• Illustration: New Zunes

New Zune music players, including two relatively inexpensive models with flash memory instead of hard drives, will become available in Nov. 2007. Microsoft is also launching Zune Social, a music-oriented social networking site, in hopes of building brand loyalty. However, the announcements came a month after Apple updated its iPod family with groundbreaking new devices and features that the Zune line still lacks, meaning that Microsoft will have a hard time taking market share from Apple this holiday season.

What's New?

Launched in Nov. 2006, the Zune product family represented a significant break from Microsoft's prior digital media strategy, which relied on partners to create hardware and services. Like Apple's iPod family, the Zune device uses its own client application and online store—it does not work with Microsoft's Windows Media Player and cannot play Windows Media content purchased from other stores. (The Zune can play audio encoded in the Advanced Audio Coding format used by Apple's music products, but like all other non-Apple players it cannot play songs from Apple's iTunes Music Store.)

The first Zune featured a 30GB hard drive and carved out the number-two spot in the market for music players with hard drives, with around 13% unit market share in the United States, according to monthly NPD figures. (Apple is consistently on top with greater than 70% share.) However, Microsoft's share of the overall portable music player market (including players with flash memory) is less than 3% of units sold, trailing not only Apple (with close to 70% market share) but also SanDisk (around 11%) and Creative (around 3%). One reason has been the lack of flash-based Zune players, which are significantly less expensive than players with hard drives and make up the majority of all portable music player sales.

In Oct. 2007, Microsoft announced several updates to the Zune line that it hopes will vault it into the clear number-two spot among all portable music players.

New Models

Microsoft is introducing two flash-based Zune players with capacities of 4GB (US$150 suggested retail price) and 8GB (US$200). Both will play video, a feature that Apple added to its flash-based Nano line in Sept. 2007, and will be available in pink, green, black, and red. In addition, like the original Zune, the flash-based Zunes will include an 802.11 wireless data transceiver and FM radio tuner—features that the Nano lacks.

Microsoft is also adding a player with an 80GB hard drive and "premium" headphones for US$250, available only in black.

All new models will feature a redesigned interface and a new touch pad surface for navigating menus—for instance, users can scroll vertically by moving their fingers downward on the touch pad—rather than the original Zune's four-way circular navigation ring. (For an illustration of the new devices, see "New Zunes".)

Microsoft will continue to sell the original 30GB model, and recently cut its price from US$250 to US$200; some retailers have cut prices even further.

Wireless Sync and Transfer

Although the Zune was one of the first portable music players to feature a built-in wireless data transceiver, its wireless functionality was limited to transferring songs from Zune to Zune—users could not connect to the Internet wirelessly, for example.

The new Zunes add wireless library synchronization with a PC, so users won't have to dock the devices to update their libraries. In addition, Microsoft has removed some of the restrictions for Zune-to-Zune wireless transfer: music files can now be played three times within any time period before they expire (previously, they expired three days after transfer, or after three plays, whichever came first), and users may now pass received songs along to other Zunes (previously, transmitted songs stayed locked on the recipient's Zune). These features will be added to existing Zunes via a software update.

However, Microsoft has not added a wireless version of the Zune Marketplace—users must still buy songs with their PCs and transfer them to their Zunes. Competitors have passed that hurdle—Apple introduced iTunes Wi-Fi (for selected players) in September, and SanDisk offers a wireless player that connects to Yahoo Music.

More Content

The Zune Marketplace is being updated with a list of more than 1,000 free podcasts, audio programs that users can subscribe to via RSS feeds, with new episodes being downloaded automatically whenever they're available. Lack of podcast support was a major drawback of the Zune compared with most other audio players.

The Zune Marketplace is also adding more than 1 million songs in the popular MP3 format, which can be played on nearly any computer, media playback application, or portable player, with no digital rights management (DRM) restrictions. Several other stores, including Amazon.com's new store, already offer DRM-free MP3s, but Apple's iTunes sells DRM-free files only in the AAC format, which is not as widely supported. The Marketplace will also boast thousands of music videos for sale, although it will not offer TV programs or movies like iTunes does.

Additionally, users will be able to play TV programs recorded with the Media Center functionality of a Windows Vista Home Premium or Ultimate PC; play Windows Media Audio (WMA) Lossless files, which offer the exact same quality as an audio CD at approximately half the file size; and play video in the H.264 format used by Apple's iTunes software and other applications.

These features will be added to existing Zunes via a software update, with the exception of H.264 support.

Social Site

In the long run, Microsoft hopes to differentiate the Zune from the iPod and create "stickiness" by letting users communicate and share music and recommendations—this was the impetus behind the wireless transfer functionality in the original Zune and is reflected in the product's marketing tag line, "Welcome to the social."

At the Zune announcement in Oct. 2007, Microsoft unveiled the beta version of a Web site, Zune Social, that furthers this goal. Users can create a personalized identity Zune Card (similar to the Gamercard used on the Xbox Live service), which will display the songs they've recently played on their Zune PC software or Zune device; other members will then be able to listen to samples of these songs and follow links to the Zune Marketplace to buy the full tracks. Members will also be able to place their Zune Cards on popular social networking sites such as Facebook, send song links and messages to one another, and find other members with similar musical tastes.

New Jukebox Software

The new Zunes include a newly rewritten client application instead of the modified Windows Media Player used by the previous generation.

The new software is supposed to be easier to install and makes it easier for users to browse their collections.

Apple Not Standing Still

With the latest updates, the Zune lineup is much more credible than it was a year ago. Obvious shortcomings, such as lack of podcast support, have been addressed, and some features, such as wireless PC synchronization, are useful and unique.

However, the Zune announcement came nearly one month after Apple unveiled its 2007 iPod updates, which included a groundbreaking new form factor (the iPod Touch with a touch screen, Wi-Fi transceiver, and integrated Web browser) and a wireless-enabled version of the iTunes Music Store, both of which make the Zune lineup look out of date. In addition, Apple updated its core products, adding video support to the iPod Nano and improving battery life across the board.

But perhaps the biggest challenge for Microsoft will be pricing: Apple has a wider range of offerings, from the iPod Shuffle (US$79) to the 16GB iPod Touch and 8GB iPhone (a combination smart phone and iPod with a touch screen), both of which cost US$399. In cases where there's an iPod and Zune equivalent, the iPod costs a dollar less (e.g., the 8GB iPod Nano is US$199). Microsoft might believe that it's offering equivalent functionality, and in the case of the flash-based Zunes, the wireless transceiver and FM radio are features that the Nano lacks. Nonetheless, given the powerful iPod brand, it seems unlikely that many consumers will choose a Zune over an iPod without a significant discount.

Microsoft says it doesn't expect to take market share from Apple this holiday season. However, in the long run, the company does want the Zune to become a credible competitor to the iPod. To reach this goal, Microsoft will have to either accelerate the pace of innovation to match high-profile iPod features convince consumers that the Zune's unique features—such as wireless sync and social networking—are more interesting than unique iPod features, like the touch screen and wireless Internet access.

The Zune site is www.zune.net.