Daniel Eran Dilger
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Apple, Microsoft trade places selling iPod touch and Zune HD

iFixit Zune HD teardown

Prince McLean, AppleInsider

Apple makes its money selling hardware while Microsoft’s revenues are from software. Yet in the mobile device war heating up between the iPod touch and the Zune HD, Microsoft is focusing on hardware features while Apple is shifting its marketing attention toward the iPod’s vast library of third party software, particularly games.

Apple, Microsoft trade places selling iPod touch and Zune HD
In order to captivate users’ attention in the exploding category of mobile entertainment devices, the two companies have stepped outside their usual core competencies. In the process, both companies have made mistakes in areas where they should be expected to shine.

iPod kills the video star

Despite Apple’s hardware savvy in consumer devices, based in part on eight years of wildly successful iPod sales, the company reportedly fumbled the delivery of planned video camera features in the latest generation of the iPod touch. Rather than expanding the video capture features of the iPhone 3GS across all iPod models, Apple restricted it to the new iPod nano, leaving the latest iPod touch with nothing more than a blank spot where the camera mechanism was reportedly supposed to be installed.

Sources say the decision was made late in the game in response to bad parts that didn’t work as expected. Steve Jobs, ever the showman, explained to the New York Times that Apple wanted to bring the price of the iPod touch down as rapidly as possible, and saw more benefit to pitching the iPod touch as a gaming device than as a video camera. That distinction was left to the iPod nano.

“What customers told us was, they started to see it as a game machine,” Jobs said. “We started to market it that way, and it just took off. And now what we really see is it’s the lowest-cost way to the App Store, and that’s the big draw. So what we were focused on is just reducing the price to $199. We don’t need to add new stuff. We need to get the price down where everyone can afford it.”

According to sources familiar with Apple’s plans, new devices in the Apple pipeline are regularly given experimental features that can be pulled last minute if they don’t work out as planned, or contribute too much to the devices’ cost or introduce other problems. In any event, the lack of a rumored feature on the iPod touch could put Apple in the position Microsoft found itself in while launching Vista: forced to defend expected features that didn’t make the cut rather than being able to focus on the details it wanted to promote.

That in turn could give the Zune HD more of an opportunity than it might have had if Apple had launched the iPod touch with video recording features. The other ironic twist is that Apple’s lapse in hardware savvy, whether due to bad parts or simply done for cost savings, is being made up for in a “developers, developers, developers” pitch that promotes the range and depth of mobile software available for the iPod touch, particularly game titles. That’s a page right out of Microsoft’s playbook.

Banking on hardware

At the same time, Microsoft has similarly shifted attention away from its own core competency in developing software platforms and nurturing third party software to promote the Zune HD as a series of hardware features: primarily its OLED screen, NVIDIA Tegra processor, and its HD Radio support. That sounds a lot like the old Apple.

Promoting OLED is an expensive option for Microsoft, and one which carries some early adopter risk. A parts teardown by iFixit says the Samsung-built 3.3“ display ”is likely the most expensive item on the Zune’s bill of materials“ and ”incredibly thin (1mm).“ The part is credited with contributing to the Zune HD’s battery life, which is rated longer than the iPod touch despite having a battery capacity of 660 mAh. ”That’s about 16% less than the 789 mAh battery in the new iPod touch,“ the teardown notes.

iFixit Zune HD teardown

Back during the early days of Mac OS X, Apple focused primarily on the Mac’s hardware advantages, such as the iMac’s creative LCD panels and its PowerPC processor that Apple advertised as smoking Intel’s Pentium 4 offerings, which at the time were running hot rather than fast. Apple didn’t have as much to talk about on the Mac software front, as developers continued to look at the company’s roadmap with skepticism. During the first several years of iPod development, Apple similarly focused primarily on hardware features, with only limited dabbling in closed, selective efforts to produce iPod Games.

That all changed with the 2008 iPhone App Store, which opened for business with hundreds of developers lined up to build titles for the five million and growing installed base of iPhone users. Along with its efforts to develop a mobile WebKit browser, Apple has captivated the mobile software industry’s attention, and now sits on an installed base of 50 million iPhone and iPod touch users.

