined with hardware devices like the iPod (soon to be iPod phone and “iTV” like product). At the operating system level, Apple was adding its own synchronization services rather than relying on mix of clumsy third party solutions.

Still, in terms of portable music, people were mostly burning CD mixes from their audio collections. There were a few portable music (MP3 only) players from small companies like Archos, Creative, etc. Most players were small flash memory based players with enough capacity to hold 10 – 20 songs. Around that same time, small 1.8” hard drives just came onto the market. By spring 2001, small 5GB hard drive (HD) based music players debuted from both Archos and Creative. They were similar to what already existed, except they had a much larger capacity. Instead of holding 10 – 20 songs, they could hold about 1000 songs.

Apple followed with the original iPod in October of 2001. It was an instant success for several reasons [in no particular order].

1. People knew about it. That is, Creative and Archos were small time players that didn’t have much of an advertising budget. Most potential customers knew about these companies, but probably didn’t even know they had an HD based player on the market.

2. The iPod was visually appealing. This may sound strange, but other players were bigger and far less stylish in comparison. The iPod eventually became a fashion statement of sorts. For example, the signature off white ear buds were an obvious indication the user was carrying an iPod. Apple went the extra mile with attention to detail at every level. While other players often included a few extra gimmicky features, the iPod was always considered the premium brand.

3. Ease of use. Speaking strictly about the device itself, the iPod used a revolutionary scroll wheel device for navigation. This, combined with a clean menu structure was an entirely unique, yet seemingly obvious solution to the device navigation problem. Other music players seemed complicated and clumsy by comparison. Most describe the iPod as feeling very natural and intuitive.

4. The original iPod had a Firewire interface while other players used the USB 1.1 interface. This meant that transferring your music collections to the iPod happened about 33 times faster than the competition. It wasn’t until several years later that USB 2.0 was widely available on other music devices (including the iPod) and computers. This leveled the playing field somewhat, but this early advantage gave the iPod a huge lead. Apple also allowed the device to mount as another HD volume. As such, people were using iPods even for backup data storage, etc.

5. iTunes jukebox software was the best. Other players were using a variety of third party solutions such as WinAMP, MusicMatch, Windows Media Player, etc. They all severely lagged behind iTunes in terms of features and overall program layout. Getting your device to sync properly with these other programs was hit or miss for many. With iTunes, you simply connected your device to your computer and iTunes did the rest. Since Apple controlled both the hardware and the software, they had the best integrated solution by far. Yet, even though Microsoft controls its own hardware and software, early reviews of the Zune indicate many problems with initial installation and setup.

6. iTunes Music Store. While even today, “ripping CDs” and perhaps P2P networks are still the most popular way of obtaining digital music, Apple was the first to broker a deal with the record labels that allowed you to purchase music legally online. They were likewise also first to sell music for 99 cents per song. Just prior to that, there were one or two companies that allowed for subscription based music, but you could not purchase the music. Other competitors followed, but considering that Apple still sells approximately 80% of all legal music downloads, few have enjoyed any real level of success.

7. The iPod has created its own eco system with over 3000 third party accessories. Most major automotive companies are now including iPod specific integration with their newer cars. This is the sort of momentum that makes it tough for any competitor to hope to over throw the iPod.

The past 5 years…

Over the past 5 years, Apple has seen many competitors come and go for both music players and online music stores. The press sensationalized each player, wondering if it was going to be the “iPod killer”. The contenders to the throne were really nothing more than “pretenders” to the throne.

