http://www.winsupersite.com/showcase/zunestory.asp

www.zune.net

Late last year, Microsoft launched its new mp3 player, “Zune”, with an interesting catchphrase - “Welcome To The Social”. Its new, killer-app-wannabe technology was a system to interact wirelessly (using 802.11b) with other Zune users to download and listen to music that they had on their own Zunes.

Unfortunately for Microsoft, they’re fighting a hugely uphill battle against Apple’s iPod, attempting to defeat a network effect (iPod’s are cool) that has so far defeated all other comers (Apple’s marketshare has remained sky-high, despite numerous attempts by other manufacturers to break into the mp3 player market). And to do so, Microsoft is relying on its own own network effect (I can share my music with my friends).

Though very much a long shot, the idea is quite simple. A few friends get Zunes, which can share music with each other wirelessly. They benefit from this sharing, and others perceive the benefit, so they decide to get Zunes. This repeats, and soon Zune has replaced the iPod as the market leader.

Of course, we don’t see this happening right now, for a handful of reasons.

1. Wireless sharing isn’t as compelling as Microsoft hoped it would be. People haven’t been demanding this feature, and are quite content with their wireless-sharing-less iPods right now.
2. Wireless sharing isn’t as useful as it could be. Microsoft is restricting sharing to certain songs, and those can only be listened to (on the 2nd Zune) 3 times over 3 days.
3. The iPod is too strong, is only growing stronger, and has saturated the market. That is, Microsoft has to not only persuade new mp3 player users to buy Zunes, but to persuade current iPod users to switch (an ironic direction, isn’t it?).

So to “win”, Microsoft needs to either 1.) drastically improve its wireless feature (to take advantage of the network effect) or 2.) set itself apart from the iPod with other, superior features (which it already has some of). As the article linked to at the top concludes, TiVo was an insanely popular device that is in trouble now from commoditization and the introduction of other comparable devices. That’s what Microsoft needs to be hoping for.

The point here is that while it may be impossible for Microsoft to dislodge the Mac faithful from their iPods, that’s a very small group of people anyway. The iPod, ultimately, is like the TiVo. That product, too, was off the scale for customer satisfaction. But today, the DVR pioneer is struggling because the DVR market is becoming commoditized thanks to integrated DVR solutions offered by cable and satellite providers and PC-based solutions like Windows Media Center. See a trend anywhere? If it can happen to TiVo, it can happen to the iPod too.

The only problems here are the high popularity and penetration of iPods, and the network effects surrounding them. Sure, TiVo was cool, but it was hardly a fashion accessory.