No app store yet for Zune HD

This has resulted in Microsoft being cornered by expectations that it will immediately match the development tools, software merchandising, scale, and scope of Apple’s runaway App Store success, both with the Zune and with Windows Mobile. While both families of devices are built upon the same core operating system, Microsoft doesn’t have a unified strategy for software that works across both. In contrast, Apple’s App Store titles are designed to work across the iPhone and iPod touch without a hitch.

An interview with Brian Seitz, the Zune’s marketing manager, reveals that Microsoft’s Zune team has been developing most of its own software and that no real market yet exists for third party titles.

”When it comes to apps on Zune on the 15th,“ Seitz told the Seattle Times, ”what you’ll see is primarily games. We’re refreshing a lot of the games to take advantage of the multitouch. Casual games, plus a couple of apps like the weather app and calculator. Plus we’re building a Twitter (app), a Facebook (app) and a bunch of 3D games like ‘Project Gotham Racing’ that will come out in November.

“All of our apps are free … and it’s a managed solution right now, so we’re building these apps or working with third parties to build these apps and provide them to our customers for free.”

Developers, Developer Developers?

Asked about third party development, Seitz said, “It’s hard to say right now. If you look around the company at other places where things like this are important, Windows Mobile rises to the top. They have devices which are always connected, which make applications like maps really cool and important.

”On a sometimes-connected device, what people are using them for are games. So what we didn’t want to do was build two parallel app store experiences that didn’t work together.

“Right now our product roadmaps didn’t line up perfectly for us to snap to what they’re doing or vice versa. That being said, we know people want things like this on their devices so we’re going to build them ourselves, they’re going to be super high-quality, and they’re going to be free. Down the road if there’s a way we can work with Windows Mobile or another group inside the company that’s building an app store and take advantage of that, that’s something we’ll look into.”

Mobile apps are a ‘distraction’

Asked about the features Apple was adding to its iPods, including video recording, Seitz replied, “The more things like that that make their way into these devices that aren’t about great music and video playback, the more it’s distracting or sacrificing that original purpose of the device. Apps are jamming in, cameras — that’s work that’s not being done on the music front.”

While Apple once talked about the iPod being all about music, today it is augmenting music with other features, although music remains at the core of the iPod touch and iTunes. These days, new music-related features like Genius Mixes and Voice Control are getting equal billing with web browsing and game play, and Apple’s ads for the touch are almost entirely about the range of video games available.

Everyone already knows that the iPod is a music player, so Apple is expanding into other software markets, taking new shots at handheld gaming devices from Sony and Nintendo. At the same time, Apple has delivered features that enable third party game developers to let iPod users play and control their own song playback within their games.

As the Zune HD attempts to reverse the course of the Zune brand in its third season on the market, Microsoft is finding itself in the role of the underdog platform, resorting to the same strategies Apple used to promote the Mac under the umbrella of ubiquitous Windows PCs. It remains to be seen how Microsoft’s ‘get a Zune’ campaigns and efforts to build out direct retail stores will work out, but at least the company has an almost flawless model to follow in trying to beat back Apple’s increasing domination of the mobile device world.

  • shiver me timbers

    “In any event, the lack of a rumored feature on the iPod touch could put Apple in the position Microsoft found itself in while launching Vista: forced to defend expected features that didn’t make the cut rather than being able to focus on the details it wanted to promote.”

    Not quite. The big difference is the word “rumored” feature. Apple NEVER discussed a camera being in the iPod touch. Apple should not be forced to defend features that it never announced would be features, despite what leaks occurred. (And may I add that we never know the full veracity of leaks, anyway.) This cannot be compared to Microsoft’s known strategy of announcing vaporware for the purpose of stymying competition but then failing to deliver what it so proudly announced.

  • shiver me timbers

    While I agree that Microsoft is “trading places”, so to speak, it’s no so cut and dry for Apple.

    Just before the iPhone was released, Steve Jobs said at the D-Conference in the interview with him and Bill Gates that, “Apple is a software company.” Probably to the dismay at Bill Gates on the stage. And entirely against everything I’ve heard over the years that Apple is a ‘hardware company’.

