Microsoft’s ‘iPod killer’ the Zune was launched to much fanfare in the US in the middle of November. Make no mistake this is just another portable music player. It has one or two unusual treats such as the ability to stream music from one Zune player to another but it is nothing out of the ordinary. Yet for Apple, it could spell disaster as Microsoft launches a spoiler of sorts against Apple’s plans to dominate the digital home entertainment space.
And the reason for Microsoft’s impending success: no, not the hardware itself but the generous commercial incentives it has offered to the record companies themselves – the owners of the content which consumers crave.
De facto standard
Competing against the ‘de facto’ standard iPod and the iTunes music store, Microsoft has to be generous to the record companies and when the Zune was launched, the company agreed to pay a licence fee to Universal Music for each Zune player that was sold. This is radically different model to Apple which only gives a revenue share to music rights holder based on sales of music and video file downloads. Microsoft is clearly taking advantage of Apple’s Achilles heel – its combative relationship with the major music labels. Microsoft will benefit from receiving exclusive content from Universal to draw new users to the Zune service. Apple may have a 70% share of the music player market but its executives have been keen to keep content providers at arms length and have resisted pressure to introduce tiered pricing for songs. Microsoft, coming from behind, will certainly be more flexible in involving the content providers and giving them a larger slice of the cake if it helps Microsoft gain market share rapidly.
Underlying strategy
Behind the smoke and mirrors, I don believe there is something bigger at play here for Microsoft. Just as it has gained dominance in the office and study with the desktop PC, Microsoft is looking to establish a foothold in the entertainment space – your living room. Microsoft’s Media Center experiment – its idea the PC has a hub of TV and audio entertainment – has so far failed to capture the consumer imagination. It is experiencing greater success with its Xbox 360 games console and its Xbox Live online entertainment environment. Its biggest threat in the space comes from the creator of the iPod and iTunes.
Apple creates market for digital entertainment experiences and once its launches its music and video streaming box from iTunes to the TV or Hi-Fi, it will have a golden opportunity to win the dominant mindshare as the primary brand for digital home entertainment. Zune and its incentives to the record companies is just one sortie against Apple’s ambition – hurt its iPod business and you make it more difficult for the corporation to proceed with its plans. Likewise, it has just been announced that the Xbox 360 games console will be used as a delivery mechanism for video on demand services in the US so it’s a multi-pronged attack by Microsoft.
One has to commend Microsoft for launching the Zune and for better incentivisng the record companies to deliver more and less expensive content. Apple has to be resented for trying to proprietise the digital music market and for offering such expensive single digital tracks. Competition is always good and Microsoft’s latest advancement could be the straw that breaks the straw of the Apple camel’s back.
Subscribers 0
Fans 0
Followers 0
Followers