How the Zune Will (Try To) Defeat the iPod

Arrogance. Over-confidence. These themes run rampant in the initial reviews of the Microsoft Zune. And of course, thatis expected.

What we didnit expect is that over-confidence is exactly what Microsoft wants at this point. Itis the same kind of over-confidence that John Scully and Jean Louis Gasse? had at Apple in 1990. Eventually, they both left Apple in quasi-disgrace when Windows 3 took off.

I will grant this. Appleis executive team is a whole lot smarter than Apple was in 1990. The current company is more nimble and in a better financial position. Theyire better prepared to move on a dime. They have resources and a better channel. Even so, there is every sign that Microsoft is trying to pull the same stunt that they pulled with Windows 3. Whether or not it works this time will be interesting to watch.

The key to reviewing the Zune is not to look at the features that it provides. A deeper understanding is, as usual, embedded in the politics of the device. Letis look at those elements.

Brand Dilution

Right now, the iPod is a premium device. Even if you can only afford an iPod Shuffle for US$79, it still amounts to a fashion and life-style statement inherited from its larger siblings. If Microsoft wanted to design something really cool, they could. They have the money to attract the design talent. But thatis not in Microsoftis DNA.

For example, I did many presentations, computer shows, and professional conferences with Apple. Most had booths. We could never give away iPods. Why? Hereis the Apple logic: The iPod has great value. You give away things that have no value. Therefore, we donit give away iPods. However, all our channel and developer partners would have a raffle. There were healthy crowds in their booth hoping to win a (valuable) iPod. They understood the business benefit of giving away an iPod, while Apple was (and remains) constrained to carry the banner of product identity and branding.

The way to dilute this is not to come out with a cool device. Rather, one wants to make the portable music player a humdrum commodity device. The same people who disparage Apple, its philosophy, and latest TV ads are the very same people who donit want to be cool. Microsoft knows how to appeal to this kind of roll-up-your-sleeves-and-get-to-work crowd. No nonsense. To that end, the choice of a brown color Zune shouldnit be perceived as very bad taste. It should be understood as a sign that Microsoft intends to tear down the elitist culture of the iPod and turn the portable music device into nothing more than a $9 blister-pack Casio calculator.

Unfortunately, Microsoft had an initial set-back. The plan was to undercut the Apple video iPod in price and continue to be the lower price product at the video-player level. Apple caught on quickly and surprised Microsoft with a price reduction on September 13th. In fact, Appleis margins are such that they can shave the price considerably. But if Apple goes too far in this direction, then Microsoft wins the value dilution war. If Apple keeps the price too high, they run the risk of losing the perception war.

The current Zune isnit really a product per se. Not enough Zunes will be sold to qualify as a real product. Instead, the Zune needs to be viewed as a platform.

The Zune gives Microsoft a ticket to:

• Negotiate with record labels and Indies
• Negotiate with Hollywood studio execs
• Give away (where legal) Zunes to build corporate good will
• Poison Appleis dealings with other clients and partners.
• Develop product placement and visibility on TV

In other words, the Zune gives Microsoft a product platform with which to attack the iPod on business grounds. You see, Apple has always been good at vision and creating products that inspire. But Apple, in the past, hasnit been so good at hard-nosed business deals, losing degrees of freedom, and certain kinds of business partnerships that are typical in the corporate world. Microsoft is very, very good at these kinds of things. The result is that, in time, Microsoft will be able to exert the kind of business leverage that has always been distasteful to Apple.

Apple depends on the enthusiasm of the consumer. Microsoft depends on back-end business deals that line everyoneis pocket. The only way to set this in motion is to have a product, any product, just like Windows 3, miserable as it was compared to the early Macs.

Along these lines, the design and product specifications of the Zune shouldnit be taken as Microsoftis best effort at satisfying the customer. Not at this point. That fact the product features of the Zune pale in comparison to the iPod shouldnit make us gloat. It should scare the hell out of us.

For example, Microsoftis departure from an more open infrastructure, PlaysForSure, isnit a sign of confusion. Rather, itis more like what Steve Jobs did when he axed the clones after he returned to Apple. Microsoft needs to get a firm grip on the Zuneis design and function as a whole so that it can carry out Microsoftis political agenda. In every case where we see a design deficit (or just something different than what Apple did) we should ask ourselves, "How does this particular feature implementation lead to some kind of capability for Microsoft to undermine the iPod through their business dealings?"

One giveaway is the larger screen. Kids have good eyes. Older adults tend not to have the same visual acuity as kids. If Microsoft is going to use the Zune as a device that gives them inroads into the business community, and theyire going to be placing this device on the desks of studio executives, wouldnit it be smart to make the text large enough to actually be readable by the old farts? The added benefit is that a Zune, just a little larger than an iPod, not much mind you, presents the appearance of just a little less miniaturization, hence a little less sophisticated. This further works to dilute the brand of the iPod player. Cheap, big, and brown.

Like a turd.

Zune 2.0

The Zune is like a crowbar. It forcefully opens doors in a way that Microsoftis business partners are accustomed to. In time, the features of the Zune will improve. It will be seen as incrementally approaching the iPod -- which gives Microsoft plenty of flexibility as well as good marks for "See, Iim better!" This apparent momentum will lead Microsoft apologists to suggest that "it wonit be long before the Zune is just as good as an iPod, so you might as well write Apple off."

This will have the desired effect on Appleis stock and Appleis relationships with suppliers, third party accessory developers, and corporate clients.

What Apple Can Do

Apple has several weapons at its disposal to fight this. I wonit discuss all of them.

Fortunately, the market for iPods, in general, is driven by youngsters. So while Microsoft may have some tactical successes in undermining the politics behind the scenes of the music player business, the ultimate customer, kids, the young-at-heart, and music lovers, are living in another dimension. Microsoft will have a tougher time turning dirty-tricks into a business advantage when the end customer is the affluent consumer, not the businessman. Thatis one reason this Zune project could fail.

Another trick that Apple could play is to make a huge gamble and blow out the traditional iPod as a product, just like they blew away the iPod mini. Turn on a dime like they did with Intel Macs. They could convert the iPhone into the latest and greatest music player on the planet. This is risky, and I doubted they would do it in last weekis column. However, Apple has time to assess how disruptive Microsoftis business dealings are and how successful the marriage of the Zune and Xbox becomes before making this decision in 2007. It would, in effect, change the rules of the game so dramatically that Microsoftis nascent strategy would grind to a temporary halt.

Finally, the thing to remember is that one should be very wary of the over-confident reviews that denigrate the Zune and its features and design. There is more going on here than simply assuming that Microsoft has no taste and that they are all design doofuses. Apple and we analysts who love Appleis products will need to be a lot smarter and more attuned to Microsoftis hidden strategies and typical methods of devouring competitors.

There is no Buddhism in the Zune design. Itis a brute-force, low tech T-72 Russian tank designed to steamroll up the beach and create widespread chaos and destruction in the music player community. Assuming Microsoft will fail based on the examination of the Zuneis features and functions would be a huge blunder by all of us.