Analyst: Microsoft Should Dump Zune

The Zune accounted for part of 43 percent decline in Microsoft's non-gaming entertainment device sales during the company's fourth fiscal quarter, causing some analysts to question whether or not it's worth spending the time to continue developing the media player.

"Microsoft should abandon Zune and follow Apple's strategy to try to make its presence felt in the high-growth smartphone sector," commented Tradition Capital Management vice president George Kurian, according to MarketWatch.

Overall interest in the device doesn't seem to be very high, either. "The market reception for Zune is so disappointing that many retailers have even stopped selling it altogether," he added.

Microsoft has been hoping to strip marketshare away from Apple in the portable digital media player market, but so far hasn't been able to make much of a dent with the Zune. The company is now betting that the new Zune HD, due out this fall, will finally hit Apple where it hurts. The new Zune will sport a touch screen interface, high definition video support, and built-in applications similar to the iPhone and iPod touch.

The Zune HD, however, may not be enough to boost media player sales for Microsoft. "If Zune were going to make a strong move against the iPod, it already would have," commented IDC analyst Susan Kevorkian.

Instead, moving into the smartphone market like Apple did may be a better move for Microsoft. If so, the company's best bet might be to purchase Palm and its smartphone business.

Buying up a smartphone maker would give Microsoft an easier entrance into the market -- and struggling to get a foothold in portable device markets is nothing new to the company. In an IDC survey last year, 4.8 percent of the respondents said they owned a Zune. This year, that number is down to 2 percent. The iPod, in comparison sat at 61 percent last year, and 70 percent this year.

If the Zune HD follows in the footsteps of current Zune models, Microsoft will likely have much more to worry about than Apple.