How can you say that Microsoft's (Nasdaq: MSFT ) Zune jumped the shark? It never even got to try on the waterskis.
Everyone seems to be burying the Zune after last week's dreadful quarterly report. In the company's 10-Q filing, the company revealed that year-over-year sales for its struggling portable media player fell by 54% during the quarter.
Remember, that figure runs through the end of December, before consumers were shaking their heads at Microsoft over buggy 30-gigabyte Zunes rendered useless on New Year's Day.
When you couple the Zune disappointments with Microsoft's wave of layoffs, it's easy to begin etching the headstone:
Rest in Peace, beneath this sod
I guess you were no sweet iPod
In time, perhaps, the cynics swoon
Tomorrow never came to Zune
But maybe, just maybe, it doesn't have to end this way.
Stop the wake and wake up
I'm no Zune apologist. In fact, I was one of the early voices calling on Microsoft to euthanize the misbegotten media player. "Pick better battles, Microsoft," I urged last year, when little seemed to be going right:
- Zune wasn't gaining on market leader Apple (Nasdaq: AAPL ) , ranking a distant third after the iPod and SanDisk's (Nasdaq: SNDK ) players.
- Xbox fanboy hub GameStop (NYSE: GME ) was discontinuing the Zune at its stores.
- More smartphone devices like the iPhone and Research In Motion's (Nasdaq: RIMM ) BlackBerry Bold offered portable media player functionality in a single gadget.
In other words, the Zune was made obsolete before it even had a chance to matter. However, I still think the Zune has a chance -- if it's repositioned as a gaming device today and a smartphone tomorrow.
Getting into the game
The Zune had just 4% of the media player market, and that figure's only going to get worse. Apple moved a record 22.7 million iPods this past quarter. Yes, lower prices on media players led to a 16% decline in Apple's iPod sales, but that's nowhere near Microsoft's plunge. Apple moved nearly $3.4 billion in iPod product during the holidays, while the Zune rang up roughly $0.1 billion.
Microsoft has tried to compete in music and digital video, but it can't best Apple, despite its slick and hallucinogenic Zune ads.
It's a different world in the gaming space, where the company moved 6 million Xbox 360 consoles during the quarter. Microsoft is still trailing Nintendo's (OTC BB: NTDOY.PK) Wii, but it is pulling away from Sony's (NYSE: SNE ) underappreciated PS3 for the silver medal. What's the one thing that Nintendo and Sony have that Microsoft doesn't? A handheld gaming device. Why can't the Zune evolve -- with the appropriate interface enhancements, of course -- to compete with the DS and the PSP?
It's not just about getting back into GameStop, though that would certainly be nice. As Apple's App Store has proven to the world, there is a marketplace for third-party premium programs -- and games -- delivered directly into a portable device. Microsoft would be in its own environment there. In time, perhaps, a Zune that plays a broader range of games than it can presently may evolve into a smartphone itself.
However, that is going to take a lot of time. The point is that Microsoft can't kill the Zune now. Consumers won't trust the company if it ever does roll out a similar device in the future. It needs to make the changes -- and quickly -- to make the Zune a device worth growing. That is certainly not easy to do if it lets the public bury it six feet under.
Speaking of Zune, did you hear the Zune Phone rumor?