- Summary: Microsoft, RealNetworks, SanDisk, and Samsung think they have figured out a key element of Apple's success with its iPod portable music player and iTunes downloadable music store. The strategy is to sell an MP3 player that is designed to work with a specific music download service. Microsoft VP Bryan Lee comments, "That's something that Apple has played up very well. One brand, one device, one service." Over the past two years Apple has held on to its dominant 75% market share with the only serious move being made by SanDisk which has grown its market share to nearly 10% from just 3% in 2005. SanDisk and RealNetworks have teamed up to market the new Sansa Rhapsody device that will have the same sales prices as the original Sansas. Microsoft has worked closely with Toshiba to create the forthcoming Zune portable media player with Toshiba handling hardware manufacturing and Microsoft responsible for design and promoting its online entertainment service.
- Comment on related stocks/ETFs: It's almost painful to read about some of the mishaps of RealNetworks (RNWK) and Microsoft (MSFT), which makes it easy to understand why Apple (AAPL) has had so much success. Now the iPod wannabes are hoping there are enough people left without an MP3 player and enough people willing to switch, for them to make a dent in Apple's market share. Carl Howe of Blackfriars Communications calls Microsoft's Zune a rebadged Toshiba Gigabeat. See his analysis of how Apple could be the grinch that steals Microsoft's Christmas. Howe also writes on the new iPod pricing saying it "... cut off Microsoft's Zune at the knees." Andrew Schmitt of Nyquist Capital says Microsoft's Zune strategy is incomprehensible. Barry Ritholtz questions Microsoft's innovation but emphasizes its money printing prowess. Whereas some investors might consider buying shares of Apple because of the iPod there's the case being made that one wouldn't buy Microsoft for the Zune. RealNetworks has also been keeping busy with an acquisition and an attempt at home audio.
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