Daniel Eran Dilger
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Why Microsoft’s Zune is Still Failing

Zune Software Crash
Daniel Eran Dilger
Last winter, I detailed why Microsoft’s iPod Killer would fail miserably. This year, Microsoft will fail again, but for a new set of reasons. It is not obvious that the company has figured this out itself. Here’s why the Zune will fail in 2007, and how Microsoft is painting a fraudulent portrait of interest that doesn’t exist.


Why Microsoft Failed Last Year.
Back in July of 2006, I outlined a variety of problems Microsoft faced in its then secret plans to rival Apple’s iPod directly.

The wrong business strategy: As it had with its two generations of Xbox game consoles, Microsoft appeared poised to deliver loss leader hardware and rely on content sales, licensing, and rentals. I predicted that strategy simply couldn’t compete with Apple’s selling desirable hardware at a profit and making minimal profits on content. Sure enough.

The wrong product: Microsoft was rumored to deliver a product that, true to its roots, ignored usability and instead tacked on impractical features such as wireless sharing. “Microsoft lacks any idea of how to create hardware that the general public might seriously find useful. Any remaining doubts can be answered in one word: Origami.”

The wrong service: despite the repeated failure of subscription-based rental music services between 2000 and 2006, Microsoft centered its strategies around music rentals. It should have learned something from Rhapsody, Duet, Pressplay, the “new Napster,” and other PlaysForSure failures it had been intimately involved with over the previous half decade. It did not, and still centers its strategies around exploding media DRM.

Rise of the iTunes Killers Myth

Three Strikes for the Zune: Winter 2006.
After Microsoft released its Zune strategy, more specific reasons it would fail became obvious. Last November, I presented three.

Cheap Gifts: I outlined how Apple had successfully pushed low cost iPods every winter. Rather than copying that success, Microsoft aimed at the high end of the market with the 30 GB Zune, priced the same as Apple’s 30 GB iPod. Microsoft actually had to reduce its initial $300 price target to $250 just to compete with the iPod.

However, last year Apple was primarily pushing its new Nano lineup and new iPod Shuffles. It had only slightly improved the previous year’s 5th generation iPod, so the Zune was competing with a 5.5G iPod model Apple had placed in maintenance mode.

Apple subsequently blew out sales of 21 million iPods, not by trying to beat Microsoft’s Zune in a duel of hard drive players, but by selling a gift friendly product the market wanted. Microsoft couldn’t sell enough Zunes to matter.

Glutted Market: strike two was the fact that Microsoft unceremoniously yanked the rug from its PlaysForSure partners just weeks before throwing the Zune into the market. That left its jilted partners unloading their now obsolete hardware at fire sale prices.

The Zune wasn’t competing against the iPod, it was fighting to stand out as a boxy USSR-looking device amid a small sea of identically ineffectual iPod Killers from Creative and other Windows Media partners.

Microsoft promised PlaysForSure partners that the Zune would only compete against the iPod, but it really only ate into PlaysForSure sales. Even worse, Microsoft artificially made the Zune incompatible with other players, fractioning any installed base that could have developed rather than just stealing the PlaysForSure market for itself.

The Neutered Network: Microsoft doesn’t seem to understand the engineering art of leaving things out. Instead of making tough choices, the company just loaded in apparent features that did very little. Adding wireless sharing was particularly worthless because the feature was limited to only work for three plays, and wouldn’t work with over half of the music users bought from Microsoft. It also ate up battery life.

Today’s Zunes claim to uniquely provide wireless sync, but they require being plugged in order to do this! That means Microsoft’s wireless sync has as many wires as Apple’s USB sync, it’s just 20 times slower. That’s not an advantage nor a feature. It’s a marketing lie.

Another poor decision was adding a radio. Users don’t pay $250 for a hard drive based music player to listen to the radio. Further, radio reception isn’t very good without an external antenna. The iPod solves both issues by offering a $30 external radio control that doubles as an antenna. Microsoft “bundled this in,” resulting in a radio with poor reception that everyone had to buy, which only complicated its design.

Strike 3: Why Zune will Bomb this Winter

Why Zune will Bomb Again in 2007.
Microsoft doesn’t seem to learn from its mistakes in consumer electronics very well. When it does however, it frequently gets the timing wrong. This year, Microsoft appears set to compete against the Apple of 2006. It now offers two flash models, last year’s leftover 30 GB unit, and new 80 GB version.

