Too much Zune .
I really am sorry. I know. It's been a whole five minutes since you last read something about Microsoft's (Nasdaq: MSFT ) Zune MP3 player. The "story" of the day yesterday was the misleading headline carried across the world claiming "No Zune Support in Vista."
My colleague Tim Beyers even claimed that Vista is "incompatible" with the new player, which is stretching it. Incompatible suggests it can't work, while the truth is that the player is simply unsupported in the beta release.
As he noted yesterday, this isn't really that strange, given that Vista isn't even on sale yet, and that versions for consumers won't go on sale until January.
It's unclear whether the enterprise version that hits this month will work with the Zune at launch, but I'm guessing that any businesses moving to Vista will have far better things to worry about than whether their people can install music software on their information infrastructure. In the meantime, beta users are out of luck -- but that's the nature of beta.
And this is news ... why?
Frankly, I'm more amazed that anyone would be amazed by this. It's like going to a test track, jumping in a prototype sedan, and complaining that there's no stereo.
My colleague Tim believes this is still a major gaffe, as well as proof that Microsoft is a poorly managed company.
To paraphrase the verbose senator from West Virginia, Robert Byrd, "I love my colleague across the aisle ."
But . (now, you know, here comes the knife) ...
He's talking kooky talk on this one.
Beta is as beta does
First off, betas are, by design, unfinished. They're run by OS fans on all sorts of PCs, many likely suboptimal, with who knows what kind of other issues. In other words, it's a jungle out there. In terms of PR nightmares, it's a lot better for Mr. Softy to be able to say "We don't support Zune in the beta, but it will be fully supported when we're actually selling the software" than to have to answer for all of those rumbles from the jungle.
That, of course, is the case. Zune will be fully supported on Vista's consumer launch in January. (And for the record, there are folks out there who have reported loading Zune software onto their Vista betas with little problem.)
None of this is really very surprising, of course. Everyone loves to hate on Mr. Softy. It's the easiest game in the world to play, and it's especially fun for Mac zealots, who were the first to go into rapture over the Zune/Vista beta issue, before the sheep in the mainstream media fell into step.
This fear/uncertainty/doubt factor -- the FUD factor -- is a hurdle Mr. Softy will need to clear. When I walked into the office with a Zune the day after launch, our office's most outspoken Apple fanatic snickered, "Enjoy your four hours of battery life."
I'm not sure where he picked up that bit of disinformation, and I've got better things to do than test battery life, but having not managed to burn the battery past halfway down during a full workday's worth of music and video use, I've got no reason to doubt the reviewers who claim a dozen hours and better.
Truth be told, the Zune seemed like a patently goofy idea to me, too. Why even try to compete with Apple (Nasdaq: AAPL ) in this space? Why Wi-Fi file sharing? And why brown?
Now, as I use a brown Zune -- and no review model, folks; I shelled out my own hard-earned cash -- I think Mr. Softy's on to something. First off, the translucent brown, with green highlights, really looks much nicer in person than in pictures. I've seen it described as an iPod wrapped in Tupperware, which is an interesting observation, not to mention an ironic criticism, since one of the first things many iPod owners seem to do is wrap their iPods in a layer of colored rubber.
Alas, I still think iPod's design and layout look slicker, but my colleagues (many of them iPod owners) have given the Zune good to high marks on its outward appearance. And regarding the user interface, some are downright jealous. The Zune's UI is very well-polished, is easy to use, features translucent info screens, and does smart things like let you look at your photos (or browse your video selection) without cutting off the tune you're listening to.
And after a few days' use, I now understand the Zune marketplace and the Wi-Fi sharing, or what I previously called "a solution in search of a problem." While I (and others) snicker at the faux-naif concert photojournalism that accompanies the Zune launch and software, I see parallels with successful branding done by American Eagle Outfitters (Nasdaq: AEOS ) .
In fact, it was exactly that vibe (and an included two-week all-you-can-eat subscription trial) that encouraged me to browse the Zune Marketplace for a few hours and download a few gigs' worth of music I'd never heard of. The next day is when it all came together, when I had the "A-ha!" moment.
I was listening to a really nifty new rock-and-roll tune (acquired via a playlist from a Zune music editor), and I had that "You gotta hear this!" feeling. Alas, it was tough to share. I handed the headphones to my wife, but it would have been a lot cooler if I could have just shot her the entire song. (And admit it, there are people out there you might want to swap tunes with without having to swap ear wax.)
The "you gotta check this out" moment is something worth tapping, and I think Zune's got this right, if there are enough players in circulation to make this happen.
But enough of the product review. What does this Zune actually mean for Microsoft shareholders? Let's toss aside the notion that a flop will matter much. The mobs love a throwdown, but Microsoft is in the OS business. Products like the Xbox 360 and Zune have future potential but relatively little effect on the bottom line. In fact, as I've noted before, the Xbox 360 console is a loss leader right now. Mr. Softy loses money on each unit.
Instead, I think this is mostly a sign of interesting changes in philosophy.
The Zune, you may know, was spearheaded by the Young Turks who are also in charge of the Xbox 360. This team does things differently from the rest of Redmond -- it puts together hardware and software ecosystems that are more tightly integrated and closed to outsiders than your usual Microsoft products are.
That's important, because much of the problem with Microsoft's OS development is that it's weighted down by enormous demands for backward compatibility. Zune, like the Xbox 360, takes a different tack. It turns its back on the doomed-to-fail, loose-end nightmare consumer guarantee that was the "plays for sure" seal of approval. Stuff carrying that label didn't always "play for sure," and that had a lot to do with the fact that keeping too many music-store DRMs linked to too many products across too many platforms was well-nigh impossible. So Zune not only turns its back on other online music stores, such as those run by Wal-Mart (NYSE: WMT ) , Napster (Nasdaq: NAPS ) , and Yahoo! (Nasdaq: YHOO ) , but it also won't run songs from MSN music.
This has caused some grumbling, of course, much of it amusingly hypocritical, given that it's coming from partisans of the walled-off iTunes store. But I have no doubt this was the right thing to do, because Apple's success with that model has shown that people simply don't want complexity and choice in their digital media. They don't want to think. They don't want to have to tell you which hard drive holds their MP3 collection. They might not even know a disk drive from a dishwasher.
They want a single, seamless solution, and the Zune can work toward that only by staking its own claim. That's probably bad news for companies like SanDisk and Best Buy (NYSE: BBY ) , but it's the right direction for Microsoft, at least regarding consumer gadgets.
Foolish bottom line
There are a few lessons for Zune, the first being that you can't really believe everything you read, especially when it's information on a Microsoft product that's coming from the screaming Mac blogosphere. Next is that you can't count Mr. Softy out. He doesn't get everything wrong forever. Finally, you need to separate hype from reality when you're looking for investments. I can't argue that Microsoft is a huge bargain as a stock at the $29 level -- my cash flow model values it at around $32 a share, but when it dropped below $22 only six months ago, it was clearly a winner in the making.
Microsoft became a successful cash cow by moving into markets slowly, refining strategies, and grinding out profits. That doesn't mean the Zune will be a success, but if it fails, it won't matter much. Mr. Softy has a lot of irons in the fire, and only a few of them need to be hot.
Microsoft is a recommendation ofMotley Fool Inside Value. A free guest pass will give you a look at the reasoning behind the rec, as well as access to all past issues.
At the time of publication, Seth Jayson was long American Eagle common and Microsoft common and calls, but he had no position in any other firm mentioned here. View his stock holdings and Fool profile here. American Eagle Outfitters and Best Buy are Motley Fool Stock Advisor recommendation. Fool rules are here.