The Chances of Zune's Success

It may not be fair to criticize Microsoft for not divulging every little detail about Zune on Thursday. After all, Apple is the acknowledged master of teasing its customers with nothing.

"Apple has raised expectation setting to a high art," said Levy. "Even if they have nothing to announce, they often do it with such flair that, quite literally, they will have the masses just hanging on their every word. Whereas despite Microsoft's relative size and the depth of its resources, Microsoft has not been a major player in the consumer electronics space to date."

In fact, this is actually only the second major consumer product line Microsoft has ever launched (although some at Microsoft would count mice and keyboards). In the face of new competition from Microsoft's former partners, the company must now find a way to distinguish Zune not just against iPod, but on its own merits. What is it that makes the Zune more than just another MP3 player?

Levy has one potential candidate: the pricing model for Zune Marketplace, which he believes to be unique among any other service in this category. While Microsoft omitted details there as well, Zune Marketplace users can opt to purchase songs a la carte or to subscribe, but may also employ what's called a "Zune Pass," to purchase a block of time during which they can download all they want.

"When Apple first launched the iPod, it wasn't so much about the hardware as it was about the 'triad' of the device, the iTunes software, and the iTunes store," Levy reminded us. "Microsoft is hoping as well that the market looks past the hardware - which is differentiated slightly, but not in a revolutionary manner - but to its pricing model, which truly is a large step forward compared to all the other online stores that are currently out there. Right now, Microsoft has the bragging rights to say they were the first ones to move forward with all-in-one pricing."

NPD's Ross Rubin completely disagrees. From his perspective, both the Zune Pass model and the vertically-integrated business model pioneered by Apple are not only less-than-revolutionary, but downright ordinary. "It's just more of a question of whether the business model is sustainable," Rubin said, "and it doesn't sound as though Microsoft is looking to do anything that unusual in terms of the business model."

Later, Rubin added that any distinction between the Zune Pass pricing model and what Napster or others provide today is "almost semantic."

Presently, there are two classes of iPod/iTunes users, Info-Tech's Levy believes: There's one class who entered the iPod market having already owned hundreds of CDs, and who then immediately transferred as much content as they could.

Then there's another class who belong to a younger demographic and who don't own a lot of CDs today, not so much because they're young but because they're money-conscious. While that latter class might appreciate the ability to tote a device that holds as many as 7,500 songs, as Microsoft claims, they don't exactly have $7,500 lying around at the moment.

In turn, Levy feels the Zune Pass model could appeal to a new and intermediate class of PMP consumer. "For someone who isn't rolling in money, who's a younger demographic because they have less disposable income, or they won't spend it on content," he told BetaNews, "this is a compelling way to get them up to speed much faster than they would if they were just following the traditional iPod model."

Jupiter Research analyst and vice president Michael Gartenberg is looking to Zune's sharing features as a differentiator in the marketplace. "It's an important feature that isn't in the iPod and will likely have some appeal to the target demographic of 18-24. We know that sharing files legally device to device is of interest to about 11% of consumers and in the 18-24 range jumps to about 18%," he said.

Next: Zune vs. iPod...or Zune vs. Zen?