updated 04:35 pm EST, Mon November 13, 2006
Zune holiday difficulty
Microsoft's Zune player is expected to hit store shelves tomorrow, marking the most legitimate competitor to Apple's dominance in the digital music industry so far. Senior analyst Gene Munster of research firm Piper Jaffray believes Microsoft has a lot of work to do before significantly impacting Apple's market share, however. "In the near term, we expect very little impact on Apple's holiday season iPod sales from Zune, given relatively low public awareness at this point," Munster wrote in a research note obtained by MacNN. Microsoft's launch of the Zune player and its music service tomorrow will have limited near-term impact on the iPod due to the initial limited usefulness of Zune's most touted feature -- the ability for Zune users to wirelessly share amongst each other. "If, at some point, there are millions of Zunes in the market, the wireless sharing capability may prove to be a more compelling feature," the analyst wrote.
Munster does not expect to see a material impact on iPod market share from the Zune over the next two quarters unless Microsoft begins a "massive marketing effort" within the next few weeks. "Media and analyst coverage of Zune has been high, but we believe public awareness of Zune is still low at this point and would need to grow significantly in the coming weeks for Zune to have an impact on this holiday season."
Microsoft is likely planning to spend multiple years developing various offerings under the Zune name, according to Munster, which translates into Apple still having clear room to grow its footprint and expand its offerings before Microsoft has a real foundation in the market. "Ultimately, it is possible that Microsoft will be better off for spending several years investing in this initiative, but unless Microsoft makes some inroads against Apple during the investment phase, it may prove to be too late to capture meaningful market share."
Microsoft is stressing the importance of what it believes consumers want in an online digital media service, placing significant emphasis on building an online community. Munster expects community features to become increasingly embedded in various services and devices via Wi-Fi, including Apple's iTunes, but believes the market is device driven and that Zune must capture customers from Apple to be successful.