The end of Microsoft's water torture strategy?

A week after reviewing Zune, I'm left with this one (hopefully) final question: Can Microsoft's hard-nosed and long-successful version 1.0 strategy work yet again? 

Microsoft has used this strategy successfully over the years to crush entrenched competitors. First it introduces an interesting but incomplete version 1 of a product.  Zune certainly qualifies in that regard and, in the past, so did early versions of Internet Explorer, Microsoft Word and the Windows networking platform, among others.  

Next, Microsoft brings crushing market pressure to bear. It built Internet Explorer into the Windows operating system and forced PC vendors to bundle Microsoft Office. Good-bye Netscape, good-bye WordPerfect and good-bye Lotus 1-2-3.  Then, just as end users and OEMs start to scream about Microsoft's hard-nosed tactics, it actually improves its product to be roughly as good as the products it is trying to crush.  

In this case, the iPod/iTunes ecosystem has enormous market share and customer loyalty, but so did Netscape, WordPerfect, Novell NetWare and many other products that Microsoft has crushed into insignificance.  So will Microsoft's strategy succeed in crushing Apple?

If I had a functioning crystal ball, I'd be a day trader. But I do believe Apple's long-term resistance to the Borg ... uh, Microsoft ... relies on a couple of factors.  First, can it keep its sharp technological edge?  Right now, its iPods are sexy little engineering marvels.  Apple will have to continue to release products that are significantly more sexy than its competition or it will open the door to Microsoft.  

Second, will Apple adapt to changing market conditions without losing its singular identity?  Eventually, for instance, it will probably have to add a subscription service like Zune Marketplace and Rhapsody to its current buck-a-tune approach. When it does, it can't be just another subscription service; it'll have to be special. If it isn't, the door will be open for Microsoft and other competitors to undercut Apple on price.

A related third variable is whether Apple has learned its lessons from the 80s and 90s when, through a combination of arrogance, bad executive leadership and Microsoft's relentlessness, it punted away a significant chunk of its desktop market share. Without doubt, Apple's leadership is much brighter now than it was then, but at times there are still hints of that cocky edge of hubris. A humbler approach will keep Apple faster on its feet.

Microsoft's relentless strategy, which resembles water wearing down rocks, exploits its opponents' weaknesses.  It usually doesn't fail but it could fail this time if Apple has, indeed, learned its lessons and if it continues to leverage its remarkable brand equity by staying significantly ahead of its competitors. My own feeling is that this is Apple's battle to win or lose.