5 Things That Would Make the Zune Relevant

Microsoft's (Nasdaq: MSFT  ) new portable media player, the Zune HD, hits the market today.

You won't have to worry about long lines snaking around the outside of your favorite consumer-electronics superstore. Nor are opportunists hoarding the devices away in hopes of scoring juicy markups through auction sites.

You already know that Apple (Nasdaq: AAPL  ) totally dominates this market. So what would it take for a company to take a legitimate swipe at the runaway market leader? Let's go over a few things that could make Microsoft a force in this niche.

1. Be one with the gamers
Microsoft is no slouch when it comes to video games. Its Xbox 360 and Xbox Live online subscriptions have the world's leading software company sitting pretty with diehard gamers.

The new Zune could be Microsoft's entry into the handheld-gaming market. That strategy would make sense, given that Microsoft is the only one among the three console makers not to have a portable device.

Yes, you can play games on this Zune. There will also be the inevitable App Store knockoff that floods the market with low-priced casual games. The Zune HD platform is also open to some cool evolutions in the realm of 3D gaming. The problem, of course, is that the Zune -- like Apple's iPod touch -- is more "portable media" than "player."

The touchscreen gadgets are great for some games, but they will never be worthy alternatives to Sony's (NYSE: SNE  ) PSP or Nintendo's (OTC BB: NTDOY.PK) DS without controller buttons. Yes, directional buttons eat away at potential screen space and take away from the flat, streamlined elegance of the Zune HD and iPod touch. But they're a necessary evolutionary step if the Zune HD wants to be a hit with serious gamers.

2. Video killed the HD radio star 
Last week's Apple announcement that even the lowly iPod nano can now record video was a game changer. Apple's iPod touch lacks the video-recording feature, but it's just a matter of time before the Zune HD's closest match in the iPod family offers what the nano and iPhone have.

Convergence is everything these days. Zune may think it has a winner with its ability to play high-def videos on a television (as long as you have an $80 HDMI docking station accessory), but that's an area where even Apple has fallen short, with its Apple TV.

Microsoft needs a built-in video camera on the Zune HD. The company already makes webcams, so it's not as if this is foreign territory.

3. Hit the road 
Carmakers know they need to offer more than free terrestrial and premium satellite radio these days. That's the reason many have added iPod input jacks into their dashboard audio systems, even if it means possibly forgoing juicy royalties from Sirius XM Radio (Nasdaq: SIRI  ) if engaged users have more ear-candy choices.

Microsoft knows the score. It teamed up with Ford (NYSE: F  ) to offer Sync voice-activated hard drives two years ago. Now it's time for Microsoft to beat Apple to the obvious punch. Chrysler's UConnect, which has been on the market for a year, turned equipped cars into mobile hotspots. The Novatel Wireless (Nasdaq: NVTL  ) MiFi is a newer mobile hotspot that's drawing plenty of buzz for its portability. In a couple of years, in-car connectivity is going to be a common feature in cars, and that's perfect for Microsoft, with its unlimited streaming Zune Pass subscriptions.

Microsoft can't afford to wait for tomorrow to happen, since there are already plenty of premium and ad-supported Web-based streaming providers. It needs to strike Zune Pass revenue-sharing deals with automakers and mobile Wi-Fi providers today, so that it can be in the pole position in the future.

4. Bring on the Zune Phone
The Zune Phone chatter is as old as the Zune itself. Microsoft may be appear to be fine in partnering with handset makers to propel its mobile operating-system platform, but deep down, it knows that it will have one day roll up its sleeves to take the iPhone beast head on.

5. Take a hardware hit
If Microsoft wants to have a legitimate shot at nibbling away at Apple's market share, it has to offer something substantially better or cheaper. Zune fans will gush over the player's spec sheet, but at $289, the 32-gigabyte Zune HD is just $10 cheaper than an iPod touch with similar storage capacity. That isn't enough of a difference to sway the Apple-clutching masses.

On the video-game front, Microsoft and Sony have sold their consoles at a loss in the past, knowing that they will make up the difference in software royalties. If Microsoft sees the potential of the Zune HD as a gaming and app-serving marketplace, it may have to lower prices now to make up the market share later.

In the end, the Zune HD may be Microsoft's last chance to be taken seriously in this space. Mr. Softy can't afford to play it safe.

Did you hear the Zune Phone rumor?

Apple and Nintendo are Motley Fool Stock Advisor recommendations. Microsoft is a Motley Fool Inside Value pick. Nintendo is a Motley Fool Global Gains selection. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz doesn't own a Zune, nor does he own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 15, 2009, at 3:37 PM, JPS007 wrote:

    Microsoft could have hit a home run, if it partnered with Microsoft to offer Sirius XM content as part of the Zune Pass. they could have worked out a revenue sharing deal when they split the $15 per month, and Sirius XM get a small piece of music reveneue as a result of downloading a song.

    A truly missed opportunity!

  • Report this Comment On September 16, 2009, at 1:50 AM, dstnewman wrote:

    Rick, there you go throwing in Sirius XM just for the clicks... shame on you and Fool.com.

    I wrote a little post for you on the SIRI board... I hope you read it.

  • Report this Comment On September 16, 2009, at 1:00 PM, TMFBent wrote:

    What they need to do is market the client software more heavily as part of the package. It's among the best out there, and a ton better than the "spreadsheet" marketing bloatware you get with iTunes.

    None of that will make it relevant, however. The sheeple like to like the iPod, even if the newer versions have all the excitement of a toaster with a new digital clock in it.

  • Report this Comment On September 16, 2009, at 1:12 PM, rtavis wrote:

    What's a "Zune"?

  • Report this Comment On September 17, 2009, at 7:37 PM, helpingout09 wrote:

    Until most cars do have their own internet connections, the Novatel MiFi is certainly the way to go. However, with the MiFi, you can have Internet far from even the car, which I've really enjoyed.

    The best deals on the MiFi can be found at BuyMiFi.com

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