Five Reasons Zune May Kill iPod

From ECT:

"With the Zune, students will be free to share music, videos and photos right there in class. They'll be able to pass notes to one another. The Zune isn't just a solitary music player. Think of it as a portable, wireless, hardware version of MySpace," said Computerworld's Mike Elgan.

While many pundits don't expect Microsoft (Nasdaq: MSFT) to make much of a dent in Apple's (Nasdaq: AAPL) share of the MP3 player market -- rather, the company is expected to cannibalize sales of other competitors -- Computerworld's Mike Elgan believes that the Zune "scares Apple to the core."

He offered five reasons: a consumer media "perfect storm" launched by Microsoft; Zune's social and viral aspects; the ultimate availability of more programming than iTunes; a better screen for movies; and the "cool factor."

Market Forces

Explaining the first one, Elgan said that Microsoft "will leverage the collective power of Windows XP, Windows Vista, Soapbox (Microsoft's new 'YouTube killer') and the Xbox 360" as part of the Zune's launch. He also claimed that "Apple once commanded 92 percent of music player market share, a number that has since fallen to around 70 percent," and sees Microsoft's 90 percent-plus share of the computer operating systems market as a key factor on its side.

However, that 92 percent figure was Apple's share only of hard drive-based MP3 players, not the entire market, which also includes flash-based devices. For example, an October 2004 Cnet article noted that fact, which was before Apple entered the flash market. In May 2005, Apple CFO Peter Oppenheimer said that his company had 58 percent of the flash market, just four months after the launch of the iPod shuffle (then Apple's only flash-based music player), 90 percent of the hard drive-based market, and 40 percent of the overall market.

In February of this year, BusinessWeek reported that Apple had 69 percent of the overall market, and earlier this month, a pair of Gartner (NYSE: IT) analysts pegged that number at 75.6 percent. Recent reports have dropped the distinction between Apple's share of the hard drive-based market versus its piece of the flash-based market, since the year-ago introduction of the iPod nano dramatically changed the industry's landscape. Apple also no longer breaks down its iPod sales into individual model units.

Elgan, however, sees a key advantage for Zune in its ability to plug into the Xbox. "The Zune Marketplace will be integrated with, and promoted by, the Xbox Live Marketplace," he wrote. "Apple faces the prospect of competing not with the Zune alone, but with a mighty Windows-Soapbox-Xbox-Zune industrial complex."

Sharing Fever

Regarding his second point, the writer pointed to the popularity of YouTube, MySpace and other social networking sites as the reason why the Zune's peer-to-peer wireless music sharing "is both social and viral. Tweens, teens and twenty-somethings have acquired the habit of feverishly sharing videos and songs.

"With the Zune, students will be free to share music, videos and photos right there in class. They'll be able to pass notes to one another. The Zune isn't just a solitary music player. Think of it as a portable, wireless, hardware version of MySpace."

More Content, Bigger Screen

While he acknowledged that Apple "deserves a lot of credit" for being at the forefront of digital media sales, Elgan said that "the value of iTunes, Marketplace and other music stores will be judged by the quantity, quality and price of available media -- not who got there first."

While Microsoft won't be selling movies and TV shows until next year, he noted that the company has more movie studios lined up to offer content, compared to Apple's single offering (Disney).

Of course, Disney (NYSE: DIS) was Apple's sole partner when it began selling TV shows, and today it offers a wide array of them from many networks.

When it comes to watching that content, he said that "the Zune's screen is just as good -- and larger than the iPod's. More importantly, it can be turned sideways for a wide-screen movie experience, which is vastly superior to watching movies on an iPod."

Surprisingly Cool

As for the "cool factor," Elgan offered this: "The Zune is unlike any product Microsoft has ever shipped. It's actually very nicely designed, surprisingly minimalist and -- dare I say it? -- 'cool.' Zune marketing looks cool, too. The user interface is fluid and appealing -- and, again, like MySpace -- customizable. Users will be able to personalize the Zune interface with photos, 'themes,' 'skins' and custom colors."

He concluded: "The iPod is the soul of Apple's entire business. Apple has been relatively successful at winning converts from Windows to Mac OS X , for example, in part because its whole product line basks in the glow of iPod's success, hipness and ubiquity. Apple has recently and preemptively lowered the price of iPods, announced an iTV set-top box -- which will ship later than Vista -- and is probably working feverishly on a bigger-screen, wirelessly enabled iPod.

"All these efforts may not be enough to save the iPod from the Microsoft consumer media juggernaut. Microsoft has the money, the clout, the partnerships, the mind share and the market share to drive Vista, Soapbox, Xbox and Zune into lives of hundreds of millions of consumers."

© 2006 The Mac Observer, Inc.. All rights reserved.
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