The Chances of Zune's Success

PERSPECTIVE This week's revelations from Microsoft concerning its forthcoming Zune portable media player constituted, as the Washington Post's Ben Bradlee put it, a "non-announcement announcement." While some consumers may be more excited about the Zune today than they were on Wednesday, none of us know yet: 1) the price; 2) the date of final availability; 3) who will be providing content for the Zune Marketplace.

A spokesperson for Microsoft confirmed to BetaNews yesterday that the Zune player will not use Microsoft's own PlaysForSure DRM scheme. While it will play Windows Media audio (WMA) and video (WMV) files, the same DRM scheme that will make Windows Media Player work with PlaysForSure-supporting devices such as Creative's Zen series, will not be used for Zune.

Instead, although Zune's software bears a striking resemblance to WMP 11 with a fresh skin, the spokesperson told us, Zune will use its own software for Windows, which will be separate from WMP and tightly integrated with services such as the Zune Marketplace.

For some, it is a baffling decision. While up until this summer, at least, Microsoft had been working to provide supplemental marketing and support for PMP vendors such as Creative, iRiver and SanDisk who would otherwise have had to go it alone. Now, the Zune could emerge as their own fiercest competitor, and analysts are wondering to what extent Microsoft will continue to support PlaysForSure.

"It's certainly an unusual situation," remarked Ross Rubin, director of industry analysis at NPD Group. Typically, Rubin said, there are two business models for personal media player vendors: One is the Apple model which has extensive vertical integration -- meaning, it owns its production chain and it also owns the distribution channels that support it -- and thus, no licensing is involved. The other model has typified the PlaysForSure strategy to this point. It involves alliances, partnerships, consensus, and plenty of licensing among all the parties involved.

Maintaining both models simultaneously - trying to be both vertically integrated, while at the same time pursuing licenses - may become impossible over time, Rubin believes. A similar situation befell mobile services company Palm in 2003, leading them "to split out the PalmSource operating system into a separate company, when they were trying to expand the market and get new licensees," Rubin added. As a result of that spinoff, PalmSource now finds itself competing with Microsoft in getting its operating system onto the very machine with which it shares a name.

But there might be a difficulty with simply throwing out the second model, and concentrating on just the first one.

"Companies always face a tougher road when they try to drive their own standards through the market," Info-Tech senior research analyst Carmi Levy told BetaNews. "If Microsoft is going to toss PlaysForSure and Windows Media Player aside, despite all the years of investment that they've put into them, they do so at great peril and great risk. The market is still figuring out what DRM methodologies and schema make the most sense for owners of content, distributors of content, device manufacturers, and consumers."

"And the answer is still not there yet," added Levy. "So if you pitch something out the window before it's had a chance to take root, and try to introduce something else that's proprietary, you run the risk of isolating yourself."

Rather than carve out a hybrid approach, Zune will attempt a more vertically integrated model, similar to what the company already does with Xbox and Xbox 360. It's no surprise that the face behind Zune, Microsoft's J. Allard, was also behind the new Xbox. In so doing, however, it introduces yet another DRM model to a market full of content providers who are already confused by the existing ones.

"As we've seen, this is one of the most contentious issues in the entertainment industry today," remarked Levy. "This is something that's probably not going to be resolved any time soon, and I think, if they're going to make an announcement on DRM, Microsoft wanted to make sure that it's final and that it's fully baked. The truth of the matter is, at this point in time, it's probably not fully baked."

"But at the same time, they didn't want to hold off on starting to generate hype for Zune any longer. So they're forced to make half of an announcement, but half of an announcement on the device is better than no announcement at all."

By contrast, Rubin contends Microsoft "baked" its approach a little more than Levy and others believe. Rubin argued Microsoft could actually take advantage of simultaneously supporting PlaysForSure and Zune, by developing both product lines into a Radio Shack-like, two-tiered "better" and "best" marketing scheme. "You'll have a good experience with PlaysForSure on your Windows," Rubin said, "but you can have an even better experience with Zune."

Next: Where's the zip in Zune?