When it comes to digital music, there's a lot that puts Apple (AAPL) ahead of the pack. Microsoft (MSFT) plans to use people-power to narrow that lead. On Sept. 14, the software giant offered the most detail yet on its upcoming Zune digital music player and service (see BusinessWeek.com, 7/6/06, "Microsoft Singing Its Own iTune"). The company drew special attention to capabilities that let users share music with buddies, hoping those will set Zune apart from Apple's iPod.
Zune will include wireless fidelity, or Wi-Fi, so Zune owners can beam songs to friends' devices. Not that song recipients will get to keep the songs for long: Embedded technology limits use to three plays or three days, whichever comes first. But the idea of being able to discover music that's hot with a friend gives Zune a potentially popular feature that the iPod doesn't have. "The iPod is the Palm or the Model T of digital music," says J Allard, vice-president for design and development at Microsoft, who's leading the Zune effort. He's hoping the Zune will usher in the next generation of digital music players.
But for a Model T, the iPod has come far in a half decade. Apple has sold 60 million iPods, accounting for more than three-quarters of the digital music player market. It has sold 1.5 billion songs from its iTunes store. That amounts to about 70% of all online music sales. On Sept. 12, the company introduced sleeker and more capacious versions of its three players, the iPod, the iPod nano, and the iPod shuffle (see BusinessWeek.com, 9/13/06, "Apple's Latest Fruits"). An Apple spokesperson declined to comment on the Zune news.
WIFI EDGE. While Allard doesn't expect to topple Apple with the first Zune, he believes the Wi-Fi feature will help the device stand out. To those who might scoff, he points to the initial decision to include high-speed Web connectivity in the first version of Microsoft's game console, the Xbox, another development project he led (see BusinessWeek.com, 1/21/02, "Bill Gates in Your Living Room"). Skeptics questioned the logic in the early days. But now, Xbox's online community has become an ally in Microsoft's tussle with Sony (SNE), maker of PlayStation game consoles.
With Wi-Fi, Zune will be able to do more than just share music. Users will be able to beam photos too. And Allard envisions a scenario where concertgoers can download the evening's playlist, or even buy and download live concert photos while at the show.
Zune, which will be available in time for the holiday season, will have a 30-GB hard drive, enough to store about 7,500 songs. The device, which can also store and display video and pictures, comes with a 3-inch liquid-crystal display screen. It will have an FM tuner and come in three different colors: black, white, and brown. Microsoft didn't disclose pricing for the gadget.
NO CLEAR ADVANTAGE. At the same time, Microsoft will debut the Zune Marketplace, an online music store where consumers can buy a wide range of music. And the company will offer Zune Pass, an online subscription music service that will compete with existing Microsoft partners, such as Napster (NAPS) and RealNetworks' (RNWK) Rhapsody, which use its Windows Media technology.
As distinctive as the sharing capabilities may be, some analysts are already discounting Zune's chances against the iPod. "This isn't going to give the iPod a headache, much less kill it," says JupiterResearch analyst Michael Gartenberg. It's not that Zune is a bad product, he says, but rather that there's nothing in it that makes it dramatically better than the iPod.
According to Gartenberg, it is unclear how important Wi-Fi is for consumers. Jupiter's research found that about 11% of digital music consumers are interested in sharing files with friends, though that number climbs to 18% in the key 18- to 24-year-old demographic. But sharing a song for three plays isn't likely going to be enough to sway those users. What's more, Wi-Fi is something of a power hog, which could be a problem for a digital music player.
EDGING OUT SMALL PLAYERS. With a healthy dose of Microsoft's marketing dollars, Zune will most likely take market share from Microsoft's current partners, device makers like Creative Technology (CREAF) and iRiver, and music services such as Napster and Urge (see BusinessWeek.com, 9/5/06, "Meet the iTunes Wannabes"). "All the other players are going to get muscled out," Gartenberg says. "Apple is most likely going to be totally unaffected by this."
None of that discourages Microsoft's Allard. "We're still in the early days" of digital music, he says. His perseverance is beginning to pay off with the Xbox, nearly seven years after the company first embarked on that effort. This fight isn't going to end overnight, either.