Zune HD: Microsoft’s New Mobile Platform
Last week, I twice started to write about why the then rumored Zune HD is a really big deal. Microsoft officially announced the device late yesterday, so now I’m reactively rather than proactively explaining why.
It’s a platform play in a big way, but also a set of compromises for which Microsoft takes great risks. As much as anything, Zune HD is Microsoft trying to have its cake and eat it too, as the saying goes. Microsoft isn’t making a cell phone, which is a tactical mistake, by the way. The company is settling for less, yet looking for more, with the enhanced portable media player.
Zune HD should be Microsoft’s phone. Instead, the media player will be companion to Windows Mobile phones made by third parties and to Xbox 360. A Microsoft truly committed to the Zune platform would pull the plug on the Windows Marketplace for Mobile now. Rebranding is always a bad strategy, but it would be worse later than sooner.
Windows Marketplace for Mobile is still new enough, not adopted enough for graceful retirement. Microsoft should offer a single application and content store for phones, media players and game consoles. Zune Marketplace—or Xbox Live—should be it. I would go with Zune and later gracefully migrate Xbox Live Marketplace.
Is touch Within Reach?
Why should Microsoft even bother with Zune HD? Microsoft executives are no dummies, even though the corporate brain is sometimes idiot savant—remarkably brilliant but lacking common sense and social skills. The executives see exactly what’s happening with Apple’s App Store platform: iPod Touch is carrying the slack for iPhone, which sales are declining, by the way.
If not for iPod touch, App Store would have many fewer applications and much less success. Through end of March, Apple had shipped 37 million iPhones and iPod touches. Without iPod touch, App Store would serve about 21 million devices through end of first calendar quarter. By my admittedly quick math, iPod touch accounts for about 44 percent of the Apple mobile device install base.
The question: How soon will the iPod touch install base exceed iPhone? One quarter? Perhaps two? Before long, iPod touch will be App Store’s future—and whatever successor devices, including the rumored tablet and camera packing iPod nano, come along later.
What applications are people buying for their touches? Games, games and more games. Surely ever-calculating Microsoft executives see what’s going on. Microsoft is quite the successful gaming company, and that’s leverage into handheld gaming and extending music competition against iPod and iTunes.
I can imagine how the internal Microsoft phone debate ended. Surely someone advocated the company produce its own phone. The decision: Have the cake (by building out a new mobile strategy with third-party hardware manufacturers) and eat it too (by producing an iPod touch-competing media player and supporting content/software platform). Microsoft could always go phone later, by adapting the Zune HD. What’s an iPhone, but a thicker iPod touch with 3G radio and a camera?
Xbox, Y and Zune
Other than plugging leaks with facts, the Zune HD announcement seems strangely timed. This morning, Washington Post tech columnist Rob Pegoraro tweeted: “What’s the bigger Zune HD surprise—MSFT’s willingness to kill summer sales with this preannounce, or its using HD Radio as a selling point?” To which I rudely responded: “What sales?” Microsoft risks little, while hoping to gain some developer support and consumer interest ahead of Apple’s developer conference, which starts June 8. Big topic: iPhone 3.0 software. And to get ahead of new iPhones.
Microsoft can only successfully compete with Apple by offering a unified platform—the marketplace at least and ideally the operating system, too. I’m doubtful Microsoft can achieve either of these goals for the Zune HD launch, particularly since its mobile, gaming and entertainment strategies are fragmented. That said, Xbox and Zune are aligned on the back end already, with respect to billing and ID tags among other facets.
Microsoft should stick with the “Welcome to the Social” approach, which is a differentiator over Apple. Community and connection define Xbox and Zune. Apple offers nothing similar for iPhone or iPod. The iTunes Store provides some limited social interaction, such as the customer posted playlists. But who is really making recommendations—other subscribers or iTunes’ Genius feature?
Microsoft embodies social computing. The company is big on collaboration, as a workplace philosophy and feature set for many of its products. By contrast, Apple more emodies the individual achiever, something that comes straight down from executive and chief decider Steve Jobs. The one man’s individualism defines what is Apple, as does his penchant for secrecy. That secrecy often has product groups working independently rather than together.
A few miscellaneous bits: Zune HD isn’t the end of Microsoft’s music player line, as has been widely speculated. Zune HD is the new beginning. But I disagree with Nate Anderson, who today asked if the Zune HD is “a new hope for Microsoft?” Windows 7 is Microsoft’s new hope—and perhaps Azure Services Platform.
Do you have a Zune story that you’d like told? Please email Joe Wilcox: oddlytogether at gmail dot com.
Great post Joe. I think that the Zune is only at its beginning stages. Sure there may be no phone right now, and Microsoft doesn’t need to produce a phone, but solid integration with Windows, Xbox (and Live) would be a great strategy. Perhaps dump Windows Media Player and incorporate the missing features into the Zune Application and include it with Windows…
I am guessing that the iPod Touch is pretty much the same thing as an iPhone but without the phone capabilities, making it less expensive but just as capable for games and internet use.