Wrong Products: The problem is that Apple moved the goalpost dramatically. Apple’s new 3G Nano is ultra thin and small, but delivers the same video resolution as Microsoft’s boxy flash Zunes at the same price. It also plays games.

Microsoft also has no match for the standout iPod Touch, which delivers a luxury product with WiFi store features, web browsing, and YouTube streaming for about the same price as Microsoft’s hard drive based players. Microsoft seems to think it is competing against last Apple’s 2005 iPod refreshed for 2006.

Winter 2007 Buyer’s Guide: Microsoft Zune 8 vs iPod Nano

Unavailability: Microsoft is trying to play up the idea that its new 80 GB Zune has sold out due to popularity. In reality however, few stores even received any of those models. Scarcity is only a good sign if you are making units as fast as you can, as Nintendo is doing with the popular Wii games console.
However, even for Nintendo there is a real risk that product unavailability will drive potential buyers to other products. Apple faced similar problems in the mid 90s, when it simply couldn’t produce enough PowerBooks to meet demand, while it sat on warehouses of Performa models nobody wanted.

For Microsoft, an inability to deliver the new Zune model is similarly only bad news, not something to brag about. That hasn’t stopped the company from widely seeding the story that the Zune 80 can’t be found in stores because is wildly popular, rather than because Microsoft can’t deliver any in volume.

Failed Misinformation Campaign:
Microsoft has been working to seed the idea that the Zune is this year’s Tickle Me Elmo among various media sources in an astroturf campaign similar to its previous efforts.

iPod vs Zune: Microsoft’s Slippery Astroturf

When the Wall Street Journal recently posted a survey asking what gifts readers were planning to buy this winter, despite listing the Zune but not the iPod as options, the results showed that nobody had any interest in the Zune. It registered 0% interest after 123,000 votes.

Wsj.Zune

Microsoft discovered the embarrassment, and the next day there were 16,481 new votes, 14,999 of which happened to be Wall Street Journal readers exclusively excited about the Zune. That’s over 91% of the readers of an article that had fallen out of sight by that time. There aren’t that many people on Earth who have heard of the Zune and read the Wall Street Journal.

200711221634

Microsoft is also trying to spin last years’ Zune as a run away success. The problem is that we know Microsoft stopped manufacturing them. Back in July, the company announced shipping 1.2 million of them to stores by the end of June in order to meet its stated goal, but stores hadn’t actually sold them to consumers.

Just as with its “shipment sales” of the Xbox 360, Microsoft’s retailers now have to sell them again, this time for real. Channel stuffing makes for good press releases, but it doesn’t actually put products in the hands of consumers. It does however allow Microsoft to advertise sales twice: first as shipment sales reported in its financial statements, and again as retail sales reported by NPD.

200711221700

The result of a large supply and a slack demand is lower prices. That’s why the $250 30GB Zune from 2006 is now selling at 65% off at a variety of merchants. Among them is Amazon, which has been heavily promoting the Zune fire sale in its advertising and affiliate programs for $89. And so Microsoft is once again dumping models on the market while also trying to sell full price new versions.

Ten Myths of the Apple TV: Xbox and Hardware

Losing to Win?
With these genius strategies, it’s no wonder why the company burned through $8 billion last year in its consumer electronics division. Microsoft doesn’t want to compete on price, and doesn’t want to bother to build competitive products. Instead of competing in the market, it hopes to simply outlast the competition by funneling in profits from Windows and Office.

Microsoft’s Outrageous Office Profits

The problem of course, is that Apple is also competing against Windows and Office, and is also excelling in a market Microsoft has never been able to profitably crack into: mobile phones. Microsoft’s ongoing losses among its Windows Mobile products are as bad as its Zune and PlaysForSure failures. Conversely, Apple has been able to maintain its competitive lead in iPods and is now rapidly eating into the smartphone market.

Microsoft isn’t competing against an enfeebled early 90s Apple being run by salesmen, nor against another late 90s Netscape lacking any viable revenue streams. There are no partners for Microsoft to betray and no market winners to buyout. Microsoft now has to compete in the open market, something it has never done successfully.

