A New Plan Needed Zune

Go ahead, start typing your hate mail. This isn't going to be pretty. Microsoft's (Nasdaq: MSFT  ) Zune player -- yes, that player, the one that I've said should die -- is dying. Fast.

Quoting from Mr. Softy's most recent 10-Q quarterly report: "Zune platform revenue decreased $100 million or 54% reflecting a decrease in device sales" [page 31, emphasis added].

Sales were down more than half in the same quarter that unit shipments for Apple's (Nasdaq: AAPL  ) iPod line rose 3% to a record 22.7 million. Consumers flocked to the iPod Touch, which is gaining traction as a portable gaming platform.

I understand that the Zune has its fans. They rightly point out that the device boasts excellent features that the iPod lacks -- a pretty generous music subscription service, for example. The Zune also does a better job of syncing wirelessly, according to the user accounts and gadget reviews that I've read.

But none of that matters, really.

Zune's problem is, in many ways, the same as Vista's. I don't care how good it is or isn't -- consumers aren't buying. Like the recalcitrant CIOs who refused to upgrade from XP, they've voted with their wallets.

The good news? (There is some, believe it or not.) Microsoft's Xbox gaming console also once suffered a severe sales decline but later reversed its fortunes. Unit shipments fell 61% in Microsoft's fiscal 2007 fourth quarter thanks to hardware problems and increased competition from Nintendo's (OTC BB: NTDOY.PK) Wii and Sony's (NYSE: SNE  ) PlayStation 3.

But then came Halo 3 and a very savvy tie-up with Netflix (Nasdaq: NFLX  ) for broadcasting movies via the Xbox 360 console. Sales recovered. So much so that, according to researcher NPD Group, Microsoft moved roughly 4.7 million Xbox units in calendar 2008 -- easily besting Sony, which shipped 3.5 million PS3 consoles last year.

The Zune needs similar catalysts. Either that, or with 5,000 layoffs and other cost-cutting measures already in the works, it needs to die.

Your move, Microsoft.

More Foolishness about the rise and fall of Mr. Softy:

Apple, Netflix, and Nintendo are Stock Advisor selections. Microsoft is an Inside Value pick. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers owns an iPhone but has yet to use it as a music player. He had stock and options positions in Apple at the time of publication.

Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is ready for a cool change. You know that it's time ... for a cool change.


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  • Report this Comment On January 26, 2009, at 2:34 PM, cheatsheet wrote:

    Wireless sync required you plugging it into AC adapter. Kinda defeats wireless when you have to plug it in.

  • Report this Comment On January 26, 2009, at 9:34 PM, peterjlist wrote:

    Do you know how cool the iPod Touch is compared to Zune? Do you know how much mojo it has? Even if you don't like it, there is much to love about everything else in the iPod line as prices come down. I can't think of a reason to own Microsoft at all, and I got out long ago.

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