Microsoft's Zune finds an Apple's iPod killer

The author writes:

"One of the reasons this model is attractive to music companies is that much of the content on most iPods comes from ripped CDs, which means that the music publisher gets nothing."

Umm... Right. The music company doesn't get something from the ripped CD's, except, you know, the money they got from the original purchase of the CD. (Which is certainly much higher than anything Microsoft is paying them.)

This analysis seems to be flawed. I'm sure Universal will love the money it gets from those dozens of brown Zunes that will sell this holiday season. Let's see, how many millions of songs does Apple sell on iTunes each week?

ZUNE! ZUNE! ZUNE! Very interesting, all this supposedly interest for repurchases! Unfortunately, your not COOL unless you have an iPod!!!! Take it from my high school and college kids feedback!!!! I have 6 and have asked everyone of them on their opinion too!!! They mention NO ONE is even talking this supposedly iPod KILLER!!! BIG, I mean BIG uphill battle for Mr. Softy!!!!!!

Your view is a little too cute. The music companies are unhappy with their cut of the content. Microsoft gives them a cut of the hardware. That does not mean that Microsoft wins, but it does mean the pressure on Apple to change their model, and their margins, will be extreme.

Also, drop me a note when you find a music executive that likes ripped CD content put on iPods. I will make sure he gets fired.

Douglas McIntrye

Zune and its PC software might be mildly interesting if it weren't for the fact that Microsoft's software is usually a resource hog and poorly written (and it too will probably not interface with other players). But Zune's biggest flaw will be that once a clever hacker figures how to upload a virus to it, that will be the beginning of the end for this wireless sharing device.

Question..what publishers would switch to zzzZunes and lockout content to Apple? And without a guaranteed audience to support it? Your resoning makes no sense and look at today's action on Apple..seems like the investment community is not worried either. Apple has hit a new all time high. and Microsoft is moving in pennies.

The argument here is not that the iPod will go away. It is the the new Microsoft model may put pressure on Apple to share more with content providers.

That squeezes margins.

Douglas McIntyre

Doug - You're right on the money on this one. Almost everyone seems to have written-off Zune before it's even been released. But 12-18 months from now, they'll be writing-off the iPod (for this and a multitude of other reasons that I detail on ZuneChannel.com).

Gene from ZuneChannel.com

Gene,
I do believe you're nuts. 12-18 months is extraordinary wishful thinking. It took Microsoft 6-8 *years* to get it right as far as the operating system was concerned before it was able to push Apple to the niche market. The iPod isn't going away in 12-18 months no matter how much you hate the iPod.

And if the reviews I've read are any indication...the Zune 1.0 isn't much of a competitor. They'll need to be a lot more innovative than that to make a dent.

Chris

Just to clarify... our music is sold through iTunes and we get $0.70/song and $6.99/album. That doesn't sound like "Apple keeps most of the revenue pie." Apple keeps 30% which likely is just enough to cover bandwidth. For us, we get the full 70% as an indie artist, but that also means that the music companies (which is akin to the indie artist in this case) gets their 70/30 cut. I'd say that's not too bad...

Douglas,

I don't understand your comment about ripped CD content. Most of the music on my iPod is music I ripped from CD's that I purchased. Newer music I generally purchase directly from iTunes. I don't understand why a music executive would care whether their customer buys CD's in a music store or through iTunes, then placing it on an iPod. (Actually, their profit margin is higher through the iTunes model.) Are are you confusing the term "ripped" with "ripped off," as in "stolen?" Ripped is the technical term that describes encoding music from a CD into a digital format such as MP3 or AAC. It does not imply that the music was stolen or illegally copied.

As far as the Zune putting pressure on Apple, well, that's highly doubtful. We'll see. I doubt Apple is feeling the slightest bit of pressure over Zune. There have been dozens of "iPod killers" in recent years that never panned out, from companies much larger than Apple (such as Sony). The only interesting feature of the Zune is the wireless peer sharing, although it's questionable whether that's a feature people are really going to care about (particularly given the consumer-unfriendly limitations Apple has placed on it), and good luck finding another Zune owner to use the feature with. Bit of a chicken and egg problem there -- the feature is worthless unless Zunes are everywhere, and there's really nothing compelling about the Zune that will ever allow it to be everywhere.

Apple has economy of scale. They "get" design and are in sync with the features customers really want. There is an entire iPod ecosystem of accessories, including automobiles (something like 70% of 2006 car models have support for the iPod dock connector). And Apple has perfected the hardware/software/on-line store model, working perfectly in harmony. It's not like Apple is done innovating, either -- I assure you they're pouring more R&D money into future iPod products than Microsoft is into Zune. One difference, of course, is that Apple is making lots of profit. It's hard to see Microsoft turning much product with the Zune or future products in that category -- and it's been reported that they panicked when Apple recently dropped the price on the video iPods. Microsoft wasn't expecting that; they had to match the price, of course, and that means they'll likely be losing money on every Zune they sell. Especially when they're giving a cut to a music studio. That makes little business sense and isn't going to pay off for them in the end.

But, you know, 12 months from now we can look back and see what happened.

