Stop Laughing at the Zune, Apple

Microsoft's (Nasdaq: MSFT  ) Zune has been the butt of digital media player jokes for some time. Is Mr. Softy gearing up to have the last laugh?

Windows Mobile blogging site WMPoweruser.com turned heads this morning by posting apparent specs of the new ZuneHD, which is supposed to hit the market in the fall. An alleged snapshot makes the new Zune look freakishly similar to Apple's (Nasdaq: AAPL  ) iPod touch, capacitive touchscreen and all.

By now, you should be jaded enough to approach any leaked snapshots and spec sheets as bogus until proven factual. The Web is ripe with Photoshop-savvy pranksters and motivated firestarters. However, this doesn't mean that investors should dismiss all chatter, especially when it's clear that Microsoft is in no hurry to bury the Zune, despite its lackluster market acceptance.

Hit the specs
If the rumor proves true, the ZuneHD will be a pretty impressive beast. It may look like a "me-too" Apple gadget, but it also might bring a lot of new things to the table:

  • Beyond AM and FM radio, or the contents of its 16- or 32GB flash drives, ZuneHD will reportedly also receive HD Radio broadcasts. This fledgling digital format allows conventional radio stations to offer more channels within the same frequencies -- typically narrow music niches with minimal advertising -- making it a factor that Sirius XM Radio (Nasdaq: SIRI  ) can't entirely ignore.
  • The report also says the device will play 3D Xbox games. Some have suggested that enhanced games -- way beyond the casual gaming now available on smartphones -- will be possible if the ZuneHD integrates NVIDIA's (Nasdaq: NVDA  ) Tegra chipset, but the blog has not confirmed that spec.
  • Speculation suggests that ZuneHD will eventually be powered by Windows Mobile 7, giving the device a high-end mobile browser, and likely refueling speculation that a Zune smartphone isn't far away.

Add it all up, and even if only a few of the whispers are legit, the ZuneHD could have a shot at the big time.

A history of silence
Microsoft's entry into the portable media player market in 2006 was uninspiring. It did raise the bar with its wireless social sharing feature, but no one seemed to care. The Zune couldn't compete with Apple's entrenched iTunes ecosystem; it didn't even have a shot at the silver medal, because SanDisk (Nasdaq: SNDK  ) was cornering the market as the anti-iPod substitute.

Microsoft spent a ton of dough on artsy but ultimately ephemeral commercials promoting the Zune, to no avail. Even GameStop (NYSE: GME  ) , a video game retailer practically oozing with Microsoft-fanboy customers, stopped stocking the Zune.

For all of Microsoft's might and money, the Zune had to settle for a mere 4% of the market as of a year ago.

Q1 2008

Market Share

iPod

71%

SanDisk

11%

Zune

4%

Creative

2%

Source: NPD Group.

The empire strikes Bach
Mr. Softy could have quietly axed the Zune last year. That would have helped the company avoid the leap year fiasco over the holidays. Zune could have even have died a year earlier, instead of unveiling an updated model in 2007 that did little to move the market-share needle.

Has Zune outlived its irrelevance? Microsoft wouldn't have kept the Zune alive for this long if it wasn't part of a larger master plan. Microsoft is doing well with its Xbox 360 and its Xbox Live Marketplace, but it remains the only video game console maker without a handheld gaming device on the market.

At least one analyst was "fairly certain" last fall that Microsoft had a standing order to buy Research In Motion (Nasdaq: RIMM  ) at $50. The BlackBerry maker ultimately traded as low as $35.09 in December, and Microsoft didn't move a muscle. Could it be holding back from taking on Apple in the smartphone market because it has an in-house solution coming Zune -- er, soon?

I don't know how much of the ZuneHD chatter going around is true. Those who do know probably aren't talking. However, I'd be surprised if Microsoft kept a fringe device on life support for three years only to let it die in vain.

Sooner or later, Microsoft will get the Zune right. And when that day comes, the words "brown Zune" will no longer be an easy way to garner cheap laughs.