One of the more notable contenders was the Sony Walkman. Sure, Apple was able to face down competition from smaller companies, but what about the heavyweights like Sony? If you listened to all of the press hype, this was the beginning of the end for the iPod. Sony did everything it could leverage the popularity of the Sony and Walkman brand names. However, they came into the market with an arrogance that was doomed to failure. For starters, their product was inferior. To make matters worse, they tried to force users into using their proprietary ATTRAC format. Imagine, each song had to be converted from MP3 to ATTRAC. In doing so, the song had to be transcoded. This means the music had to be expanded from MP3 format to an uncompress format (like WAV, AIFF, etc.), then back to a compressed format (ATTRAC). In doing so, there is a loss of quality. This means that at the same bit rate (128bit/sec was most common) the MP3 file would always sound closer to the original. Worse, Sony made false and misleading advertising claims. They claimed their player could hold more music, but in fine print, they acknowledged that only if your music was stored at a lower bit rate (read lower quality) on their player. Their music software on the computer was clumsy in comparison to iTunes. Finally, they had the nerve to charge a higher price for their player. Stick a fork in them, they were done! Sony eventually came out with better versions of the Walkman, but once a company enters a market, consumers tend to only remember their first offering. That is, it’s very important to do it right on the first attempt because regaining a positive perception [of a product line] after a failed first attempt is an uphill battle.

Then, of course, we have to remember when Creative’s CEO, Sim Wong Hoo, declared war on Apple. http://www.engadget.com/2004/11/17/creative-declares-war-on-apple/ What will they think of next? How is declaring war going to sell more of your products?

Some of the competing products are and have been worthy competitors. Probably the best and most recent example of this is the SanDisk Sansa player. http://www.sandisk.com/Products/Catalog(1166)-SanDisk_Sansa_e200_Series_MP3_Players.aspx

The problem is, even the best competitors are lacking two key ingredients. First, they’re tied to an inferior software solution. iTunes continues to lead the pack in terms functionality and ease of use. Second, every attempt to match or better Apple’s patented click wheel solution has come up short.

For example, one promising competitor was the Olympus mRobe. http://www.cnet.com/4520-10602_1-5618542-1.html this had an interesting take on screen navigation and it even had a built in camera. Ultimately, it was just one of a long list of would be iPod killers. Note to iPod competitors: Portable music players are about the music, not about the gimmicky features they hope will distinguish them from the iPod.

People want easy access to their music. That’s it. If someone can do that better than Apple at a reasonable price, they will win the market. The market is not going to be won based on gimmicky features like cameras, FM tuners, WiFi file sharing, etc.

Plays for sure… well, sort of…

Over the past 5 years, Apple has enjoyed a tremendous amount of success from iPod sales to online music sales. Apple dominates both markets by a large margin. Unfortunately, the record labels insist that music sold online must be protected by some form of digital rights management (DRM). They do this in hopes of curbing piracy of music. The fallacy of this assumption is that any given song sold with DRM can be readily “stolen” from P2P networks. It’s comical really. DRM restricts which machines can play your music, whether or not you’re allowed to burn it to a CD, etc. It is consumer unfriendly to say the least, yet the record labels wonder why people still “steal” music. Worse, various forms of DRM are incompatible with others. Music players and accompanying software are compatible with one form of DRM or another, but not both. That is, an MP3 formatted song will play on any music player. But, a protected WMA (Windows Media Player) song cannot be played in iTunes or on an iPod, just as a protected M4P (iTunes DRM) song cannot be played in the Windows Media player or on any non-iPod player. Consumers do not like DRM, nor should they support DRM. It’s unnecessary and in reality, it serves no practical purpose. Still, this is an issue for the record companies to address, not Microsoft or Apple.

Apple has been protective of it’s market lead and has not shared it’s form of DRM with any other vendor. Since it has > 80% of the legal music download market share, I suppose they don’t need to share it with anyone. On the non-iPod side of the equation, there were several competing forms of DRM. Since DRM is expensive to develop and maintain, they all combined and rallied around Microsoft’s DRM technology. This happened, mostly because Microsoft was willing to license it to them. It’s not that Microsoft was doing the industry some sort of favor. Rather, Microsoft needs to gain market share in order for its form of DRM to become the industry standard. Microsoft marketed their form of DRM as “Plays for sure”. This meant that, aside from the iPod [with its > 70% market share] and the iTunes music store [with its > 80% market share], any DRM song purchased from any vendor will play on any third party music player that participates in the “Plays for sure” licensing. It seemed like this would provide the needed momentum to steal market dominance away from Apple.

