December 27, 2006 10:27 pm

Apple remains unfazed by march of Microsoft’s Zune

Five years after its introduction, Apple Computer’s iPod digital music player still reigns supreme despite the launch of dozens of rivals.

Last month’s debut of Microsoft’s Zune player poses perhaps the biggest challenge to the iPod’s dominance and pits the two companies against each other in this market for the first time. But Apple has a big head start.

It has sold about 70m iPods over the past five years, giving the California-based company the lion’s share of a booming market that encompasses not just the players but the iTunes online music store.

The iPod’s success has also spurred the emergence of a multi-billion dollar self-perpetuating iPod “ecosystem” of an estimated 3,000 peripherals, from protective cases to amplified speakers and earbuds.

This, coupled with the tight integration of the iPod player with iTunes software and the online iTunes music store, represent significant hurdles for new entrants – even the mighty Microsoft. Despite some interesting features in the Zune player, including a significantly bigger screen and an FM radio, which the iPod lacks, most analysts, including Ovum’s Carl Gressum, believe Microsoft will have an uphill battle against Apple and its wider range of products.

Barring the imminent launch of a wireless iPod, the Zune’s big selling point is the ability to share music using a wireless network connection. Unfortunately, as Mr Gressum and others point out, even this has its limitations. Music transferred this way works for three days, or the music can be played three times, whichever occurs first.

Like the iPod, Zune uses proprietary digital rights management technology. That means protected music must be downloaded from Microsoft’s online music store and subscription service.

It is bulkier and heavier than the iPod and comes in one version, a 30-gigabyte (Gb) hard drive model which costs $249 and is capable of storing about 20,000 tracks.

In contrast, Apple offers both 30Gb and 80Gb versions of the hard drive-based iPod, as well as a range of tiny flash-memory based devices, including the very successful iPod nano.

Analysts believe that if Microsoft is to succeed in the portable player market – where several other big name consumer electronics vendors have foundered – it will need to broaden its player range and launch the Zune outside the US.

Because it lacks a distribution partner for digital music in Europe, it has not introduced the Zune there yet, nor in the Asian market.

Predictably, perhaps, the Zune has had a mixed reception, prompting analysts to forecast that Microsoft needs to make tweaks in the New Year, such as new versions of the player and more wireless features.

Microsoft “has to build momentum” to establish Zune as a music platform to rival iPod in the long term, said Mike McGuire, an analyst at Gartner, the technology research company. “If they don’t make a dent this Christmas, they’ll have to move fast” to improve the product.

The latest available data, from the NPD Group market research firm, shows that Microsoft ranked number two for hard disk drive-based digital media players in the US in November, with a 9 per cent market share.

Apple’s share of the hard drive player market slipped to 82.7 per cent from 86.8 per cent a year ago. But Apple’s share of the overall portable digital player market – including flash memory devices such as the iPod nano and SanDisk’s Sansa – is still a healthy 62.2 per cent, similar to a year ago.

By contrast, Microsoft’s 1.9 per cent share of the overall market barely makes it on to the radar screen. But Microsoft said from the outset that it had fairly modest ambitions for its first player.

Commenting on early sales data, Jason Reindorp, director of product marketing for Zune, said: “We are happy with the position Zune holds in the market and are on track to meet our sales projection of 1m units by end of the fiscal year.”

Senior Microsoft executives have also made it clear that the company sees the player as an evolving portable multimedia platform.

Analysts also point out that Microsoft has enormously deep pockets and a record of tenacity. “This is a first step,” Current Analysis research director Samir Bhavnani said. “Traditionally, it takes Microsoft two or three go-arounds before they get something right.”

For its part, Apple could use next month’s Macworld show to launch new iPods and may even announce the iPod phone, expected in 2007.

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