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Longtime Fool contributor Rick Munarriz can't recall the last time he saw a Zune out in the wild. He does not 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 (16) | Recommend This Article (9)

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  • Report this Comment On April 15, 2009, at 3:53 PM, PocketRadio wrote:

    The rumors about the Zune HD including HD Radio are just that, and probably fueled by iBiquity and the HD Radio Alliance:

    http://tinyurl.com/chzztn

    David Rehr recently sent an email to Steve Jobs pleading for him to include an FM-tuner (no doubt will want HD Radio) on the iPhone and iPod. HD Radio is a farce!

    http://hdradiofarce.blogspot.com

    Lots-of-luck!

  • Report this Comment On April 15, 2009, at 3:58 PM, MurphyMacdotCom wrote:

    They should have tied it to the X-Box brand from the beginning and built some continuity.

    They used to say MS isn't a software company, it's a marketing company. I don't know what it is now.

    Should they have quit on the Zune? No, portables are too big a road for the future. But they don't seem to be trying very hard.

    Maybe they didn't want to provoke "I'm a Zune" ads from Apple. Which would dig up all the vendor-partners MS has betrayed in the music-player business.

  • Report this Comment On April 15, 2009, at 3:59 PM, marv08 wrote:

    Hehe, funny. Windows Mobile will include a "high-end mobile browser"? Shouldn't they at least prove to have one on the desktop first?

    Will xBox content be available at rates matching the average price of games on Apple's App Store? Will MS at some point offer a music/video download service that will live longer than the average critter? Will MS be able to design a media player on the desktop that gets anywhere close to iTunes? Will MS have airline seats and 70% of cars on the market working with this thing? Will they have a free SDK including all coding tools, interface components and profiling applications, so developers can actually do something attractive, consistent and reliable? And if (doubtful here), then when?

    Yawn.

  • Report this Comment On April 15, 2009, at 5:14 PM, Fredlee009 wrote:

    Yes, SiriusXM can ignore it , and shall. 4% market share, and they will be streaming HD through it... WOW.... Siriusxm will be streaming through the Iphone,and IPOD. Check the market share on that, bro. Damn you need to stop writing, and take up another profession. Just reply to one of my posts. I know you wont.

  • Report this Comment On April 15, 2009, at 5:15 PM, eram101 wrote:

    @marv08 - The Apple Fanboy

    Will xBox content be available at rates matching the average price of games on Apple's App Store?

    -Check out XBox Live arcade

    Will MS at some point offer a music/video download service that will live longer than the average critter?

    -Check out XBox Live Video Marketplace

    Will MS be able to design a media player on the desktop that gets anywhere close to iTunes?

    -Most people (and reviewers) who have tried both would say that the Zune app is already better than iTunes, hands-down. Apple hasn't truly invested in iTunes for years sadly

    Will MS have airline seats and 70% of cars on the market working with this thing?

    -Not until they have the same marketshare

    Will they have a free SDK including all coding tools, interface components and profiling applications, so developers can actually do something attractive, consistent and reliable?

    -Check out XNA

  • Report this Comment On April 15, 2009, at 5:51 PM, PocketRadio wrote:

    I hope that Apple is smart enough not to add iBiquity's HD Radio junk engineering to any of their products. HD Radio will literally sucks the life out of their products, when HD Radio drains battery life, and consumers find out that HD Radio simply doesn't work. It has been a disaster with automakers and retailers. Plus, ibiquity demands confiscatory licensing fees. Who needs FM radio anyway, with Internet Radio over WiFi/WiMax and cell phone carriers.

  • Report this Comment On April 15, 2009, at 5:56 PM, marv08 wrote:

    @eramberg

    Actually, I am not an Apple Fanboy. I use OS X, Ubuntu, Solaris, Unixware, RedHat; heck, I even have a XBox (the 5th one to be precise, they do not last) and 4 Windows 2003 servers plus Exchange and Sharepoint. I know what MS cannot do, that's everything else.

    Comparing prices on the XBox places does not really work out, as MS is hiding actual cost behind a point system... on iTunes I pay when I buy something and get the price black on white.

    The absolutely only thing where the Zune app is shining is finding music and related stuff, it beats Apple's Genius feature by a mile. Everything else about the app is abysmal.