Which means you are right about your recommendations for Microsoft’s direction. They should converge Windows Mobile and Zune so that they overlap and price/function is the only differentiator. Just as the iPod Touch and iPhone do today.
I am also guessing that iPhone sales are declining for two big reasons: 1. Because the people who can afford them and the data plans that make them truly useful are a very bounded market, and 2. Because people are waiting for the iPhone 3 and aren’t in a hurry to buy technology that will soon be obsolete.
Will people who buy an iPod Touch or Zune HD to play games comprise the market that will provide the most profit? I dunno. Blackberry Curve and Bold aren’t nearly as cool as the demo-doll iPhone, but its market share is driven largely by business, which means by people who make money from its value and don’t just use it for entertainment.
Of course, I could be wrong and the gaming sector could very well swamp the business value sector. Hey, Fox cancel “The Terminator” TV series, which was the ONLY network TV show that I regularly watched and followed. Which means that this old fart is way out of synch with the rest of the market. If people were like me, for example preferring the 3-hour History International documentary on Alexander the Great instead of the Hollywood version, then all of the rich folks in Hollywood would instead be working as waiters, waitresses, or other low-paying jobs. Jerry Seinfeld would be just another poor working stiff. Tom Cruise would be a household name ONLY in his own house and nowhere else.
And eWeek would be on its hands and knees begging Joe Wilcox to come back so that their readership could rise from zilch back to its former levels.
When you say that Windows 7 is their new hope, what exactly do you mean? I think most people agree that the operating system is going to become irrelevant in the future, so how can an operating system save them from that?
Azure is a flop, it went down for 24 hours and nobody noticed, when Google goes down for a few hours, the world discusses it for days after.
The Zune is always going to fail if they insist on only selling it to 5% of the market.
Hey, Joe! Off topic… I was about complain about the white letters on a black background, and I find out that your site has morphed into yet another form, much more readable, much better organized (I love the threading model), and easier to navigate. This is the BEST site format yet!
VERY NICE JOB!!!!!!!
(Eat your unappreciative little heart out, eWeek!)
Joe: After the rapid fire strategy changes from MSN Music to Plays For Sure to MTV Urge to Zune, do you think customers will think twice about “investing” in yet another Microsoft entertainment platform?
(To be fair, while the previous strategy switches pretty much meant starting over for customers, Zune HD should just extend the existing Zune Marketplace experience. But if they try to “integrate” with other services, all bets are off. My guess is it’s more about internal power politics than customer experience, or even business strategy.)
billybob: MSFT derives most of its OS revenue from corporate Software Assurance (SA) contracts. Joe has written about this extensively in the past. But the short story is, a lot of companies skipped or severely delayed installing Vista, and MSFT salesfolk are having a hard time selling new/renewed SA contracts due to both Vista bad press and economic pressures. Whether you consider it a new OS or Vista SP3, Win 7 is significantly improved in use, deployment, and press over Vista. Between that and long-delayed hardware/OS refreshes, Win 7 should mean improved corporate deployments going into 2010.
Unless everyone decides to go thin client all of a sudden, which seems unlikely. In the long-term, maybe. Over the next three years, no.
I don’t agree about the phone, Derek. Microsoft should do a handset. Windows Mobile is too weak right now. Android will rapidly gain momentum over the next 12 months. Microsoft’s longer term problem isn’t Apple but Google.
I do not question that 7 is better than Vista, but even if it sells really well the question is how much will they make from those sales? There is lots more competition in the market now compared to 5 years ago which must mean that the sale price must be coming down.
Look at their last quarterly report, it shows that profit was falling at a greater rate than revenue. They do not publish prices that they actually sell to businesses and OEMs but my theory is that they are using Linux and OSX as bargaining chips to get discounts. Office is also under a lot of threat because it is good enough and there are alternatives now. I think the competition is moving too fast for Microsoft, Ubuntu releases every 6 months and Apple has a new OS every 18 months.
This is why Ballmer always talks about a reset, I think that their revenue will halve in the next 5 years and that will have a very serious impact on a business designed to run on $60 billion per year. If they have such good information about businesses renewing, why can they still not predict next quarter’s revenue?
What is going to save them from the reset?
Well, Philosopher, you may get the last laugh. Hollywood is next on the Internet’s hit list. The democratization of content took a decade to hit the news business, and it’s going after others. The Hulu alien invasion will hold back the likes of Viddler, Vimeo or YouTube for awhile. You may lose Sarah Connor today, but she’ll be back as someone better tomorrow.
It’s Friday, which is my day to write nuttier things. I can imagine the Fox exec making the cancellation decision calling out, “You’re terminated.”
Thanks for all the kind encouragement, Philosopher. I’ve got a few more tweaks yet to make and then the blogging will pick up more.