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Zune Sales Still In the Toilet

zune guy toilet
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.

Small victory for Microsoft’s Zune over iPod – International Herald Tribune

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.

iPod Zune PSP DS GBA

Video Game Consoles 2007: Wii, PS3 and the Death of Microsoft’s Xbox 360

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.

Lessons from the Death of HD-DVD
Why Microsoft’s Zune is Still Failing

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.

Why Microsoft’s Copy-Killing Has Reached a Dead End

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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.

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

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41 comments

1 blacktalonz { 05.09.08 at 4:41 am }

Heh, I’m just waiting for Microsoft to integrate the Zune store into Windows XP. Then, by making it integral to Windows and thus bringing it into the enterprise market, they can then convince IT shops around the world that the only safe MP3 player that should be allowed into their buildings is the Zune.

If Microsoft can’t find a way to lock out a competitor, they just can’t compete.

2 blacktalonz { 05.09.08 at 4:42 am }

opps. Meant Vista, not XP. I keep forgetting about Vista :(

3 Jon T { 05.09.08 at 4:43 am }

Comic stuff.

Microsoft; permanently stuck in the year 1990.

4 droughtquake { 05.09.08 at 5:10 am }

No, blacktalonz, you were right the first time. Locking it into XP would probably be more effective…

5 Berend Schotanus { 05.09.08 at 6:48 am }

How sad for Microsoft…

6 Danthemason { 05.09.08 at 7:00 am }

Can anyone be surprised that a company that thwarted innovation in IT for 20 now years finds it difficult to compete?

7 John Muir { 05.09.08 at 7:22 am }

The bit about the MS booth at TED struck me as a haunting vision of the very future they have nightmares about…

8 string { 05.09.08 at 7:31 am }

“Microsoft isn’t known for giving valuable things away.”
Surely that should read expensive, a zune is far from being a valuable thing.

9 Boycott Novell » Links 09/05/2008: Freedom Summer of Code Announced; Yet Another Microsoft Antitrust Possible { 05.09.08 at 10:28 am }

[...] Zune Sales Still In the Toilet [...]

10 Albert { 05.09.08 at 10:52 am }

Amazing article. This TED stunt they pulled just shows our desperate they are, and giving away free copy of Windows just tops it off to a new level!!

11 bc { 05.09.08 at 1:02 pm }

they recently announced Zune will be officially released in Canada in June/08 (I hear 5 people are cheering :-)

but refurbished 30GB ones have been available here for months – at a bargain-bin warehouse store XS Cargo. Basically junk sold there IMHO – old inventory, discontinued items, lots of off-brand, lower quality stuff etc – i.e. stuff nobody really wants.
Their website header proclaims “Brand name closeouts at up to 90% off”

a sign, perhaps? — maybe they’re reserving a spot in the bargain bin for post-June…

12 His Shadow { 05.09.08 at 1:38 pm }

>>0 bc on 05.09.08 at 1:02 pm

but refurbished 30GB ones have been available here for months – at a bargain-bin warehouse store XS Cargo.

Really? I’d go get me one just to know the awful truth…

That’s true geekiness. I buy something just to prove to myself how bad it is… :D

13 johnnyapple { 05.09.08 at 2:15 pm }

I frequent a large flagship Target store a few times per month. I always swing by to check out the Zune display. Proof that they are not selling well is that the number and placement of models has not changed at all for the past few months. I doubt the case has even been unlocked during that time frame.

14 gus2000 { 05.09.08 at 2:48 pm }

Microsoft couldn’t sell the Zune if they built it into the Microsoft Mouse. “Click, Click, Squirt!”

15 aje { 05.09.08 at 3:19 pm }

I have never seen one of these units other than pics on the web. Maybe the 5 they sell here in Canada will push them over the top. Like my 15 year old nephew says “iPods just work”

16 beanie { 05.09.08 at 3:47 pm }

Zune 80GB at major electronics retailers:

It is #1 (black) and #6 (red) at Wal-mart.

It is #11 (black) and #24 (red) at Circuit City.

It is #10 (black) and #33 (red) at Best Buy.

It is #20 (black) and #26 (red) at Amazon.

17 ewelch { 05.09.08 at 4:21 pm }

Zune is #1 at Wal-mart. That says it all right there.

18 dscottbuch { 05.09.08 at 4:28 pm }

Just check Amazon BestSeller electronics. Only 1 zune in top 100 at #82 the 80 GB Black.

iPod – #2, #11, #13, #24….

Don’t know about the rest of the #’s but no confidence here.

