3 Reasons Why the New Zune Will Fail

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Microsoft's (Nasdaq: MSFT  ) Zune HD officially hits the market on Sept. 15, and death is in the air.

Another installment in Microsoft's moribund line of portable media players makes about as much sense as a sequel to Norbit. Earlier versions have been flops, and the new version of this non-Apple gadget doesn't fall far from the tree. 

A year ago, Microsoft's digital music player commanded a mere 4% sliver of the market. Even the Xbox-worshipping GameStop (NYSE: GME  ) stopped stocking the Zune.

This doesn't mean that a dusty brand can't be refinished. Palm (Nasdaq: PALM  ) was making tracks to the smartphone-pioneer graveyard until its breakthrough Pre hit the market.

To be fair to Microsoft, the Zune HD does raise the bar in a few ways:

  • The new player one-ups its original built-in FM tuner by adding access to local HD Radio offerings.
  • The multitouch organic light-emitting diode (OLED) touchscreen will look sweet, especially now that it's HD-video compatible.
  • If the screen is too small for you, the Zune HD can play high-def clips when hooked up to your TV.

Microsoft is also putting more marketing muscle behind the brand, repositioning its Xbox Live digital video downloads as a Zune-branded service.

Impressed? I'm not. Instead, I'm ready to call this Microsoft's next paperweight. Let's go over a few of the reasons why Zune HD is unlikely to succeed beyond its thin fanatical fringe.

1. Microsoft is not Apple
Sorry, Mr. Softy. You're no Apple (Nasdaq: AAPL  ) . Quite frankly, neither is Apple, at least when it comes to the market-defining iPod.

Apple moved 10.2 million iPods in its latest quarter, a sobering 7% decline from its throughput a year earlier. This doesn't mean that the iPod is fading. Apple also sold 5.2 million iPhones during the period, a 626% spike since last year's fiscal third quarter. Since iPhones also double as iPods -- with one-tap access to Apple's iTunes -- Apple's digital reach is growing.

However, it does illustrate how far behind the times Microsoft's Zune HD is. Folks don't want a multidimensional portable media player. They want a smartphone that doubles as a multidimensional media player. Zune fans will be toting around one gadget too many in the consolidation phase.

2. Microsoft is not Nintendo or Sony
"Games" is one of the selling points promoted on Zune HD displays. Users have been able to play casual games on earlier Zune models, so this isn't necessarily new.

Microsoft competes with Nintendo (OTCBB: NTDOY.PK) and Sony (NYSE: SNE  ) in the video console space, and those two companies have their own handheld gaming devices. And Microsoft's Xbox Live has been selling downloadable digital diversions long before the birth of Apple's App Store.

However, the Zune HD will fail as a gaming device for the same reason that gaming hasn't really taken off on the iPhone, beyond the occasional free ad-supported offering: A touchscreen is nice, but gamers need buttons.

3. Microsoft is not Sirius XM Radio
HD Radio is a bold terrestrial radio initiative. Participating broadcasters can split their signal into three distinct channels, tripling the amount of available content. Stations have used HD to dive deeper into neglected genres.

Unfortunately, this format's still no match to the broader depth of commercial-free music and premium talk content that Sirius XM Radio (Nasdaq: SIRI  ) subscribers can experience. And since many Zune HD features, such as Web browsing and social networking, require Wi-Fi connectivity, free Internet radio will also trump the choices available on HD Radio.  

Add it all up, and the Zune HD will fail. Smartphones do more, and every single feature is already being done better by someone else.

Other Zune-rific leads:

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

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 (5) | Recommend This Article (5)

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 August 12, 2009, at 3:34 PM, randomlately wrote:

    your a fool I cant believe I actually read this your go by favoritism....dont ever post anything like this again

  • Report this Comment On August 12, 2009, at 5:30 PM, PocketRadio wrote:

    Analysts are calling for Microsoft to abandon the Zune, but Microsoft gets free publicity from the HD Radio Alliance for including HD Radio. HD Radio reception sucks, and the HD channels are just automated jukeboxes:

  • Report this Comment On August 12, 2009, at 5:51 PM, dominiej wrote:


    The 3 reasons you say Microsoft should abandon the Zune is because its not 3 other companies? Really?


  • Report this Comment On August 12, 2009, at 6:26 PM, Skyldehis wrote:

    besides the App store... Its more than an iTouch! and $110 cheaper! totally worth the lack of apps.

    Why are you even comparing it to an iPhone?

    I sure hope this website isn't paying you to write articles. I could do this job better than you. All i'd have to do list what a company isn't. I'll even give it a test run for you.


    Sony is not microsoft, toshiba, toyota, kroger, coca-cola.

    Damn, i'm pretty good at this, not that my resùme is done, maybe i'll get hired.

  • Report this Comment On August 14, 2009, at 2:57 PM, 2humble2fool wrote:

    Thank goodness MSFT is not SIRI!!! MSFT does still turn a profit, which is more than SIRI could ever claim. SIRI may turn a small profit for a few years before its satellites crash to earth, but any success will most likely be limited.

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