All the company can do is continue to throw money at music on one front while it battles Google in search on another, Linux servers in another, OpenOffice in another, Blu-Ray in another, and Nintendo in console gaming. Meanwhile, its flagship Windows Vista product is in flames while Apple eats into the profitable end of consumer desktops and Linux increasingly eats into its installed base in low cost desktop sales.

Origins of the Blu-ray vs HD-DVD War
Office Wars 4 – Microsoft’s Assault on Lotus and IBM

Microsoft still has a huge reserve of cash and revenues to throw at its battles. The problem for the company today is that it’s rivals now do, too.


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  • Jesse

    People, people, lay off elppa. Dan, sheathe those claws. The guy ain’t no shill. elppa is correctly pointing out false reasoning, and is right to do so. Being rigorously logical logic doth not a shill make. He isn’t saying the article’s invalid, he isn’t defending the Zune vs. the iPod or even vs. Apple TV. He’s fair-mindedly pointing out that wirelessly syncing while plugged in could have uses. He’s not even saying it actually is useful, he’s just saying there’s a scenario in which it could be. And his logic makes perfect sense to me.

    Just so that I don’t get called a shill too: I love Apple to death, I practically make a sales pitch for Macs to everyone I meet, I went and held an actual Zune yesterday at Office Depot and it seemed like total trash, a big tragic joke, plus Bill Gates drinks puppy blood. So there.

    But face up to it, friends–Dan was wrong on this one. Or at least, less right than usual. Wireless on the Zune may be impractical, poorly implemented, unneeded, and dumb, but it actually works. And there actually is a scenario where it makes sense to call plugged-in wireless syncing a feature. elppa’s right. And big deal–even with Dan wrong on this little tiny thing, the Zune still sucks wet farts out of dead pigeons. So ease up.

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  • elppa

    “People, people, lay off elppa. Dan, sheathe those claws. The guy ain’t no shill. elppa is correctly pointing out false reasoning, and is right to do so. Being rigorously logical logic doth not a shill make. He isn’t saying the article’s invalid, he isn’t defending the Zune vs. the iPod or even vs. Apple TV. He’s fair-mindedly pointing out that wirelessly syncing while plugged in could have uses. He’s not even saying it actually is useful, he’s just saying there’s a scenario in which it could be. And his logic makes perfect sense to me.”

    You have no idea how happy it makes me to know that someone, somewhere has understood the point I was trying to make.

    THANK YOU!

  • nat

    elppa said:
    “You have no idea how happy it makes me to know that someone, somewhere has understood the point I was trying to make.”

    Ha, I understood where you were coming from as well, elppa. I just felt like giving you a bit of a hard time for comparing the AppleTV with the Zune.

    With that said, using a Zune to play back videos downloaded on a PC and synced “wirelessly” is only a “feature” for people with a) Windoz PCs, b) $100 A/V kits and c) time/patience on their hands.

    According to Zune.net, to set up wireless syncing, you first have to 1) plug the Zune into the computer. Once you’ve 2) finished setting it up yourself (this is not an automatic process), 3) disconnect the Zune.

    For wireless auto-sync, 4) plug the Zune into either your computer or a power outlet. Now 5) leave Zune alone for one minute as that’s how long it will be before the Zune even starts syncing wirelessly.

    If you disconnect the Zune from its power source at any time, syncing stops.

    If any media is playing on the Zune, no syncing will occur.

    If the battery is below 10%, even though its plugged into the wall, syncing will not occur.

    Zune only syncs videos that you specifically choose because they’re often large and take a long time to sync.

    If you have multiple PCs, a desktop and laptop for example, the first one you set up the Zune on will be the only computer it syncs with.

    Researching the Zune more has helped me realize just how lame it truly is.

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  • shoopylove

    The most compelling evidence that interest in Zune is largely phony is the fact that I can count the number of Zunes that I have ever seen in the wild on one hand (3 to be precise). And at least one of those was owned by the stay-at-home wife of a Microsofty – not exactly the profile of a tech-savvy, impartial consumer. I live and work in Seattle where, one would assume, interest in M$ products may be higher than in the average city.

    I wonder what others have experienced in the real world in regards to media player usage?