19 jfatz { 05.09.08 at 5:09 pm }

beanie was narrowing it down from “electronics” to the “MP3 players” and indeed there is the black Zune (now at #23) and red Zune (now at #28).

It doesn’t precisely show how it fares in that category, though, because:

iPods are at #1-3, 5-6, 8-11, 14-15, 18, 20, 24-25, 27 (with the 80GB equivalent at #2, and the notably more expensive 8GB and 16GB and 32GB Touches at #3 and #5 and #10)
SanDisks are at #4, 7, 12-13, 19, 26
Creatives are at #16, 21-22

I’m curious to see just what listing is being used at the other sites, how others compare, and whether that even reflects the in-store stock, or rather is just online purchase rankings. (Which, if you’re already buying online, you’re a lot more foolish doing at those places rather than Amazon, so can have low volume and be prone to bigger fluctuations).

20 dscottbuch { 05.09.08 at 5:30 pm }

Also, regarding WalMart – at least on the MP3 page the ‘top sellers’ sort is identical to the ‘featured’ sort. A little misleading!!! This was both viewing all mp3 players, apple players, or zune players. I gave up checking at that point.

Typical walmart.

21 gregz { 05.09.08 at 8:28 pm }

Last night I was shopping at Target. Even though Target hasn’t updated it electronics section in about 5 years I still find my self browsing the electronics aisles every time I visit a Target. So I’m walking down the MP3 player aisle and there is another couple looking at the Zune case (which has got to be one of the worst displays in modern retail, the last time I checked most of the zune displays still use plastic mock-ups of the last generation Zune). Finally they call over the electronics attendant and ask for a four gig Zune. I really wanted to point out all the reasons an Ipod mini blows the Zune out of the water. But in the end I figured, “hey if this yuppie couple really wants to put up with all the problems that are going to come up in a year or so when M$ finally lets the Zune die, let them.” So I bit my tongue because it fun to imagine the look on all the Zune owners faces when M$ pull the plug on its Zune store server, like it did with the MSN Mp3 store. 2 to 3 years max before this inevitably happens. Although now that 2 million and 1 Zunes have sold it could save the whole division.

Has anyone else noticed that the dictionary in Leopard doesn’t recognize Zune as a word.

22 harrywolf { 05.10.08 at 12:49 am }

I honestly doubt that there are more than 200,000 zunes in actual use by consumers out there, (that have been paid for, not given, promo’ed, picked up at bargain bin sales etc).

At consumer price, 2 million zunes ‘sold’ equals a value of $500 million bucks.

I have no evidence, but instinct tells me that Microsoft are hiding a disaster, or a crime, of monumental size.

These guys have to be accountable to shareholders, at some point, for all the lost money on bad or useless products.

Is it possible that Microsoft has some nasty and illegal tricks that allow money to be transferred in the form of objects paid for but not really sold?

Hubris knows no limits, by its nature……

23 David Dennis { 05.10.08 at 11:42 am }

That’s pretty funny about the booth at Ted. I would have appreciated getting a free copy of Vista (I wonder what “Edition” it was), since once I finally upgrade to a MacBook Pro, I’ll really need one to test my web sites and to satisfy my morbid curiosity about it.

I know somebody with the first generation Zune and I got to try it. It looks positively Paleolithic next to the iPod Touch/iPhone.

My local Wal*Mart put Zunes in front of their music player displays and iPods were shoved in the back. I would guess that’s why Wal*Mart sells so many relative to other stores. Microsoft is probably giving them a killer price, but oddly enough they are not passing it on to customers.

D

24 gus2000 { 05.10.08 at 7:09 pm }

You know, I’m still waiting to see a Zune in the wild. I hit the gym every morning and see plenty of iPods, a couple of iPhones, and an occasional Sansa/misc. The Zune, however, continues to be a big goose-egg.

I’m actually a bit surprised by that, since there are TVs all over the place that use FM transmitters for the audio so that you can tune into the specific screen that you’re watching. The Zune built-in FM receiver would be handy for that, which the iPod lacks (although can be achived with Apple’s special headphones).

Hey, maybe that’s what PA Semi was bought for: integration. Apple could easily add an FM receiver to the iPod with probably just one chip, but that’s still increased component cost and manufacturing complexity. But if they’re making their own custom chips, then why not throw in additional features? The only cost is in the additional engineering effort.

I usually agree with Jobs’ “less is more” philosophy, but there have been occasions when I wished I could pull in some radio.