The problem is, increased market share never happened for the “Plays for sure” crowd. Considering that all of the Microsoft based solutions were taking a beating in the market place and that Microsoft was spending a lot of money marketing the “Plays for sure” campaign, this was very embarrassing for Microsoft. Microsoft seemed to be clearly upset that their “partners” were not doing it right. Unhappy with Apple’s continued success, Microsoft decided to take matters into their own hands. Believing Apple’s success was simply due to Microsoft’s partners’ inability to create a better solution, Microsoft decided to put their money where there mouth is.

Welcome to the social…

Microsoft had been watching this emerging market from the sidelines over the past 5 years. They’ve done everything they could on the software side. They created the “Plays for sure” DRM for iPod competitors in order to provide a common solution that could be shared by multiple vendors of both music players and online music stores. They enhanced their Windows Media Player software to better compete with the leading iTunes product. Microsoft believed their failures were due to inferior hardware designs of their partners. Apple provided the benchmark for which Microsoft would have to compete with. Apple demonstrated a solid business model by making both the hardware and the software (including online music store), thereby ensuring smooth product integration, etc. In short, when you have a run away leader in a seemingly saturated market, you have to meet or exceed the abilities of your competitor if you expect to have any chance of winning the market over. Microsoft would need to be more innovative than Apple in order for this to happen. Clearly, Microsoft has the financial resources to make that happen. However, in the history of the two companies, Apple has always been the technological leader and Microsoft has always been the follower with a “me too” product. Was Microsoft able to break the mold in this case?

Early indications were something of a disappointment. It appears as though Microsoft basically came out with a modified version of the existing Toshiba Gigabeat product. Toshiba was even named as the manufacturer of the Zune.



While the “Gigabeat” was considered to be a good player, this wasn’t the type of “innovation” that was going to topple the iPod.

To be fair, Microsoft did try to innovate with the Zune. The major selling point of the Zune is its use of wireless technology. Zune has the ability to transfer songs from one Zune to another or “squirt” in Microsoft’s vernacular. Microsoft hopes to create a form of social networking that is exclusive to Zune users. Hence the phrase, “Welcome to the social” found in Microsoft’s marketing campaign. It’s not a bad concept in theory, but it’s also a very gimmicky feature. To use the infamous car analogies, if you buy a car, the most important factor should be how well the car drives, not what type of upholstery the seats are made of.

The problem here is that the devil is in the details. A good idea can go wrong if it’s implemented poorly. The problem with wireless (WiFi) on any portable device is the battery usage. The Zune has a significantly lower batter life than the equivalent iPod. Worse, the files that you share are removed after 3 days, regardless if the material is copyrighted or not. They do this to appease the record labels. The problem is, many files, such as podcasts, etc. are not DRM protected, but the Zune will delete them as well. There is no excuse for this. One would think they could have made better use of WiFi connections as well. What about wireless data syncing with your computer? No. What about wireless music purchases through Microsoft’s own Zune Marketplace? No. Again, wireless in a portable music device is a good idea, by the Zune is hobbled by a poor implementation of this good idea.

Like Apple, Microsoft wanted to create its own music store. Microsoft’s store is called the Zune Marketplace. Once again, Microsoft delivers another disappointment. The frustrating thing is that Apple has already demonstrated how to do it right. If you can’t do better than the competition, at least do a good job of copying them. Zune doesn’t use real money. You have to buy blocks of “Zune points” in $5 increments. So, if you shop in this store, Microsoft will always have some of your money that hasn’t been applied to some other purchase. This point system also makes it confusing to compare prices of music with other stores. The Playlist Magazine review of the Zune found that this point system is used in an attempt to hide the fact that albums cost more at the Zune Marketplace than they do at the iTunes Music Store.

Also, Microsoft is apparently paying the Universal record label approximately 1$ for every Zune sold. Microsoft is basically agreeing that all Zune purchasers will steal music and likewise the record labels should be compensated for this. Not only is this a bad message to send to your customers, this is an unbelievably bad precedent to set.

Microsoft ended up shafting their partners that subscribed to its “Plays for sure” campaign. The Zune is not compatible with Microsoft’s own “Plays for sure” DRM! So what does “Plays for sure mean?” It doesn’t play on iPods and it doesn’t even play on Microsoft’s own Zune product. Unbelievable! What kind of message is Microsoft sending to its potential customers?