    The problem is, we have had two Apples. Apple with Jobs, and Apple without Jobs. Apple without Jobs was definitely more focused on being a hardware company, while riding the coattails of a very excellent GUI operating system.

    But I really believe that Steve Jobs never believed that Apple was just a hardware company. Come on, the original Mac was half hardware marvel but equally half software marvel.

    It is clear since Steve Jobs return that Apple has had a renewed focus on software, everything from regularly perfecting the best consumer operating system on the planet to in-house developing of Mac software titles – iLife apps, Pro Apps, etc.

    I think the fact that so many of the iPod announcements the other day were software related is actually consistent with Jobs emphasis since he has returned: the continual development and perfection of the best software to power the hardware that is also the best in the business.

    While it’s a nice observation that Apple and Microsoft are trading places, it is simply an oversimplification to apply that to Apple. It’s not so black and white. Throughout its history, Apple has excelled at hardware and software. However, hardware has been a relatively recent pursuit in Microsoft’s sordid evolution.

  • JasonBelec

    Hmmmm, love these articles and all the historical ditty’s.

    But this one, not your best work.

    Apple is doing what it has always done. Piss off morons! Apple never announces diddly squat, they just release it. Even we developers get very little idea of the true final products.

    MS is also just doing it’s usual. It is interesting they feel they must finally change and copy that snotty little Apple kid after all these years of yelling how useless the little bugger was! Let ’em roll I say! Nobody is going to mess MS up better than MS these days. Consumers are actually paying attention to Apple, what’s with that??!!

    Apple has flaws, but who else can provide so many people, each with views of what they want/need, the exact thing at any point in time?

    I think the iTouch should stay entry level. Keep nano for the real low end, video not necessary. iPhone to rule them all and have all the features. Just like Apple computers, want the best upgrade or at the very least hack the system to be what you like! Run Snow Leopard, Linux (flavour of the day), Windows 7, whatever revs your motor, but as long as your using Apple hardware I think the game is afoot.

    With the ZuneHD, MS is trying to do the XBox thing again, spend, spend, spend, it will eventually pay off!!! Right??!!! Help!

  • luisd

    Hi Dan,

    I am surprised that so much is being made out of the lack of a camera.

    I am surprised that with your usual insight you see this as a mistake. I don’t think it is. It is a deliberate omission.

    In all the sites and blogs I’ve read, the only people who are complaining are those who wanted to replace an existing iPod Touch. My view is that if apple have included a camera, the price would have had to go up, and sales would be mainly replacements of older Touch’s. By leaving it out, and bringing the price down, they are attracting lots of new costumers, they are extending the installed base, more people buying Apps and games. The installed base will not move platform once they have all these apps and games smoothly running, in the promise of MS vaporware for the Zune. When the next iteration of the Touch comes, they may include a camera, because then, the installed base will be huge, and all the people complaining and waiting today, will be there cueing to buy a new one on day one.

    Hardly a mistake, me thinks.

  • beanie

    Microsoft has been quite on Tegra chip and is missing from all marketing. Only thing Microsoft did was comfirm its use. But NVidia is happy to advertise its use in Zune HD.

    HD radio chip by SiPort seems to support many bands. It seems to support HD Radio, Europe’s version of digital radio (DAB), digital AM, FM, weatherband, and MSN Direct Data Service. I wonder if Zune HD will support MSN Direct Data Service? That is the service from the defunked MS Spot watches.

  • ChuckO

    I keep looking at what’s going on at Apple and wondering if they maybe aren’t getting ready to get serious about the rest of the world especially some of the poorer areas in Asia like India, etc. Maybe the much talked about tablet’s are more part of a global strategy. Something self-contained would make more sense for poorer folks to me. Outside of the terminally demented fanboys who wants a giant iPod touch?

  • Hypothesard

    @shiver me timbers
    Steve Jobs said at the D-Conference in the interview with him and Bill Gates that, “Apple is a software company.”

    and just after stating That indeed Apple was a Software company He cited (for the n time) Alan Key :

    Alan Kay had a great quote back in the ’70s, I think. He said, “People that love software want to build their own hardware.”