25 ewelch { 05.10.08 at 7:53 pm }

I really don’t get this obsession with FM reception people want in iPods. One of the absolute best things about iPods is that you don’t have one song and six ads and then another song, and then six more ads. I couldn’t care less about someone else doing the programming for me. I’ll pick the songs, than you very much.

26 bszlachta { 05.11.08 at 2:47 am }

“I honestly doubt that there are more than 200,000 zunes in actual use by consumers out there…”

Well, let’s see… Take the number of MS employees, total up their moms, spouses, and kids… I think that just might make 200,000!

Oh, those don’t count either? Never mind.

Anyway, last time I wrote about Zune sales rankings was over a year ago: http://www.microsplot.com/expedition

It’s interesting to see the updates on sales (such as they are) in comments here. I really wonder what the internal mood is within MS: “Keep fighting, we’ll get there!” or “Aye yi yi, how do we close down this mess?”

27 russ { 05.11.08 at 11:40 am }

“The next article will examine Why Microsoft Can’t Sell to Consumers.”

That sounds like hyperbole. I don’t think consumers trust Microsoft any more — and, of course, they’re right not to. However, it’s not just business that’s using MS’s stuff. There are a heck of a lot of non-business buyers picking up machines with Windows (and perhaps Office) on even if those same individuals are not buying Zunes (or smart(ish)phones, etc.).

Or maybe that sentence was meant literally. Perhaps RD is saying that MS doesn’t sell *direct* to consumers but sells to the OEMs, and tries to ensure that consumers don’t come into contact with other options.

Microsoft’s strategy in Australia is interesting. It knows it’s threatened by UMPCs. Those are a threat for two reasons:

(1) Linux is lighter and more agile (XP runs slower and Vista’s not going to be practicable at all);
(2) At that price point, a hefty price on system software is too disproportionate to be realistic.

What they’ve done is strike a deal with Asus. The cheaper model runs XP. A second, more expensive, model with a larger drive runs Xandros Linux. Only the cheaper model will be available at retailers. Presumably, MS gave Asus a pretty good discount — good enough for Asus to agree to that second restriction — but, of course, MS are not so desperate as to want to walk away without as healthy a profit, as is possible. The difference in price between those two models isn’t negligible — flash-based storage isn’t exactly cheap yet, and the dearer model has 8GB more. That difference presumably correlates with what MS is pocketing over and above what Asus is paying Xandros to provide and maintain its Linux distro for Asus’s customers.

Interesting. This time MS have won — sort of. But they’ve been backed into a corner.

This is what they do, isn’t it? Their customers aren’t end-users. Even in the consumer market where they’re competing for consumers’ cash, they don’t really have a relationship with them. They have these relationships with with OEMs, with retailers, with content providers. This story is fascinating in this regard:

http://www.technewsworld.com/story/Will-Zunes-Zap-Unauthorized-Content-62928.html

Here you see MS apparently telling one story to NBC and another to end-users (after an NBC exec. made his “impressions” of MS’s intentions from discussions public) It’s not clear whom MS is intending to doublecross: NBC or Zune owners. But it’s probably not as planned as that: more likely it just tells everyone what they want to hear.

The result of deals like this is the public doesn’t trust Microsoft. The other thing is one has to wonder if MS even thinks very much about what “the consumer” wants. In their mind he’s to be directed, duped, channelled, manipulated, the passive recipient of other people’s “done deals”, not appealed to with amazing products. Apple’s not like that. Jobs spends an enormous amount of effort developing products that he knows people are going to lust after.

28 sandeisacher » Il meglio della settimana! { 05.12.08 at 12:01 pm }

[...] multe e ricorsi, successi commerciali come lo Zune che ha venduto ben 2 milioni di player (contro i 76 milioni di [...]

29 Davidlow { 05.14.08 at 3:56 pm }

Microsoft tends to count anything in the pipeline as a sale, so when you (Daniel) say the Zune has sold “just north of two million” between its debut in November 2006 and May 2008, is that Microsoft talking?

30 microsoft zune { 05.20.08 at 9:03 am }

[...] plenty of advertising, microsoft has been left to announce that its actual sales are still a joke.http://www.roughlydrafted.com/2008/05/09/zune-sales-still-in-the-toilet/Why Microsoft??s Zune is Still Failing ?? RoughlyDrafted MagazineNov 22, 2007 … Daniel Eran Dilger [...]

31 Boycott Novell { 05.22.08 at 12:18 pm }

Microsoft: World’s Open Source Heroes Are… Silverfish…

Microsoft’s Open Source Heroes gimmick requires Silverlight, invades FOSS blogs

……

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