Daniel Eran Dilger
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Microsoft’s Zune crashes as iPod sales grow

 Wp-Content Uploads 2008 05 200805081642-2

Prince McLean, AppleInsider

Microsoft’s Zune hit the ground even harder in its third holiday quarter. After two years of annual sales that barely reached the million unit mark, the company reported a major new drop in device sales for the winter quarter.
.Microsoft’s latest 10-Q filing stated that “Zune platform revenue decreased $100 million or 54% reflecting a decrease in device sales.” The music player’s sharp decline in revenues helped erase 60% of the company’s earnings in its Entertainment and Devices Division, which includes the Xbox gaming platform.

Apple’s iPod business, once feared to be at a dead end with satiated demand, hit a new quarterly unit record with sales of 22.7 million units. That’s just 3% higher than the company’s sales in the year ago quarter, but demonstrates a demand for innovative products even in the midst of difficult economic times.

Apple’s record iPod sales don’t include the iPhone, which Apple has referred to as its “best iPod yet.” With iPhone sales, Apple sold over 27 million mobile devices last quarter, and over 208 million in total since it began selling the iPod.

Key to Apple’s success has been its efforts to remain differentiated with unique features while also staying familiar and easy to use with the company’s iTunes software. Microsoft’s Zune debuted with some unique features, but the company’s software churned as MTV pulled its URGE store from Windows Media Player, forcing the company to ship an entirely new, unfamiliar, and not quite functional Zune 2.0 desktop app.

Last year, Microsoft released a new software update but no significant new hardware refresh, leaving the tarnished brand without anything new to sell just as Apple continued to redefine its iPod line with a revamped, Internet browsing iPod touch. A rumored Zune partnership with Nokia also failed to materialize.

Apple’s strength in digital media sales within iTunes also helped to keep the iPod in the leadership position among music players, holding on to 71% market share. Growth in iPod touch sales was particularly fueled by its new designation as a handheld gaming platform, leveraging the support the iPhone Apps Store has received from developers.

  • John E

    Well said. it’s worth noting that the nail in the coffin – the “Zune Killer” – was the beautifully updated/refreshed ’08 Nano. along with Apple’s very big and powerful holiday advertising push for it. for a Xmas gift it was just no contest at all. add to that the next gen glamour of the cutting-edge Touch that made the Zune look so pitifully old, and it was a blowout.

    i gotta add – what idiot ever thought the name “Zune” was good marketing ? Ballmer? it was totally dweeb from day 1, hopeless for teens to go for. and who picks those incredibly yuccky colors? sh*t brown as the launch leader? i’ll defend MS’ skill sometimes, but this was unbelievably incompetent, and the results show it.

  • beanie

    “Apple’s iPod business, once feared to be at a dead end with satiated demand, hit a new quarterly unit record with sales of 22.7 million units.”

    But according to latest Apple 10-Q iPod revenue decreased $626 million or 16% reflecting a decline in average price per iPod of $148 from $181.

    iPhone unit sales were down from quarter to quarter. In 2008 Q3 iPhone unit sales were about 6.9 million units. In 2008 Q4 iPhone unit sales were 4.4 million units, down 36% quarter to quarter.

    Apple sold about 2.5 million units of Macs in 2008 Q4. So how much is that worth to Microsoft? Say each Mac is equal to one lost Windows license. 2.5 million licenses for Windows at $50 per license is about $125 million a quarter. That is insignficant.
    Microsoft deals in huge volume for Windows. They were averaging about 10 million Vista licenses per month or 30 million a quarter. Microsoft does not like mentioning WinXP licenses, but they must be as large as Vista numbers.