    If that wasn’t a pun directly pointed at Bill sitting next to him… :P

    After that Biil gate could stop talking about the Harware Microsoft was bulding and (but?) using internally.

    Reminder : the zune was then only the rebranded and repackaged (can’t call the old zune “designed”) Toshiba Gigabeat

    D4 transcript :
    iTunes Podcast link (Audio only + video):

    great moment

    ANd hear Dan have spotted another great event , MS is trying to become Apple in the Portable Media Player (PMP) market, and Apple (even while not anoucing and underdelivering as MS does since ages) is facing (according to the rumors : internally ; rumors which are, let’s face It, part of Apple’s PR strategy) problems only MS encountered untill now (assuming we’re only looking at MS & Apple) by being the N°1 PMP player … (… mmhhh too many parenthesis)

  • Hypothesard

    O_o “ ANd hear Dan…”
    => And here Dan…


  • ChuckO

    Price might be very important if the economy takes another dive like it did in the depression. Everybody thought the economy was recovering and then it got real bad. Nothings really changed with the banks outside of us taxpayers funding them. They still have all the bad loans they did when this started.

  • sprockkets

    Where did it say Dan wrote this article?

  • robomac

    I like the tone of this post being more of a true journalist – unbiased reporting of facts and not just regurgigating and defending what SJ has to say for his defense of the missing Touch camera. IMHO SJ’s explanations to David Pogue’s in the NYTimes is a complete B&^%cr@p.

    The $200 portable gaming line, although amicable, is not telling the whole truth. Apple exists to defend its revenue streams – hint, hint. You don’t introduce a product to compete with your cash cow – the iPhone. Apple wisely avoided this potential self-cannibalization by positioning the iTouch as a portable gaming rig. This could open up another revenue stream for Apple by taking Sony’s and Nintendo’s golden eggs instead of the iPhone’s.

    Many people are still in denial (both here and other fanboi sites) that Apple is beginning to act more and more like Microsoft in the 80s when MS realized they have captured a vast audience with their PC DOS. In a word Apple is now showing the natural tendencies of companies that travel down this road of so called “success”. It is very enticing and irresistibly rewarding but comes with a big price in the end.

    No. Apple is not yet a true monopolist for there is no such thing as a mobile app market, a portable internet device market, nor a whizbang wireless multitouch gizmo market. Wikipedia defines “monopoly” as having dominant control of one market/industry that allows one company/group to control price and the potential to hurt consumers and stall competition.

    So true that Apple has a (for the time being) a dominant control of the portable internet device, a out-of-nowhere launch of the App Store to command this fledgling segment, and an explosive growth of the whizbang gizmo the iPhone.

    But like Daniel has tirelessly elaborated many times over with historical references for those folks wanting to know more juice, Apple has not erected barriers to competition. This is proved by the new Zune HD. Its hardware features are innovative and by some numbers, more impressive than the new iTouch. The OLED display and HD Radio features would be an awesome addition to next year’s iTouch.

    Sure the next iTouch will definitely have a camera but will be less capable than next year’s iPhone keeping the iPhone which fetches Apple up to $699 for the 32GB 3GS each plus recurring monthly slice from AT&T – I would like to point out.

    But then again, if we drink and regurgitate SJ’sKool-Aid wholeheartedly without bias and without thoughts then it-is-what-it-is and that’s that.

    Thanks Dan for being more in the center this time. Kudos.

  • stefn

    Apple has succeeded as a “solutions” company, connecting users to content (music, movies, apps, images) in ways we can enjoy and interact using it’s software and hardware.

  • Brau

    @shiver me timbers

    Another facet of what Steve Jobs was referring to when he said Apple was a software company was during the switch to Intel. Steve Jobs went on the defensive saying what made a Mac a Mac was the software (they had switched from Motorola before to IBM’s PPC), and drew a distinction between Apple and other PC makers who “once you open the lid … all run the same thing, Windows”.

  • Brau

    Just want to echo some of the previous comments. I really appreciated the unbiased pure journalism I read in this article today.

