Zune entertaintment experience

Microsoft has officially announced the Zune entertainment device that will compete with iPod. Microsoft said Zune will deliver "a family of hardware and software products" that will "bring together technology and community to allow consumers to explore and discover music together."  Engadget has an excellent review of the Zune program.

Zune is the real name for the device and for the online service that will support it. The attached photo is believed to be the real logo as well.

Microsoft came from behind with the X-Box and will do it again with Zune. In fact, the Zune team is in the same organization as X-Box. Don't be surprised if Zune supports mobile gaming and has some ties to X-Box.

Remember my earlier post, "Innovate or Imitate...Fame or Fortune". Many times the early innovator wins fame, but the "fast follower" wins the fortune. Could this be another example?

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Comments

[zune]

I really like the idea of wifi

[Lloyd D Budd]

A friend Jesse Andrews pointed out to me that Zune appears to be a solution that will be closed to collaboration and competion by other software and media providers.

How are Microsoft's 12 Principles to Promote Competition going to be applied here?

[Don Dodge]

Good question Lloyd. Zune will not be released until this Fall, and has been a closely guarded secret up until it was announced last week. I didn't know anything about it before, and learned the details, such as they are, the same day everyone else did.

Apple's iPod player and music service are tightly coupled together. I am not sure if they have partners or not. I don't know the partner plans for Zune yet either. Apparently your friend knows the plans?

The 12 principles to promote competition were primarily focused on PCs, operating systems, and APIs, where Microsoft has a very large marketshare. Microsoft has zero marketshare in music players, so it appears the market is already competitive without any help from Microsoft.

Perhaps Apple should respond to those questions?

[Barry Ritholtz]

Hey Don,

I appreciate your enthusiasm for the product as an engineer and a Microsoft employee.

Xbox gets great reviews for its UI, design etc. It raised the ante in the entire space. Its a terrific looking machine, and the gameplay is great.

All this is a given, however, as the company has poured literally billions of dollars into its development. That's before we discuss the money losing subsidy built into the cost of the Xbox.

My perspective is somewhat different than yours, as I run an investment firm. So I want to know what the company is getting back for all these sunk costs -- what is the ROI, and how does this fall to the bottom line?

With some fancy accounting, you can show how the Xbox product line is a break even -- but the truth is its been a giant money loser. Will Zune be the same? We will find out soon enough.

I find it intriguing that MSFT is willing to subsidize these big losses in spaces that are dominated by other companies. Think about the self inflicted wounds from the Netscape battle and the costs of Xbox. We have yet to see the fallout from Zune.

If I can anthropomorphosize microsoft, its as if a jealous rage seizes the firm when it sees another outfit having a success, making money. Bizarre

Microsoft does a number of things very well. From an investor's point of view, muscling into a new consumer product line in a cost effective and profitible way sure aint one of them . . .

[Don Dodge]

Barry, Thanks for your comments, especially from the investment perspective. My view is that it depends on your investment time horizon. If you think short term, a couple quarters or even a year, then the Xbox and Zune do not make any sense. If you think long term, 5 years or more, then they do.

I agree that it would be much cheaper to get into these markets sooner before a dominant leader emerges. But, games (Xbox) and music (Zune) are huge long term markets. Remember, the PC operating system business is 25 years old and still going strong. I think games and music will be huge multi billion dollar businesses for a long time to come.

Very few companies can afford the up front investment and cash flow losses for the first few years to enter these markets. That creates a natural barrier to entry. Microsoft can afford to do it. The long term payoffs will be huge.

BTW, the Xbox group just turned cash flow positive, and maybe even profitable. I need to check on this. No funny allocation accounting either. How many years did it take? Three, four, five? I don't know exactly. But, I do know that games (Xbox) will be a very profitable business for the next 20 or 30 years. I think music fits the same profile. This makes good investment sense to me. It all depends on your investment horizon.

[Barry Ritholtz]

Thanks for the feedback Don -- I appreciate your perspective.

Since this is the Xbox team behind this, I am giving MSFT the benefit of the doubt that this isn't a "vaporware" announcement, and that we may actually see this product for Xmas 2006 . . .

Competition is always a good thing -- look at how Firefox pushed the IE upgrades.

[Lloyd D Budd]

Don, "games (Xbox) will be a very profitable business for the next 20 or 30 years", but maybe not Xbox. It seems to me to be a fickle industry with many corporate corpses in its wake.

[Lloyd D Budd]

Apple's response is pretty clear, they believe that a superior design allows them to treat people like consumers and they are predators of contributers, collaborates and competition in the music space.

But that does not excuse Microsoft. I don't think Jesse or I suggested that he knows the plan, it just appears that Zune's player and music service will be tightly coupled together. How does the absence of Microsoft suggest that it is already competitive?

And for clarity, Microsoft's 12 Principles to Promote Competition are not viewed as "help from Microsoft", but protection for us from Microsoft.