    Like most consumers, I don’t even know how to react to the marketing efforts put forth by the Zune team – except to laugh. Why should I even care if it’s any good as a media player when it doesn’t distinguish itself in any way? It appears to be the choice of “indie” music fans, and yet my iPod is loaded with indie music.

    I admit to being biased toward Apple and their products, but Apple has earned my bias over the years. Has M$ ever created any product that inspires me? Nope.

  • http://homepage.mac.com/lunaticsx/ LunaticSX

    @elppa
    “Er, yes it does, because you can send content out to the Zune from your PC, without bringing the Zune to the PC == feature.”

    Just because something is a “feature” doesn’t mean that it’s actually worth having.

    Not having to bring the Zune to the PC is of highly questionable usefulness, when:

    A) The range of WiFi means you still have to have it fairly nearby anyway

    B) In order to keep from significantly draining its battery you should have it plugged in to AC power, which defeats the “wireless” aspect of the “wireless sync”

    C) To truly sync wirelessly, without a power connection, you have to manually press a “sync now” button on the device, which means you’re going to have it right next to you when you’re at your computer–so you might as well just plug it in, which 1) gives you faster syncing, and 2) charges the battery at the same time. (You could always call out to the person holding the Zune in the next room “Ok, press the ‘sync now’ button!,” but seriously…)

    The whole point here is that wireless syncing may certainly be called a “feature,” but it’s not a “feature” that actually has significant utility. For that reason, it is on one hand a smokescreen (“More features!”–never mind that you’ll never find those additional features actually useful…) and on the other a waste of time spent in engineering, testing, documentation, etc. when they COULD have tried spending that time in improving the core functionality of the device–or just made it cheaper.

    Adding that the Zune’s “wireless sync” could be potentially a useful feature if you buy an additional $100 A/V kit and leave it plugged in in another room is just the same as telling people to pay no attention to the man behind the curtain, or agreeing with Microsoft that the emperor’s clothes look magnificant. The main goal of the Zune is to be a portable media player, so saying that one of its differentiating “features” could be useful when you’re using it explicitly in a manner for which it is not primarily intended is simply beside the point.

    There’s one good thing I could say about the Zune’s wireless sync: *If* the Zune’s power cable is not the same as its sync cable, then the wirless sync could be useful if you’re away from home with a laptop and you’re brought a Zune power cable but forgot the sync cable. If they’re the same cable, though, then there really is little point. (Oh, and if they’re *not* the same cable then I’d just have to ask “What were they *thinking*?”)

  • Jesse

    With all due respect y’alls, flibbity flabbety floo. Let me demonstrate the essence of this squabble, in completely neutral language:

    Person A: “X” is the case.
    Person B: Actually, “X” is not entirely the case.
    Person C, D, E, F, G, H, I, etc, at the top of their lungs and with steam coming out their ears: That doesn’t matter because of Y, Z, YY, ZZ, YYY, ZZZ, etc.

    Fellas (and less likely, gals), look at that progression. All those grand arguments–the “Y, Z, YY, ZZ, YYY, ZZZ” parts of above discourse–have nothing to do with what person B said. To the point at hand, eppla never argued against any of the things you’re frothing about. You are arguing against, to use one of Dan’s favorite phrases, a straw man. By all means, have at it, get your jollies, but know that it has nothing to do with eppla: you’re actually just shadowboxing.

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  • Pascal

    The Touch is really worth a purchase, the best iPod ever. I hope Apple will start to release softwares for it, very soon.

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  • http://pagancrow.spaces.live.com ikyouCrow

    wow. seems like no one here even considered the one thing automatic wireless sync was meant to do (whether intended or not): podcasts.

    imagine your zune plugged in to your car. you pull up in the garage, go in the house, go to sleep. you wake up the next morning and “get dressed”, hop in your car and play the latest podcasts that were automatically synced wirelessly overnight. nightly news, anime reviews, whatever podcasts you subscribe to that update daily.

    you can’t tell me that’s not a handy thing to have happen. sure you’d have to buy yet another cable to charge in your car, but the convenience of it… that’s value to me.

  • htiawe

    That is exactly what i want with the iPod, i dont want to have to plugin my iPod to sync podcasts. But knowing Apple im sure it will take very long until we see that feature in the iPod.

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