Is Microsoft Ready to Throw in the Towel on Zune?

Is this the beginning of the end for the Microsoft Zune? In a story about Microsoft’s (MSFT) quest to beat Google (GOOG), the Financial Times writes that Steve Ballmer seems “all but ready to throw in the towel on the Zune,” which hasn’t come close to being an iPod killer. The piece hints that Ballmer is more interested in the music player business from an angle that Microsoft knows well - software.

As products like the iPod Touch and iPhone hit the scene - as well as the Blackberry Storm and other smartphones with media playback capabilities - it appears that the push is toward general purpose devices that can not only play music but can also run apps over a WiFi or 3G connection. Like making phone calls, playing music becomes simply one element of a device - not its sole purpose. That’s not to say that anyone should expect a Zune phone anytime soon. Ballmer tells the FT: “You should not anticipate that” but adds that the company will stick to its strategy of developing software for a range of mobile devices.

Are partners willing to stick by Microsoft in this space? After all, weren’t partnerships the core of that short-lived

“Plays for Sure”

initiative, the one that’s become “Certified for Windows Vista.”

Some argue that

partners like MTV pulled the plug

on Urge because Microsoft abandoned Plays For Sure. Regardless, in this climate of consumer spending, Microsoft is probably better off cutting its losses on the Zune and shifting its focus to areas where it can have an impact - software and online services.

It reminds me a bit of what happened with Creative and its Zen player. No, Creative didn’t abandon its line of music players. But it also recognized there was an opportunity to offer what it does best - high-quality sound systems - and tie into the iPod. Today, Creative still has music players in its lineup but it also has iPod speaker systems. Just this week at CES, Creative continued the “if you can’t beat ‘em, join ‘em” push by introducing SoundBlaster for iTunes.

That’s not to say that someone out there still can’t unseat the mighty iPod. But it just might be Apple (AAPL) that does it first - by launching new variations of the iPod Touch instead of the iPod Nano. Remember: DRM on iTunes is soon to be a thing of the past; variable pricing is the future of iTunes; and downloadable apps are where the real growth is. It seems that Apple has a jump start here and others - RIM’s Blackberry, Google’s Android and now Palm’s Pre - are right behind.

Has the track become too crowded for Microsoft to gain any ground in this race?

Comments

[Jonathan Scott:]

Microsoft is not narrow minded enough to cancel the Zune. Microsoft will continue zune's life until and after zune finds its place in the digital ecosystem.

It also keeps Microsoft's R&D alive by having products with different DNA. Microsoft enjoys a broad gene pool of products because no one knows what natural selection will value next.

Jan 11 03:19 PM

[Network Effect:]

LG Display said in a filing to the Korea Exchange that it would receive a $500 million advance from Apple during the month of january for a deal to buy LCD panels.

... do people still think Jobs really sees Apple TV as a hobby or is that starting to look more like a smoke screen? Just like the App Store wasn't going to be a profitable part of the iPhone business, right?

Jan 11 07:38 PM

[Zoltan L. K...:]

MSFT came too late to the iPod show and the market it envisioned is alredy a mature one. To stay ahead of the game one has to innovate like Apple. An imitation strategy is just not working.

Jan 12 01:26 AM

[Josh Thompson:]

"MSFT came too late to the iPod show" = There is no such thing as coming too late to a technology market since technology reinvents itself every few years.

Jan 12 01:49 AM

[Ishortyou:]

Microsoft is facing a lot of challenges and so far is failing to adapt their old churning bullying business model stop working years ago, unless they change strategy they are doom imo.

Jan 12 07:54 AM

[Tom B:]

They haven't abandoned XBox, and I doubt they're smart enough to kill Zune, either. They're like a pit bull. Without lipstick.

Jan 12 12:25 PM