Zune is a problem for Apple

Reader Joe responds to "Opinion: Why Microsoft's Zune scares Apple to the core," and Mike Elgan replies.

Reader Joe:

Of course, it's your opinion that you believe the Zune will be a success but here are some things to keep in mind.

#1) MS has had ZERO success in selling consumers a new product since 1998 - From Talking barney's to the watch OS to webTV to home networking gear to tablet Pc's, home media PC's, WMA online stores (plays4sure), etc, etc ... I'm not saying they're outright failures but for the attention, R&D and marketing they've devoted to their launches - no one will call them a real success ... and even the Xbox - the closest "success" which is really a PC without driver or patch problems ... AND MS has spent $400 per unit or $10 billion dollars - how any more successes can they afford?

But let's then go through your points - You're right about the perfect storm - which means it will make a lot of noise but 48 hours later, no one will quite remember. They can barely get 1/4 of VIDEOGAMERS to buy an XBox, how are they going these people to spend $250 for an add-on that's not a gaming device? The head of Xbox who used to run Dreamcast ALSO tried to sell a game saving device 6 years ago - failed. MS can barely get 50% of all accounts to upgrade from 98/2000 to XP - they are now going to get people to upgrade to Vista AND buy a Zune? Not logical. If you say ipod once had 92% of the market, it must've been when the market was about $300 million dollars - it's much better to have 70% of a $5 billion market and their market share by dollar is over 85% which means they are clearly making more than per unit.

MS does have 90% market share but that's counting wedding kiosks, baggage check in and cash registers - I doubt those machines will buy a Zune or allow anyone to plug a Zune into it. Vista sales to Zune is irrelevant - just like Mac OSX sales are irrelevant to ipod sales. The Xbox is NOT very mighty and will probably be third again after WII comes out and perhaps even Xbox 360 will be fourth behind PS2, WII, and PS3 in 6 months from now ...

#2 The Zune will attempt to be viral but NO major corporation has created anything viral. If anything, the coolness factor and death knell is quick for anything corporate & viral. P to P shraing only works when you have many others interested - how many Zunes will be out there after 2 years? A million - maybe?

#3 Zune programming - you confuse selection as the #1 choice of consumers. How are Movielink, vongo, or the the WMA online stores which had much more selection than itunes? selection matters very little if no one wants it. I'll bet b&n has as many books online as amazon but who do people shop at?

#4 Zune screen - yea, there are 6" screens out there - how are they selling versus the 2.5" video ipod. 3" to 2.5" is like claiming you have 25 feet of cubic cargo room versus the 23 of your competitor ... it's not a change maker.

#5 of course, your coolness opinion is yours but brown? Aren't you suspicious NO ONE else has ANY brown consumer electronic products out there?

The main problem is MS' culture. They could compete when they could literally lock out competitors and don't get me wrong - in the field of selling to enterprise & agencies, they are brilliant but when it comes to consumers - they have nary a clue because they are bureaucrats now also. That is why EVERY consumer product they have pitched and sold has FAILED ... and their one "success" is really just a repackaged PC that they essentially have given away for free and now they've come out with a product that is clearly uglier, does NOT even work with plys4sure, and its only difference maker is a battery draining feature that requires you to know someone with this device ... yea, good luck with that ...

Oh, and when the Zune street date is a few days away, I'll bet Apple will lower the price of the 30 GB ipod and come out with a 5" ipod video screen ... but some people know how to market to consumers while someone else just knows how to throw money at it - what could be more bureacratic than that.

Mike Elgan replies:

Thank you for your note!

*** it's your opinion that you believe the Zune will be a success ***

It is not my opinion that Zune will be a success. It might succeed. It might not. Zune doesn't have to succeed in order for Apple to be harmed.

Here's why I wrote the column. I have noticed my fellow iPod enthusiasts "pointing and laughing," as I put it, at Microsoft's entry into the media player market (on blogs, in articles and elsewhere), mocking Microsoft's futile attempt to enter into the media player ring with Apple. In stark contrast, I've also noticed that Apple is taking the Zune very seriously as a potential threat. The research I've done makes it obvious why they're taking it so seriously (reasons I have tried to spell out very clearly in my column).

One role of columnists is to seek out popular myths and misconceptions and provide insight and argument to dispel them. That's what I did in my article.

*** You're right about the perfect storm - which means it will make a lot of noise but 48 hours later, no one will quite remember***

Quite the contrary. It's likely that Microsoft will bundle Zune Marketplace with every copy of Windows -- every PC sold -- starting in November. Remember that 270 million Windows users have NEVER owned an iPod or used iTunes. Some percentage of Windows users will start investing real money in Microsoft's closed file formats, and get used to Marketplace. When it comes time to buy a media player, who they gonna call?

I'm predicting that pushing Zune will become a permanent, long-term objective for Microsoft. That's one of the reasons Apple is scared. There will be no forgetting.

*** The Zune will attempt to be viral ***

If nothing else, Zune will make the world safe for wireless media players. It's a forgone conclusion that Apple will come out with one. I'm not saying Microsoft will create a virual movement. I'm saying media -- videos, music and pictures -- are ALREADY viral. Microsoft is merely enabling existing viral activity to go mobile. It's a no-brainer, as far as I can tell.

*** how many Zunes will be out there after 2 years? A million - maybe? ***

I think more. But lets say a million in two years for the sake of argument. That's a million iPods Apple doesn't get to sell. That's a big problem for Apple.

*** Zune programming ***

Many of my points about the Zune boil down to this: iPod fans, Zune isn't as lame as you exected it to be. That's my message. Even if iPod is better in every possible way, I believe it's still true that Zune is cooler than expected, Marketplace is better stocked than expected, and it will be marketed more forcefully than expected -- that that's why Apple is scared. That's the message of my column.

*** Zune screen ***

Again, part of the message that Zune is cooler than expected.

*** EVERY consumer product they have pitched and sold has FAILED ***

Fair enough. But Microsoft doesn't have to "succeed" in order to hurt Apple.

*** when the Zune street date is a few days away, I'll bet Apple will lower the price of the 30 GB ipod and come out with a 5" ipod video screen ***

I make those very same general points in my column when I say, "the Zune ... [will]...squeeze Apple on pricing" and that Apple "is probably working feverishly on a bigger-screen, wirelessly enabled iPod."

Again, the point of my column isn't that Zune is better than iPod or that Zune will succeed or that iPod will fail. My point is that Apple is taking Zune very seriously and it has good reason to do so.

I do appreciate you taking the time to write to me.

Best,

Mike Elgan