Doom, Gloom, and Zune

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The Zune is dead. Microsoft's (Nasdaq: MSFT  ) done updating its line of portable media players, sources tell Bloomberg. That's probably for the best.

Microsoft's critically acclaimed but consumer-spurned Zune never gained the kind of traction Mr. Softy needed to justify its continued existence. The Zune never made a dent in Apple's (Nasdaq: AAPL  ) iPod market dominance, nor even contested SanDisk for second place.

A Zune marooned
I'm only surprised that the Zune lasted this long. The world's leading software company had no problem nixing the Kin last year after just a few weeks on the market. But when it came to the Zune, Microsoft just couldn't take a hint.

The player seemed start strong, with Wi-Fi social sharing and stylish ads, but it ultimately fell victim to Apple's annual refreshes. Every year, Apple would upstage Microsoft with a wider array of iPods across all price points.

When evaluating Zune's decline, I won't knock off points for 2009's New Year's Day failure of 30-gig Zune players, since Apple's had its share of recent glitches, too. And there's no point in mocking the fashion faux pas behind the brown Zune, because Apple's taken nearly a year to make the white iPhone 4 available. But when GameStop, a popular haven for Xbox fans, pulled Microsoft's portable media players from its stores three years ago, Mr. Softy should have seen the writing on the wall.

The real judgment call here came from Mr. Market. A year ago, Zune's market share in portable media players stood at a pathetic 1%. Apple commanded slightly more than three-quarters of the market.

Coulda, woulda, shoulda
Throughout the player's feeble existence, everyone seemed to have a laundry list of things that Microsoft could do to make the Zune relevant. I offered five suggestions of my own two years ago:  

  • Microsoft could have refashioned the Zune as a handheld gaming device, following console rivals into the portable niche.
  • Apple had just added digital cameras to its iPod nano, and Microsoft could have raised the bar. It never did. Apple's went on to rival Cisco's Flip by adding upgraded cameras to the iPhone and iPod touch.
  • Zune could have been a force in the auto dashboard. At the very least, it might have brokered revenue-sharing deals with carmakers to promote its Zune Pass music subscription service on web-connected cars.
  • Two words: Zune Phone.
  • Microsoft didn't price the Zune at steep discounts to Apple players, so I suggested aggressively subsidizing the hardware, the way Microsoft and Sony supposedly price gaming consoles.

None of this happened when it might have made a difference. The final Zune HD models are cheap now, and still no one's buying. The Kin's failure painfully demonstrated why the Zune Phone would have flopped.

Perhaps more importantly, the era of the portable media player is passing. Apple's iPod sales have been weak for a couple of years. Consumers are moving on to smartphones, tablets, and e-readers to pass the time.

Gone but not forgotten
The Zune brand itself will live on, with plenty of multimedia opportunities for Microsoft through its Xbox gaming consoles and the Windows Phone 7 smartphone operating system.

"We're absolutely committed to providing the best movies, music, and TV show experiences through Zune on Xbox, the PC, Windows Phone 7 and Zune devices," read Microsoft's post last night on Zune's official Facebook page. "We'll share more information about the evolution of the Zune entertainment service and Zune hardware as future plans develop."

Microsoft's Zune got off the blocks running five years ago, but it never learned how to negotiate the inevitable hurdles on the way to the finish line. Let's see whether it can sprint faster once the software platform sheds its hardware baggage.

Is this a good or bad move by Microsoft? Share your thoughts in the comment box below.

Microsoft is a Motley Fool Inside Value recommendation. Apple is a Motley Fool Stock Advisor choice. The Fool has written puts on Apple. The Fool has created a bull call spread position on Cisco Systems. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended writing covered calls on GameStop. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, GameStop, and Microsoft. Motley Fool Alpha owns shares of Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is proud to say that he never bought one of those brown Zunes -- but he knows someone who did. 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 (4) | Recommend This Article (6)

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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 March 15, 2011, at 3:23 PM, chilero wrote:

    After suffering with a horrid iPod Nano that has caused me nothing but problems (freezing, black screen, unable to reboot) plus the fact that I despise iTunes I was really hoping the Zune would be coming to Canada, hopefully with a new refreshed version so I could dump this iPod. I guess I'll have to find something else now.

  • Report this Comment On March 15, 2011, at 4:40 PM, jargonsays wrote:

    Chilero, Your iPod Nano obviously has a serious problem if thats the case. Did you ever complain to Apple tech support?

  • Report this Comment On March 15, 2011, at 8:27 PM, fatmonk wrote:

    I hope MSFT will learn something from this(Moving Fast and focus). Hardware is not MSFT strength;

    @chilero if your iPod was a bad AAPL take to Apple store they replace you with the new one. I was not happy My iPhone 4G's Flash... Took it to Store. They replace me with the new one. No problem.

  • Report this Comment On March 16, 2011, at 3:36 PM, Kalex716 wrote:

    I also felt like the Zune store was annoying and a weakness for this product. if the Zune leveraged a simple plugin for the already wide spread Windows Media Player, you could have near instantly already had the Zune Software on everyones PC's day 1.

    Would have removed a huge barrier of entry that way if peoples already existing music libraries were ready to go.

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