    Music on the Zune Marketplace is effectively as expensive as on iTunes, just lower quality MP3s. Ask some "plays for sure" victims about their confidence in MS offers though...

    XNA is a framework for games development only, it does not provide any tools to create GUI-compliant Zune applications as the Apple SDK does.

  • Report this Comment On April 15, 2009, at 6:29 PM, assistryan wrote:

    Please, I can't name one person that owns a Zune? This reminds me of a recent post that said Internet radio is going to put Sirius out of business. Not going to happen. The Zune is to far behind. Windows media player sucks, there are minimal apps, and HD radio, who cares! Oh wait are they going to come up with a ZUNECASTS, if they do then I am going to throw away my Ipod and switch. Hey MS, you aren't late to the party, you were never invited. Focus your efforts on something else like a decent operating system, oh wait, apple blew your doors off on that too!

  • Report this Comment On April 15, 2009, at 7:44 PM, kirasaw wrote:

    While the Zune might be a good music player. Those few that own them seem to like them. The problem is they are like most things MS designs - they look and feel like they came out of the old Soviet Union. MS copies something and makes it bigger and ugly and claims it is better than anything else.

  • Report this Comment On April 15, 2009, at 8:17 PM, Alfiejr wrote:

    if anything, the Zune's market share today is less than the 4% it was last year. it was, is, and always will be an embarrassment. always 1-2 years behind Apple's state-of-the-art products, playing me-too catch-up. and with that terrible name, always the butt of jokes.

    the fundamental flaw is its dumb WinCE software, which is not even the full WinMobile. so it can't run any of those so-called 20,000 WinMobile apps. it was designed to compete with the old iPod, not the Touch, which runs on a real version of OSX.

    the only hope for MS is to create a whole new Zune that runs WM 7. maybe next year. add Skype and you would have a 'windows phone,' sort of.

  • Report this Comment On April 15, 2009, at 8:22 PM, bigpeach wrote:

    Mr. Munarriz, you're writing an article based on internet rumor. At least you disclose it as such, but really, try writing about something that can be substantiated. Nonsensical internet rumor hardly needs follow up opinion articles.

  • Report this Comment On April 16, 2009, at 12:52 AM, Alfiejr wrote:

    BTW, FM radio? HD radio? pul-leez.

    who listens to broadcast radio outside of their car anymore? ok, granny. and talk radio junkies.

    free on-line radio is wiping out the rest - satellite, whatever. such as hundreds of stations of every genre from around the world via AOL radio app. or customized streaming apps like Pandora. etc.

    the Zune is "planned obsolescence."

  • Report this Comment On April 16, 2009, at 9:30 AM, Neviim wrote:

    When was the last time that Microsoft innovated anything? In fact, when was the last time that Microsoft actually delivered on anything they promised? I've given up on anything worthwhile coming out of Redmond, so I'm not going to get too excited about these rumors.

  • Report this Comment On April 16, 2009, at 9:47 AM, kriston wrote:

    The Xbox 3D games will be played the same way PSP Remote Play games are. The handheld Zune will be the display for the Xbox 360 over a wireless connection. Sony's PS3 already does this today with the PSP.

    The Zune won't be able to play Xbox games on its own, just like the PSP also cannot.

  • Report this Comment On April 16, 2009, at 9:57 AM, Notgod wrote:

    The zune's are really awesome but they shhould keep the capacity up with the new model. I personally like having lots of music on me at one time and i have far more than just 32Gs. I like where it's going they should just keep up with the 120Gs or greater sizes ya know.

  • Report this Comment On April 16, 2009, at 11:29 AM, nsr19 wrote:

    hey marv,

    look up zune pass.

    the point system is so that it would be something different that tied into xbox live market place.

    the music i get off zune market place is the same quality i get off itunes, and i get to listen to the whole song before i buy/download it. i cant do that with itunes.

    with over 6,000 songs my itunes lags, with zune i have no trouble.

    the zune has less worry over what media file type you put on it, and zune actually stood behind there warranty unlike apple.

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