Impressions

Same Price. But will Zune's Features win against iPod's Experience?

American Technology Research Analyst, Shaw Wu has commented that Zune, the new media player from Microsoft (MSFT) will hurt Microsoft and it's partners more than it will hurt Apple (AAPL) or it's iPod. Though the price tag for Zune, $249.99 is similar to a comparable iPod's price, Wu thinks that it will be difficult to convert iPod users to Zune. Wu also estimates that Microsoft will lose $50 for every Zune it sells. Wu's sources indicate that Microsoft did not expect Apple to lower prices of its iPods. This move had surprised Microsoft and had forced it to reduce pricing to match Apple's. Wu also commented on the superior supply chain and operating efficiency of Apple which is highly invisible. This probably has given Apple the edge over the new Zune threat by allowing Apple to lower the iPod prices. In this price range, Apple still makes profits while Microsoft loses money.

While many people cite Microsoft's success with Xbox, it is a completely different game than media players. Media players have small form factors and a lot of content to navigate. I repeat NAVIGATE. This is the key to iPod's success. The click wheel makes combing through a vast library of media easy. Whereas in Zune, one has to scroll through the library individually, making it difficult to move around. Zune's user interface, based on Windows will not provide a good experience. In the initial comparisons, Zune seems to have a lesser battery life than iPod, which is again a let down. The wireless or WiFi feature that allows networking and sharing is a novel concept. But you should enough Zune users around you to share with. Connecting to a wireless network and allowing other people to communicate with your device is a cumbersome process, a drain on the battery and not to mention issues associated with hacking or viruses. While you are waiting at a traffic signal or traveling in a train, you dont want anyone to hack into your player and erase all your music. Security is a key feature that not many people are talking about and we probably will wait for more information to be revealed. Zune has a bigger screen than the iPod. Well is this really an advantage or a disadvantage? If you want to watch videos it is good but if you just want to listen to music, then you probably will not need this big a screen. So the overall user experience of Zune may not stand up to iPod's user experience. There is also the question of how Zune's Marketplace with stack up with the iTunes Store. There is one area where Microsoft has the edge, gaming. If Microsoft is capable of somehow incorporating games into Zune and allowing a network of users to play games, it has a chance to get into a territory that Apple is weak in. This is understandable with Zune's screen size and wireless capability. But the current design of Zune is not game-friendly.

There are many products which have been successful in the past because of their user experience even though they had lesser features than their competitors. Zune with more features is simply not enough to challenge the iPod. It needs to be seen how long Microsoft can lose money, churn out new 'Zunes' and market its features and brand to gain an edge over Apple.

Wu also estimates that, Apple has 18-22% gross margin and 8-11% operating margin. So Microsoft will not only have to overcome Apple's prolific innovations and designs but has to atleast match Apple's operating efficiency to kill the iPod.

On a sidenote, another effect of Microsoft's foray into the media player business is antagonizing some of its partners. Since Microsoft has the upper hand on its partners now, it is not an issue. But Microsoft may feel the heat later on when it may need their help.

Labels: AAPL, MSFT, Tech, UX

posted by Hari @ 9/29/2006 05:52:00 PM