  • bartfat

    i think the OLED argument in this article is a little off. lots of reviews from reputable sources have said it’s bright enough to compete with LCD, from Ars Technica to Gizmodo to CNET (yes, I know they seem to like other products slightly better than Apple’s, but that doesn’t make them irrelevant). The main drawback is, of course, lifespan (b/c it’s a new technology, no one really knows how long it will last out in the field) and price. The latter is a pretty big deal to Apple, who can’t spend money subsidizing its iPod brand like Microsoft does with the Zune, and therefore has to make a profit off each sale. Microsoft simply needs to sell at a slight loss and therefore locks consumers into its Windows platform as a result, which provides more profit anyway. But fortunately, Microsoft doesn’t have a huge price gap this time around and they aren’t able to rip off Apple IP without consequences, meaning their products tend to be more feature-packed out of the box, but less able to copy the interface and ease of use of the iPod touch and iPhone.

    The app store for the Zune? Don’t make me laugh. Microsoft is copying Apple in developing multiple first-party apps? That’s not really a surprise… they’re forced to, because no one else will, even if paid a “bucket of cash”

    As you probably have read AppleInsider, I don’t have to explain the situation to you. But the fact of the matter is, if Microsoft is forced to develop first-party apps for the Zune, questions will definitely be raised about how developer-friendly the Zune is, and to a lesser extent, Windows. Because we all know that Microsoft would dearly love to make money off its hard-working 3rd party developers (case in point: Skymarket… which STILL hasn’t launched, despite being promised over a year ago). And don’t forget that Microsoft will have to follow this slippery slope of trying to please 3rd party developers while developing its own software for a platform that doesn’t have a big installed base. Apple smartly sidestepped this chicken-egg issue by launching the App Store when it already HAD a big install base, making it a no-brainer to develop for the iPhone. And for the Mac, well, plenty of people are buying it, so that makes for some money in applications. But that doesn’t mean that Apple is friendly to developers in the same areas that it makes first-party apps in… but it does tend to raise the bar on app quality, because Apple does have a reputation of making high-quality software.

  • Hypothesard

    @ sprockkets
    Prince McLean is Daniel Eran Dilgers’s pen name when he publish articles at AppleInsider
    Daniel uses his own name when he publishes articles only at RDM or write books etc.

    I see Daniel laughing at the Confusionometer each time people don’t realize his Prince McLean :P

  • Hypothesard

    * he is …
    Darn! I wished we could edit our post…

  • http://www.adviespraktijk.info Berend Schotanus

    Hey, it looks like – as a writer – you suddenly realize you have an interest in Microsoft being around. Without Zune, what would there be to write about?

    Where is the Microsoft-bashing?

  • ChuckO

    Why is the truth Microsoft bashing or explaining what Apple is good at FanBoi-ism? It’s like the people here who complain about the political commentary, why is your belief system so fragile that someone challenging them causes you so much distress?

  • stefn

    My take away: Not much love anywhere for Apple’s decision to not include video at least on the more expensive Touches. And strategically Apple missed the opportunity to step on the Zune’s neck. Not it’s back in the game. Listen to the MacBreak Weekly guys slobber over the Zune yesterday.

    I do agree with some commenters on RD that Leo and some of the TWIT folks are getting a bit too precious. Apparently they hear the echoes when their names are announced. Not Alex. Not Scott.

  • stefn

    “Now it’s back in the game.”

  • http://home.comcast.net/~daguy daGUY

    @luisd: “My view is that if apple have included a camera, the price would have had to go up, and sales would be mainly replacements of older Touch’s. By leaving it out, and bringing the price down, they are attracting lots of new costumers”

    No way. First of all, they added a camera to the iPod Nano and they kept the price the same – $149.

    Second of all, the Touch only got a price drop of $30 (the old 8 GB model was $229). Since they were able to add a camera to the Nano for FREE, I’m sure they could’ve added one to the Touch too. Production costs always go down over time anyway, so even with the $30 drop in price, they probably could have added a camera and still maintained their margins.

    Third of all, what do you make of the 32 and 64 GB Touches not having cameras? It just doesn’t make sense – they could put a camera in the $149 Nano for FREE, but they couldn’t add one to the $399 Touch because of the need to “keep prices down”?

