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November 11, 2006

Microsoft Zune Gaining Consumer Interest, Setting Up New Deals with Content Providers, Undercutting the iPod's Cultural Cache?

Back at the end of October, I wrote about Steven Levy's new book commemorating the iPod. I'm sure Microsoft is hoping, at this point, that it will be a historical record of those first few years when Apple ruled the MP3 player world, before the Zune came along.

A report released on Nov. 1 from ABI Research touts in its headline that "58% of iPod Owners Planning Another MP3 Player Purchase Will Consider Microsoft's Zune." A survey of 1,725 teenagers and adults in the U.S. found that the Zune at least seems compelling to new users, or else that they are not so committed to Apple that they would rule out purchasing a Zune player. Principal analyst Steve Wilson concluded that "the iPod users don't display the same passionate loyalty to iPods that Macintosh users have historically shown for their Apple products," and conclude that "Apple will need to make some big announcements in 2007 if it is to maintain its edge in the industry."

In other words, a leadership and innovator role only buys you so much cultural cache if someone releases a better product than you. Is the Zune going to be a better product? ABI writes that its researchers believe "that a crucial factor will be whether or not Microsoft can differentiate the Zune from competing products in some meaningful way," questioning whether Wi-Fi peer-to-peer sharing is useful enough to make viewers feel that much more loyal.

Meanwhile, Staci D. Kramer at paidContent points out the changes in royalty plans for the Zune, in which a new deal has been struck with Universal Music Group to provide a royalty for every Zune unit sold, with half of the fee going to Universal artists. Apparently, the plan is for $1 of every unit sold ($250 per unit price) will go to UMG, so artists will split $.50 per every device sold. Kramer writes that, "the deal, while not a first, marks a variation form the pay-per-download or pay-per-play models." Her story includes several interesting quotes from various newspaper stories.

Yinka Adegoke with Reuters writes that "the groundbreaking deal could redefine the digital music business pioneered by Apple Computer Inc. Rivals including cell phone makers eventually could pay for hardware sales as well as for the music itself, Universal said."

We'll see what happens when the Zune is released Tuesday, but the blogosphere is swarming with buzz waiting for the release. For more information, see the Zune page on Wikipedia.

Thanks for David Edery and Joshua Green for the information they sent along for the preparation of this post.

Oh, and be sure to read through the comments, where a couple of readers have already expressed their serious doubts as to both the validity of this ABI study and especially to the way it has been used to bolster claims of the iPod's demise. I guess rumors of the iPod's death have been greatly exaggerated, to paraphrase Mark Twain (and John Dixon). I know that the iPod has a stronghold on the Ford household, anyway. (My wife is quite the aficionado.)


The ABI Research report is seriously flawed as regards the Zune's attractiveness versus the IPOD. Don't believe it. The IPOD - MAC tie-in produces a synergy that Microsoft can't match - branded Apple elegance of design versus the indistinguishable (except for price) PC herd. Not enough flash and no elegance doom the Zune to distant second, which may be plenty profitable enough to secure its existence; but will not dent the Apple two-headed profit juggernaut.

Posted by: Robert Bellizzi | November 11, 2006 6:22 PM

Ahhh you guys are way off on this one... A better quote from Steve Wilsons report is:
"It'll [Zune] make a big splash, but it's going to need something else behind it to make it take hold," he said. "It'll ride far on the initial marketing drive, but there's nothing unique about it that's all that compelling."

Posted by: Siddiq | November 11, 2006 8:16 PM

Actually, for both Robert's and Siddiq's hesitations, I have to admit that I agree wholeheartedly. The whole reason I posted this story in the first place was because the ABI report results shocked me so much.

For Robert's comments, I think you are right that design makes a big difference in Apple's success. I live in a house where the number of iPods outnumber human beings. However, I am curious. You say that the ABI Research report is seriously flawed...Do you mean that from an anecdotal standpoint or do you have some methodological reason why it is flawed?

And for Siddiq, don't shoot the messenger. :) Just because I wrote about the ABI report doesn't mean that I necessarily think it's the case. I was just extremely surprised by it. Thanks for the mention of other Steve Wilson quotes regarding the study, but I was particularly focused on the more surprising findings of the study because, as an Apple fan myself, that's what I would be inclined to say. It was the ABI research and the interesting new deal with content providers that caught me by surprise. Guess I should have added a "?" at the end of the title, huh? :) In fact, maybe I will.

Either way, I think the argument that the statistics are flawed or that the questions are misleading is important, especially if you haven't read Huff's How to Lie with Statistics. The wording of the questions do make all the difference, it's true, but what I'm interested in is, even more than whether the report is accurate or not, how that report is becoming imbedding in how the Zune is received. I'm surprised that some people have used these statistics to question whether the iPod has any cultural cache built up because one would think that there is some degree of brand loyalty built up after all this time, as I noted in my recent post about the new book on the iPod mentioned in this post.

Posted by: Sam Ford | November 12, 2006 9:10 AM

The Zune is about 5 generations of iPods behind the times. And the wireless connectivity is limited to peer-to-peer only. If they had been smart and added that you could wirelessly connect to your computer via Bluetooth(if available) that would have been cool, but not enough to save the product.

The iPod has a stranglehold over the MP3 player market. ITunes cinches down that stranglehold and let's not forget that podcasting was never even mentioned with the Zune while iTunes/iPod is waist deep in it.

The bottom line with the Zune is that nothing the Zune can do is anything that Apple can't turn around and add to the iPod and some kids have a ton of money into their iTunes collection. I think their was a rumor that Microsoft would possibly buy customers out of iTunes, but that's pretty much admitting defeat from the start, in my opinion.

If you ask me, the Zune is a risky $250 purchase with the lead that Apple has in the race. And the fact that one of the stylish colors offered is dirt brown doesn't instill much confidence in the ad wizards that came up with this one.

Posted by: Dustin Bratcher | November 13, 2006 10:55 AM

Great post on the potential of disruptive innovation.

We must remember though that Apple has been a great innovator with the iPod. And everyone knows the might of Microsoft when it enters a market.

More on this:
Disruptor Zune versus Innovator iPod

Dustin, all good points about the Zune, especially your mention of podcasts and iTunes. The iTunes collection already amassed is a trading situation that would make all the difference for me, and you make a good point that Apple can easily incorporate any small tweaks into the next generations of iPods even if another product comes along that is better in some respect.

That's why I think Apple's brand awareness and cultural cache makes all the difference here and why I was so surprised by some of the initial results from the survey.

Maybe Apple should come up with a puke green iPod to counter?

As for Sanjay, is your question what happens when an established juggernaut meets an established innovator? Reminds me of something Gorilla Monsoon said about an unstoppable force and an unmovable object. Oh, and The Ultimate Warrior won that one, but I doubt that's any help...

Posted by: Sam Ford | November 14, 2006 6:31 AM
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