Thursday, July 27, 2006

Zune and the Art of the U-Turn

Magic 8-Ball Answers Your Questions Regarding Microsoft’s ‘Zune’:
Q:  And so now that Microsoft is abandoning the licensing model (or at least deprecating it) in favor of a closed model that they completely control, will all those pundits who’ve been predicting doom for the iPod for the last four years declare that Microsoft, like Apple, is now making the same mistake with Zune that Apple made with the Macintosh in the 1980s? A:  DON’T COUNT ON IT.
Daring Fireball, right on the mark as usual. I expect that the usual pundits will claim that Microsoft's entry into the own-brand mp3 player market is a repeat performance of what they did to Apple on the desktop, when it's almost the polar opposite. On the PC Microsoft changed the business model from a proprietary closed OS (Mac OS and others) or a bought-outright OS (what IBM wanted with MS-DOS but didn't get) to a license-to-all-comers model. With a hard-to-use platform like the PC this worked beautifully (at least in business terms), freeing manufacturers from having to invest in software but forcing them to compete on price (and to keep outdoing each other in performance), while software companies (can we guess who that would be?) cashed in big-time on the huge expansion of marketplace for applications. As Roughly Drafted and others have pointed out, this platform and licensing model has failed on pretty much everything that Microsoft have tried to apply it to with the exception of PC Windows. It's failed for Windows CE and Mobile on PDAs and the mobile phone. It should hardly surprise anyone that the mobile device manufacturers want to avoid getting locked into a relationship like the one the PC vendors have with MS. Even on the desktop it only works while things are spiraling upwards: more desktops, more speed, more OS innovation, more application sales. Microsoft's complete failure to deliver Vista anything like on time or spec might be an indicator that the tornado has begun to die down. Hell, it might even be the cause of the slowdown. So now MS have been forced to completely abandon the model that common wisdom would say wiped out Apple's early GUI lead and adopt the very same end-to-end proprietary approach that Apple have used to build the iPod ecosystem (in the process screwing all the companies that bought into the Plays-For-Sure platform model). This of course is similar to the XBox, but there are important differences. For one, MS never had a platform license model in the game industry. Secondly there's never been a really successful platform license model in the game console market (even back as for as the home computer market - remember MSX?). Thirdly the XBox is a standard razor blades business model like all the other consoles - throw huge amounts of development cash at the hardware, stuff the boxes with cash, and make all your money from games licensing. This is exactly the opposite of the iPod, where the content has been priced to drive sales of (and profits from) hardware (this has forced Apple to design simple, relatively cheap devices and to make them appeal to the broadest audience possible - hence the lack of advanced features with geek appeal). So can Zune make the games strategy work for music? Will MS stuff Zune with $600 of hard-to-use technology selling for $250 and try to battle it out on features (wireless networking, music sharing)? Certainly there's no evidence that's what consumers are looking for in a music player (it hasn't helped Creative, and their shares didn't exactly rebound on the news of the Zune either). And while MS have deep enough pockets to make no money on either player or content just to put a cap on Apple's growth in this market they've shown little ability in turning expensive complex hardware into consumer-friendly devices. All of sudden, Microsoft isn't on home turf: I don't think we're in Kansas anymore Bill. The strategy that won the desktop won't work here, the battle for the home is far from done, and this is still Apple's game to lose.

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