Is Zune Microsoft’s .Net Stalking Horse?

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To date the MP3 player-buying public has voted with their wallets, showing that they prefer the clean user interface, no-fuss hardware/software handshaking and pure style points of Apple’s iPod. But if Microsoft can force a price war with Apple by selling their new Zune at fire sale prices, Apple will be forced to drop the prices on their hardware to meet market forces. Is this media player merely a shield, a stalking horse meant to clear the decks for Microsoft’s .Net future? Or do I need to stop being an armchair analyst? Don’t answer that.

Over the course of the last six weeks technology websites like Engadget have been thrumming with rumors that Microsoft was set to introduce an MP3/Video player named Zune that would challenge Apple’s vaunted iPod, a device that yanked the world into legal filesharing and stymied the rest of the tech industry in the process. Gadget freaks the world over recognized these “rumors” as a thinly veiled marketing campaign, noting that the device seemed to have an instant army of bloggers hopping up to thank their lucky stars that Microsoft was finally rolling out a larger-than-iPod device with limited sharing abilities, poor battery life and exciting colors like turd brown. In the real world, people have been shaking their heads and wondering why Microsoft decided to roll out yet another product that seemed to have been built by a committee of idiots, years behind schedule and broken in so many ways. (Of course, those are the voices of the harsher critics). People on the sidelines have been couching this in terms of a new browser war, but they couldn’t be farther from the truth…

Certainly, Microsoft is determined to be in the first car of the content delivery train that is set to roll out over the next three years and they see the necessity of controlling the content playback hardware, a full five years into Apple’s musical hegemony. Digital content providers like Apple, Amazon and even Wal-Mart are still being struck with studios, networks and content providers of all stripes. Microsoft is right in there with the best of them, trying to figure out what it all means.

But the rollout of the Zune represents a deeper strategy with payoffs that should appear within the next 18 months if I know my scheduling worth a lick… it’s the payoff that nobody is discussing: containing Apple’s marketshare.

Why is that important? We all know that Apple is contained to well under 10% of the installed user base… what’s the big deal?

As the world moves to what the wonks are calling the “Post Desktop” era, operating systems matter less and less. Look at the GUI at Flickr.com and YouTube.com and a hundred other “Web 2.0” sites.

It’s happening, and it’s happening quickly. The light and nimble startups are there already, and we know from experience how quickly startups can become 8 Googlillion Pound Gorillas in the tech world. Microsoft’s strategists know that there could be sudden and rapid turnover in the market… no, that there will be sudden and rapid turnover in the market in the very near future. Their concept of .Net is already being executed all over the place by startups and even Apple Computer has been out dot-Netting Microsoft.

How do you staunch the loss of your existing customer base? Well the first thing you do is plug the hole.

You kill the bloody iPod.

If Microsoft can significantly erode the iPod’s marketshare on the MP3/Video hardware industry they’re ahead of the game and everything falls in their favor from that point forward. But they don’t even have to erode the market. If they can commoditize the market that’s just as good. Reducing Apple’s profit margin on the iPod and eroding their market share pushes that hardware player down the slope long enough for Microsoft to create their own market for the thin client computers that we’ll surely all be using by 2010.

2 thoughts on “Is Zune Microsoft’s .Net Stalking Horse?

  1. Yonzie

    “But they don’t even have to erode the market. If they can commoditize the market that’s just as good.”

    The iPod has already commoditized the market. There’s the iPod, the Chevy if you want, and then there’s the others, the Daewoos. They’re cheap and not that nice.
    The others can’t keep up due to the massive scale of production on which the iPod runs.
    Microsoft is unable to threaten the iPod on price since the margin on the iPod is very very nice. Notice that MS originally wanted to sell the Zune at $299, just like the iPod. Then Apple lowered their prices. They still make $100+ on each and every iPod sold (except the 2GB nano and shuffle)
    http://www.appleinsider.com/article.php?id=2052

    If Apple wanted to close the market to MS, they could easily do it with $200 80-gig iPods – and still make money!

    Reply
  2. drew Post author

    Been thinking about this.
    Guess it all falls down to your definition of commodity. Even though the iPod is everywhere, from Wal*Mart, Target and similar retailers, it still retains the cachet of being something special. Despite its time at Number One it retains its brand connection to Apple. Generic MP3 players aren’t referred to as “iPods” nor do they live in blister packs at the checkout line of the grocery store as impulse purchases. They’re not in boxes of Cap’n Crunch. Yet.

    The margin is the play, now that they’re dealing in such huge numbers. I wouldn’t expect Apple to reduce that margin unless pressured so to do by a real threat. The best thing though is that with the increased profits, Apple is most assuredly pouring large amounts to time and effort into new products that will move the industry ahead yet again. Whether it will be a wholly new market or a refinement to an existing one is anybody’s guess, as is whether Apple will own that new market.

    Still, the changing relationship between device and OS is really intriguing.

    Reply

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