In my last comment, I said "particularly given the consumer-unfriendly limitations Apple has placed on it" when referring to the Zune wireless sharing capability. I meant Microsoft, not Apple (in case that wasn't obvious). Yeah, I need more sleep.

"...the content on most iPods comes from ripped CDs, which means that the music publisher gets nothing."

- wha?! nothing? who sold the cds? did the music publisher get nothing from the sale of these cds?

Clever as the devil?

What reason does the writer have to assume Microsoft will be clever? Mister Softee has sat backed and watched Apple define internet music playback and delivery.

And what is so clever about thinking up new ways to give money to content providers? Does the consumer, who defines the market, know or even care?

Is the writer suggesting that Universal Music will have the market power to extract money from Apple on the sale of iPods? Trust me, no one at Apple is losing any sleep.

I thought initially that Zune might be actually a threat in the long run but after what I have read about I don't think so anymore. Here's my reasoning:
I thought that Zune would combine the remainer of the market (~30%) on one player with one ecosystem. That would have been dangerous. Combine all player, every other music store etc. and that whole thing might gain momentum. However, MS tries to replicate iTunes/iPod 1 to 1, hence, exclusive. If i'm informed right, you can't play files bought on Napster or rhapsody? If that is the case, then I don't see any reason why anyone would choose an Zune over an iPod if he gets stuck in the system of MS rather than Apple. I'll be rather stuck with a beauty who is fun on an Island that I can't escape than with my grumpy neighbor ;-)

just my $0.02

Well it seems that once again we hear the bellyaching of the music industry not making enough profit. Once upon a time there was only one way to buy caned music. That was on records. Then came the digital era and you can buy/get music just about everywhere. The people that are crying the hardest are not the musicians, unless thay have exclusive distribution deals with big studios. The people that are crying the loudest are the music studios who are finding their profit margins slipping a little. They have refused to adapt to the new way of selling music, and like the dinosaurs of old, will end up extinct. We live in an era where anyone with a computer and internet web site can sell their music and make more profit for themselves than they ever could through exclusive distribution deals. Maybe if the complete industry became more independant we wouldn't have these kinds of statements being made or these kinds of limits being put on something that once sold should be the individual's choice to share or not.

There is still this feeling that making personal use copies is a violation of copyright. The music industry needs a cork in its mouth once and for all on this. Politians should make it clear too. Will you EVER hear the industry acknowledge that ANY single copy is okay. Until they do, they should be ignored by the government.

It seems like most of the people commenting on this page has a very USA centric view on the commercials for MP3 players. In most countries Itunes is nonexistant and Ipod is certainly not the dominating music player as it is basically quite a crappy product in a sleek designed package.

There is basically no functioning businessmodel for selling DRM protected music in most parts of the world. The itunes sales is 2-3 per cent of all music sold! The CD still rules music distribution.

Of course Zune can compete with ipod and itunes as Apple does not dominate this market worldwide. Also reviewers complain about the idea of using points instead of dollars for purchasing music; for a world-wide music selling service it is logical *not* to use dollars in my opinion!

There is absolutely room for more vendors of music players in the world and there is really an urgent need for more and better music stores on the internet. The fact that Microsoft enters into the music player market and enhances it's store might be good for ipod and itunes in the end.

Sorry, but this is no iPod killer. MSs point system and minimum investment of $5 to buy even one song at $.99 means that Mr. Gates will get to hold on to $4.01 of your hard earned cash is insulting.

We consumers don't like to have our intelligence insulted. I have five iPods in this house. I am a PC user. I've got Xbox and Playstation. I assure you that no Zune shall ever darken my doorstep.

Plays4sure, crippled wifi, giving "the man" a cut of my hard earned dough for the hardware??? -- these are these are George Allen sized blunders. George Allen-esque results shall surely follow.

Yes, music companies will obviously love this model, but one doesn't need to be prescient or even have a particularly good memory to know that the music companies' instincts in the digital music arena have flat wrong at every turn.

As currently conceived, Zune will be a tremendous dud.

It's true a lot of people rip cds and although they have paid for the original content the record companies want more. They want a piece when you buy the cd and a piece if you want to play it on another device. As far as Microsoft's decision to give record companies a cut of hardware sales it is probably to compensate for what will probably be low music sales. There will never be no need in the forseeable future for Apple to give a percentage of their hardware sales.

The Zune will be an inferior device(like most Microsoft products) and IMO the features that it has that and Ipod lacks does not justify the purchase. Let's also not forget that if MS stays true to form the Zune will have a long period of bugginess and the lack of reliability will cause consumers to go with the more reliable alternative, and Ipod. Can the Zune kill the IPod? NO. Can the Zune compete? Yes, if the Zune offers reliable features and services that the IPod does not. And honestly the wireless is not that great. I doubt the speed will be anything to write home about and you're crazy if you dont think there will be serious restrictions on the way that you can share music.

iPod Killer? Yeah right. I don't think Steve Jobs is losing any sleep over this one. Since when did Microsoft have the coolness factor to win over people? Never. While their computer software might be popular, it doesn't change the fact that most of it is pretty worthless. Mostly unreliable, pretty much everything they make is subject to crashing, being hacked, and helping to spread viruses. This Zune will crash and burn and in a year, no one will remember a thing about it. No One!