    Finally, I’d wager that adding new hardware features would do more to attract new customers than a tiny price drop. All of the Touch’s features exist in software, which can be updated, so if you already have one then there’s little to no reason to buy the new model. On the other hand, had Apple added a camera, you’d HAVE to buy a new Touch in order to get it.

  • ChuckO

    It seems far fetched to think this is much of an opening for Microsoft. I’ve seen a few analysts suggesting that MS is really trying to convert the 25% of people not using iPod family devices. Microsoft’s insistence on renting music seems like a mistake. All Apple needs to do is come out between now and early next year and say they’ve heard all the cries for a camera on the iPod Touch and so they’re adding it immediately and the issue is over. People are way to commited to the iPod and iTunes to make a sudden change. The biggest thing for Microsoft would be to come up with a long term media strategy that they can stick with and try to get people already using their various platforms committed to using it and then try to entice people outside that group to it. Then maybe they could be positioned when the next device revolution comes along to take advantage of it but based on their history of offering third rate copies of other’s ideas and staggering like wounded elephants from strategy to strategy that seems unlikely.

  • ChuckO

    I have a bunch of miscellaneous ideas that the discussion has brought up: Is Apple a hardware company? They seem to be a software/design company. The failure to get iPod Touch’s with cameras out is less a failure of Apple’s it seems than their outsourcing partners. That’s why to me calling them a hardware company is a little odd. This situation also seems like it reinforces Apple’s notorious secrecy. They would be in a difficult business position having to defend current sales of iPod touches if they were on record as having a new version on the way. I’m personally waiting to see what happens before buying a Touch. Then finally, could this really be about differentiating the Touch from the iPhone? Short of suddenly finding myself with a large amount of disposable income I need to piss down a hole there’s no way I would be interested in paying for AT&T’s data plan (I currently rock an AT&T goPhone) but put a camera on an iPod Touch and I become very interested in buying one. Is there really that many people that would go with a Touch instead of an iPhone due to the camera?

  • tmay

    I’m thinking that Apple failed in attempting to place a camera in a package that is 3.8 mm thinner than the iphone (8.5 mms 12.3 mm) while still supporting both still images and video. As atouch owner, I would be willing to upgrade for still and video, but I’m less inclined to for video only, even 720p video, tempting as that might be.

    I don’t believe a word that Steve said about the touch pricing as being the constraint.

    At any rate, Apple will get it figured out, and we will see still image/ video capabilities in the future for the touch.

  • commun5

    @ bartfat

    You need to reread the Ars Technica review before any further generalizing about the quality of the OLED screen. They confirmed the claims about outdoor use and battery drain that Dan made in his previous article on the Zune HD:
    “The OLED screen on the Zune HD is one of its key marketing points, and it’s certainly attractive. Colors pop from the screen, which is quite detailed for its size. The first two generations of Zunes had 320×240 screens, while the Zune HD is 480×272 (the iPod touch, for comparison, has a 480×320 screen, while the nano is 340×276). The screen is a pleasure to use, though unless you spend a lot of time watching videos on the Zune it’s not a make-or-break feature. It is very difficult to read in direct sunlight.

    OLED screens do raise battery life concerns, and their power use is directly related to the content that’s displayed (all white screens use far more power than all black screens). Microsoft seems to acknowledge this when it says that the Zune “offers a premium viewing experience on the go while being respectful of battery life.” “Respectful,” but not “thrifty with.””

  • ChuckO

    Yea, the price issue is ridiculous. They would do what they did with the iPhone where they continue to sell the iPhone 3G for value shoppers while moving on with the 3Gs. The obvious plan was to sell the old 8gig Touch to entice people up the value chain while offering the larger models with the camera. But again this is where Apple secrecy makes a lot of sense. Since they never announced the Touch with a camera they can plausibly deny they were doing it otherwise everyone would stop buying them until the camera version came along and that could make for a crummy xmas at Apple. They are running a business after all.

  • shiver me timbers

    @ 7Hypothesard:

    Thanks for the links. I always thought I missed out on downloading the complete interview video when D removed it from their site, only leaving the abridged one. Then Apple only offered the abridged one on its site. I never knew the full length interview was offered as a video podcast. I want to keep this for posterity.