Zune – The Impossible
Victor Godinez of the Dallas Morning News comments on the fate of the Zune and, indeed, why iPod users should care. But anyone planning to buy an iPod should hope that Microsoft is able to turn the Zune into at least a modest success.
His basic argument is that having healthy competition will force Apple to improve its product. He has cited the iPod’s lack of an FM radio as an advantage in a competitive landscape. However, his argument is based on Apple having competition, while the speculation about the demise of the Zune is based entirely on the question of why Microsoft should be in the portable music player business.
There are numerous competitors to the Apple iPod, including Sony, Philips, Archos, iRiver, SanDisk, Creative, Cowon, iBiza, Blue Raven, Coby, RCA, Toshiba, Music Gremlin, DigiArmor, Cowon, Yukyung, among many others. If we limit it to effective competition, that is, those who have distribution capacity, we still have Sony, Philips, Creative and Toshiba. (I would also say SanDisk).
The problem with Microsoft being in the portable music business is that Microsoft is highly unlikely to become a major player in the music market in general. Microsoft needs to have products with a rate of execution of more than a billion dollars to satisfy its shareholders and customers. Add to that the flop of Vista, and customers and shareholders aren’t happy that Microsoft is playing the edge and not working on its core product offerings.
Microsoft’s Zune’s failure to even make a dent in iPod market share is exactly the same problem that Sony has in selling its Walkman products: the portable music industry has a huge network effect, and that network effect clearly favors iTunes. iTunes, through its critical mass, now has tremendous market power in digital content delivery and must be dealt with by all major content owners. iTunes is the price maker in this market, everyone else is a price taker.
Just as the Windows operating system has a very strong network effect, so does iTunes. And for this reason, people have valid reasoning for suggesting that Microsoft shouldn’t be in the Zune business, especially since its revenue is going in the opposite direction from where it’s supposed to be.
Microsoft only has another 12 months to decide whether or not to continue in the portable music market. However, shareholders may force Microsoft to make some tough decisions.