Tuesday, November 14, 2006

Zune: welcome to a competitive world!

So, today sees the entry of the iPod buster, Microsoft's Zune. As a brand new owner of an 80GB iPod Video, I don't suppose I will be impressed! But perhaps more important, the critics agree with me. Not that they are necessarily free of bias.

Zune comes in one model with a choice of three colors - white, black and. . . . . brown. That last color somehow doesn't lend itself to many positive thoughts. My best shot is that it might resemble post-war bakelite, hardly a positive but better than some other thoughts that are not printable. The case is said to be made of a slightly tactile plastic which is not a bad idea at all for a hand held device.

The biggest difference in operation is that Zune contains an FM tuner as well as a WiFi capability to share songs. Clearly this latter feature is aimed at young users in the school playground or campus coffee bar. An FM tuner is available for the iPod as an optional extra.

But the greatest difference that separates the two competitors is probably in the marketing of music. Let's compare:

iPod uses iTunes which is available on both Mac and Windows platforms and is generally acclaimed as the reason why the iPod has been such a success. iTunes has evolved into a brilliant piece of software - possibly one of the best ever and as a free download even more special (you can use iTunes to organize your existing music without buying an iPod). The Zune software is going to be available only for Windows compatible computers - we will have to wait and see how easy it is to use. Meantime, Microsoft has basically excluded me, as an Apple Macintosh owner, from even considering its product.

The iTunes Music Store (ITMS) has also evolved into an innovative but easy to use (as any Apple product should be) place to buy music. OK, you don't really buy the music. But then you never do buy all the rights to music when it is sold on a disc or tape - just read the small print! You can copy the music you buy from ITMS onto several computers and iPods, certainly enough machines to maintain a friendly accord between vendor and user, and of course all other music sources can be imported from CDs, hijack software, etc. Microsoft has introduced a new music store and, this is interesting, any music bought previously is not compatible with the Zune (including Microsoft's own MSN store which will now close). Microsoft's business model includes paying the music vendors a royalty on each Zune sold. This has been brought about by an insistence from the United Music Group that they must receive payment as all iPod users are basically criminals! At $1 a Zune, this means that Microsoft will be limited to the number of royalty payments it can negotiate and therefore the number of music publishers it will sign up. Also, how can Microsoft introduce an entry level shuffle competitor and honor existing high royalty payments to the big music publishers?

Another way of examining the Zune business model is to consider that United Music Group will actually benefit not only from Zune sales but also from sales of every song it markets through the Zune store. In effect doubling its income stream! This hardly benefits the indies who will only get royalties on sales of the music. Indies gave Apple a hard time so I think we can expect a bigger brouhaha this time around. And just wait for the EU to get their hands on it!

Zune's limited sharing of music sounds interesting but the DRM is designed to knock out the shared file after three plays or a few days, which ever comes first. I don't know if this will be possible, but it seems to me that piracy could easily be achieved by hijacking any one of the three plays and then burning a CD! Also, it is said that the "three strikes and you are out" methodology cannot distinguish between a licensed song and, say, a demo disc uploaded onto a Zune by the demo disc's owner who clearly has the right to his own copyright.

Podcasts. It would appear that Microsoft is not going to offer podcasts. How very interesting! I guess their business model just doesn't make way for free downloads of anything even if such downloads may be fantastic loss leaders! The podcast is rapidly maturing into the better way to disseminate information to people who need that information on their time schedule, not necessarily when the Media deliver it. Podcasts are superb for anyone who travels a lot, whether transatlantic or the daily grind on a commuter train. Maybe the problem is in the name "podcast"? Could there be a parallel universe with "zunecasts"?

In conclusion, I predict that Zune is a brave entry that may not live up to its promises. With only one model aimed at the iPod's higher end, Microsoft will not quickly invade Apple's market share. In shear numbers this Christmas it will be the newly introduced Nano and Shuffle models that will boost Apple's market share. These are cheap enough to be stocking stuffers and are expected to sell very well indeed. Microsoft is gambling on one model being successful because of the huge Windows installed base. Most iPod owners I know are also Windows users (thanks to the cross-platform iTunes software) and some are actively considering moving to Apple for their next computer purchase.