Zune Sales Still In the Toilet
May 9th, 2008
Daniel Eran Dilger
Microsoft has been keeping awfully quiet about sales figures for its Zune, a product that many Windows Enthusiasts originally predicted would cause considerable grief for Apple’s iPod. However, despite a new model refresh last fall and plenty of advertising, Microsoft has been left to announce that its actual sales are still a joke.
According to an Associated Press article citing Jason Reindorp, Zune’s director of product marketing, the device has sold “just north of two million” between its debut in November 2006 and May 2008. Apple has sold roughly 76 million iPods during that same period, more than doubling the installed base of iPods since the Zune’s debut.
The 152 million iPods sold (157.4 million if you count the iPhone), of which only 5.7 million were sold before 2005, makes it particularly laughable that NBC has attached itself to the Zune store (servicing two million devices) as a portal for its paid content in an effort to snub iTunes. NBC is also giving away free access to its shows to iPhone and iPod Touch users.
A Dubious Debut.
After blaming the failure of the previous Windows Media PlaysForSure program upon its hardware partners and music store affiliates, Microsoft announced plans in 2006 to introduce the Zune as its own closed player and music store to compete head to head with the iPod. The company insisted that the Zune would somehow not compete with existing PlaysForSure devices, and even counterintuitively made it incompatible with PlaysForSure music and subscription programs.
Anticipatory rumors insisted that Microsoft would tie the new product into its Xbox sales or deeply discount it with cell phone-like subsidies that would earn back revenue from music subscriptions. Both ideas were monumentally stupid: Microsoft’s Xbox is popular among gamers, but its actual unit sales aren’t exactly spectacular. Even if Microsoft had given $250 Zune music players away with every $300 Xbox sale, it would have only shipped 7.3 million in 2007, a year when Apple sold 39.4 million iPods. And of course, Microsoft isn’t known for giving valuable things away.
Further, the idea of subscription music has always struggled to break even; it’s certainly not going to subsidize hardware sales and deliver profits on top. Highly profitable mobile phone plans can do that, but they typically range from $50 to $100 per month for the average user. Few people have shown any interest in subscription music even at $15 per month.
That left Microsoft’s player to compete on its own in a market where the iPod was already entrenched and a variety of other devices (mostly PlaysForSure-based) were competing on price and features. The Zune had no impact on iPod sales, but did manage to cannibalize a portion of the market eked out by Microsoft’s partners, something the company had insisted would not happen.
One Million Zunes!
After the original Zune hit the ground running with a dead cat bounce, Microsoft arrested headlines with a threat that could have been voiced by Mike Meyers’ Dr. Evil: the company planned to sell “a million Zunes” by the next June.
The dazed and confused tech media picked up the headline as if a million units of anything would be a noteworthy success among consumer electronics. In comparison, HD-DVD and BluRay together sold about a million standalone player units during the tortured fight over HD movies that kept consumers scared from buying either one, and Microsoft’s UMPC rebranding of the Tablet PC failure sold short of a million units last year. The Zune wasn’t even pioneering a new product category; it was entering a mature one by copying the leading iPod, and supposedly leveraging both its monopoly position and a large customer base to simply outflank it.
Selling a million Zunes across nine months seems particularly conservative for a company with Microsoft’s clout, particularly when considering that it was selling against the iPod, which got snatched up 40 million times over that same period. When Microsoft announced having shipped 1.2 million units in early July, Windows Enthusiasts rejoiced that the goal was reached, apparently unaware that Microsoft’s definition of “shipping” means transferring product to a retailer’s warehouse.
Throughout the rest of 2007, Microsoft worked diligently to liquidate those stockpiles of slow selling Zune units. They were originally targeted to sell for $300; Microsoft had to match Apple’s price cut and sell the Zune for $250 at launch, but scant demand eventually resulted in retailers selling them off for as little as $80.
Second Verse, Same as the First.
Mid year, news leaked out that Microsoft was preparing to ship a new crop of players that included smaller, cheaper Flash-based units. Sure enough, Microsoft later revealed its plan to copy Apple’s strategy from of 2006: blowing out millions of low cost units in the winter quarter. The problem was that Apple had developed a new strategy: offer users both a smaller, cheaper video model and a more sophisticated touch screen WiFi web browser equipped version based on the iPhone.
Microsoft couldn’t match features (it does not even offer a usable web browser for its Windows Mobile smartphones) and it couldn’t cut its prices. It was also saturated in obsolete, unsold inventory held over from last year. While the company spun the news of liquidated models at fire sales prices as evidence of some demand, those deeply discounted models really only cannibalized sales of new units, again preventing Microsoft from making any progress in capitalizing on its investment.
This time around, however, the company didn’t offer any projections on sales. It also made no mention of Zune sales figures in any of its subsequent earnings releases. One could only assume that no news was bad news, and sure enough, we now know that Microsoft only duplicated its slow start last winter with another dismal year where barely a million units sold. That number wouldn’t be impressive if it only included direct sales to consumers, but Microsoft is likely counting shipments to stores, which makes it even more ridiculous.
While Apple is being beaten up by pundits for only selling 52.7 million new iPods in the last year compared to the 48.4 million it sold over the year prior, those figures also exclude Apple’s “best iPod,” the iPhone. Add those in and Apple sold 58.1 million units over the last four quarters, an increase of 20% over its own sales a year ago. That’s ten million new sales over its previous record, or ten times as many new sales as the Zune managed to find this year.
Clearly, while the market for MP3 players is maturing there is still room for growth. Apple is finding growth in new products that innovate in different directions; Microsoft is trying to achieve growth by copying Apple’s past without really adding any value. That strategy isn’t working.
If You Can’t Sell Em, Give Em Away.
Reader Riley Pearce noted that in February and March, Microsoft ran a “Zune a Day Giveaway” promotion advertised to Hotmail users. As a sponsor for the TED conference, Microsoft also put a red Flash-based Zune monogrammed with the conference logo in the freebie bag given to attendees.
Zune software is not compatible with Mac OS X, and as one TED attendee pointed out, “while lots of the speakers and attendees were carrying around laptops, I’d say, oh, 99% of them had a glowing white Apple on the hood.”
In order to accommodate attendees who were not using Windows, Microsoft set up a booth at the conference to assist users in putting Windows on their Macs using Boot Camp. Employees would install, for free, a copy of Vista on a Mac Boot Camp partition and help attendees download the Zune software so they could use their new freebee player. The reader who attended the event observed “curiously, the Microsoft booth did not appear to be swamped with customers during the weekend, but there did seem to be a distinct burst of activity on eBay selling monogrammed red Zunes.”
Microsoft’s efforts to duplicate the iPod have resulted in an expensive trinket the company can only give away for free or at a high discount. I earlier pointed out why the Zune itself is a poor product and why its software makes for such a bad experience, but there’s another reason why Microsoft has been so unable to sell the Zune despite all its efforts and its clear ambitions to take over online media and marry it to the Windows monopoly. The next article will examine Why Microsoft Can’t Sell to Consumers.
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