iPod Wars: Microsoft and Toshiba Team Up Against Apple

Crunchgear.com confirmed from FCC filings that the first Microsoft Zune music players will actually be rebadged Toshiba Gigabeats. Now, it's no big surprise that Microsoft (MSFT) isn't making its own hardware, but Toshiba (TOSBF) isn't exactly a contract manufacturer like Foxconn or Flextronics either -- it has its own brand and marketing. So why would Toshiba be willing to suppress its brand in favor of Microsoft's in such a strategic market?

To answer that question, we have only to look back about a year or so in the next-generation high-definition DVD wars. When Blu-ray appeared about to apparently sign every known hardware manufacturer and studio to its Blu-ray DVD player, both Microsoft and Intel (INTC) went against the tide to sign up with Toshiba's HD-DVD player. Now Microsoft may have done this simply to avoid giving support to its gaming enemy Sony (SNE), but Microsoft rarely does any type of public business deal without asking for something in return privately. Our bet is that Microsoft called in this favor from Toshiba to have something to sell for the Christmas 2006 holidays.

L to R: Apple's iPod Video and Toshiba's Gigabeat

Which leads to an interesting question: If the Microsoft Zune is just a Toshiba Gigabeat, which was already a Microsoft music licensee, what secret sauce is Microsoft adding that will make Zune a success when Gigabeat sales have been, well, lackluster? Perhaps we'll find out in November. But as with the XBox launch and Sony's PS3, leaking the device and specs in advance is just going to make marketing it that much more difficult.

On the other hand, since Toshiba is the supplier of 1.8-inch hard drives to Apple for its iPods, the revelation that Toshiba products will be competing directly with the iPod may have repercussions. I'll bet that Apple (AAPL) is calling other hard drive suppliers this week asking how many 1.8-inch hard drives they could supply for Christmas. After all, last year Apple sold 14 million iPods just in the Christmas quarter. This year's target is undoubtedly even bigger. And after innumerable bruises from prior battles with Microsoft, Apple won't assume that its competitors will play fair.

AAPL-MSFT 1-yr chart:

Comments

[Asif Suria:]

Carl, check out the Sandisk Sansa e250. It has the potential to give the iPods a serious run for their money. Err, did I just say that? All Apple enthusiasts please ignore the last statement.

I already own a Sandisk Sansa as I wanted something that would work with Rhapsody To Go and noticed the e250 (there are 4GB and 6GB versions as well) when I went to pick up a Sansa M240 for someone. This is one of the few MP3 players from a company other than Apple that actually has the "cool" factor and costs less. As Rhapsody continues to gain traction (last I checked they had 2.25 million subscribers), I expect the Sandisk Sansas to do well.

I still don't understand why Microsoft decided to get into the highly competitive music download segment instead of acquiring a company like Real Networks.

2006 Aug 29 06:40 PM

[Tom B:]

"I still don't understand why Microsoft decided to get into the highly competitive music download segment instead of acquiring a company like Real Networks."

There's probably an ego issue involved; Real was founded by a former MSFT exec, as I recall.

I wish they HAD bought Real. I'd love to see that company become irrelevant. I hate their software. The only reason anyone would buy them would be to shut them down.

2006 Aug 31 09:09 AM

[Asif Suria:]

Thanks for the reminder Thomas. I do recollect now that Real was founded by a former MSFT exec. While I cannot speak for the Real Media player or their gaming arcade software (I have not used either in a long time), their Rhapsody service is very cool.

I used it for over a year before I decided to give Yahoo Music Unlimited a try in the hope that they might have artists like the Beatles and Led Zeppelin in their catalogue. I absolutely hated Yahoo Music and switched right back to Rhapsody even though it costs me almost 50% more.

2006 Sep 07 02:11 AM