Microsoft to bet "hundreds of millions of dollars" on Zune - report

Posted by Wolfgang Gruener

Redmond (WA) - Microsoft is serious about taking on Apple in the portable media player business. According to several media reports covering an analyst conference held by the company yesterday, the company is set to throw in hundreds of millions of dollars into its new business - which may not only impact but also threaten the existence of several smaller media player makers such as Creative or Iriver.

While technical details about its "Zune" service and devices appeared to be absent, Microsoft followed up on the confirmation of the project with some strategic items. The Seattle Post Intelligencer quoted Robbie Bach, Microsoft's president for the entertainment and device unit, saying that "it is something that is going to take time" and that "this is something that's going to be a three-, four-, five-year investment."

Consider Microsoft's approach not as an occasional poke at a market segment. According to the SPI report, Steve Ballmer sees Microsoft in a unique position to take a shot at Apple's practically unchallenged 70% market share in the portable music player market. "For better and for worse, there's no other company that would be attempting to get into that business at this time," the report quoted Ballmer. "Nobody else has the optimism, nobody else has the financial resources, and you might say nobody else, you know - well, let me just leave it at that."

With Zune's focus currently being its possible impact on Apple, it's easy to miss other products and companies the device and service may affect - possible more than Apple. When Microsoft enters the business especially Creative, Iriver and also Samsung may be first among those who have to react and deal with Zune. So far, Microsoft simply has been a technology and software provider to those firms, but now evolves into a platform company that directly competes with them. Analysts such as Harry Wang from Parks Associates believe that the MP3 player market may not be strong enough to support every single manufacturer that is in the market today: "Zune could hurt [manufacturers such as Creative and Iriver] significantly." Down the road, the future MP3 market won't grow as fast anymore as it did in the past and today's niches may disappear over time: "For 2009 and 2010 we see only moderate or flat growth for the market," Wang told TG Daily.

Time will tell if Microsoft can be successful in the MP3 player market and use Zune to create a consumer electronics ecosystem that will also include its Live service, entertainment center PCs and other devices such as the Xbox 360. Wang believes that success in this space requires companies to know and understand "the consumer and his perceptions." One of the critical components to reach the consumer in the portable media player field is the creation of an attractive brand - a discipline where the Ipod has enormous success and others fail with rather strange product names such as "H10". "Stylish and prestigeous brand names such as 'Ipod' or "Razr' are very important," Wang concluded.