How has the press reacted to the Zune?

Sample of newspaper technology review:

Avoid the loony Zune
Andy Ihnatko writes:

“Yes, Microsoft’s new Zune digital music player is just plain dreadful. I’ve spent a week setting this thing up and using it, and the overall experience is about as pleasant as having an airbag deploy in your face.
“Avoid,” is my general message.”

What about those with a known strong bias in favor of all Microsoft products? While I don’t give any credibility to Paul Thurrott, when a known Microsoft shill gives a Microsoft product a relatively bad review, that’s when you know things are bad.

Microsoft Zune Review
Paul Thurrott writes:

“The Zune, which was confirmed in mid-2006 and then released earlier this month, is a me-too device that provides only a small fraction of the iPod’s functionality. It’s bigger, heavier, thicker, and delivers worse battery life than the iPod, despite costing the same. The Zune is incompatible with music sold from the iTunes Store as well as all of the Windows Media-based online services.”

Playlist Magazine wrote a very thorough multipart review of the Zune. The link below is to the final part of the review which provides the conclusion.

Zune Diary: Final thoughts
Christopher Breen writes:

“Speaking of basic functionality, what else does iPod/iTunes offer that the Zune lacks?
Contacts and calendars, the ability to use the player as a removable drive, audiobook support, alarm clock, games, notes, clock and stopwatch, screen lock, photo transfer (with accessory), voice recording (with accessory), Sound Check, volume limit, gapless playback, fades, Party Shuffle, iMix, gift certificates, allowances, videos for sale, artist alerts, burning MP3 CDs, shared libraries, parental controls.
Oh, and style.”

What’s next?

Well, Microsoft came out with a product that’s as good as or perhaps better than some of the iPod competition. I give them credit for attempting to do something unique with regard to wireless file sharing. The Zune, like many other iPod competitors even has an FM tuner.

That said, the poor implementation and execution of their first attempt makes it hard for me to believe Microsoft’s Zune will be a credible challenger to Apple’s iPod. Microsoft claims to be on track to sell 1 million units by June 2007. Apple is expected to sell more than 25 million units during that time frame. Instead, Zune looks like it will be a competitor to the existing anti-iPod crowd. You know, the Microsoft “partners” that bought into Microsoft’s “Plays for sure” campaign.

The silver lining for would be Zune fans is that many of the Zunes problems can be fixed in future versions. Microsoft, unlike most of the other iPod competitors, has the resources to stay the course and fight for market share over the long run. For example, it’s reported that Microsoft hasn’t yet made a profit on its xBox division. Yet, they’ve been competing and winning market share in that market over the past few years. In short, Microsoft is more than willing to lose money for a while if it believes there is a long term profit waiting for them. Also, Microsoft is expected to eventually sell the higher volume, lower priced flash based players that would presumably compete with the iPod Nano and iPod Shuffle line of players.

At the same time, Apple isn’t sitting still with the iPod either. Apple continues to make the iPod a cooler device. Apple has been steadily increasing capacity, building better displays, improving the click wheel, adding new features like stop watches, games, etc. Further, Apple is rumored to be working on a full screen iPod and an iPod/mobile phone like device. If Microsoft really wanted to make a splash, they would have tried to leapfrog Apple by coming out with future generation devices like those rumored to be coming from Apple. Instead, Microsoft chose to come out with “me too” products, albeit with a minor gimmicky twist.

That said, I expect the Zune based products to improve over time. However, I’d truly be surprised to see Microsoft come out with a better product than Apple. Innovation, style and elegance are what Apple has always been about. This is contrary to what Microsoft is about. So, while I don’t expect future Zunes to be better than future iPods, I do expect future Zunes to “suck less” and perhaps they can bridge some of the gap in sales over time.


One Response to “Zune: Why Microsoft is challenging Apple’s iPod.”

  1. techwoo Says:

    Zune: Why Microsoft is challenging Apple’s iPod. .Thanks for nice post.I added to my twitter.

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