A Look Back at Zune - From the Future

Includes: AAPL, MSFT
by: Larry Dignan

Microsoft (NASDAQ:MSFT) launched its second generation Zune amid decent reviews, a good bit of press and even a few personalized devices. But the MP3 game is a marathon not a sprint.

So after perusing the news a few reviews from CNET, Engadget and Gizmodo I just had to find out how this Zune thing played out. I hopped in the time machine and found a bunch of artifacts from the future, circa 2010-2012.

Things got a little suspicious when I saw this press release from the Microsoft folks. Date: Nov. 12, 2010:

REDMOND, Wash. — Nov. 12, 2010 — Tomorrow consumers will get their hands on the smallest, sleekest Zune’s ever. The updated Zune software and online services will offer gaming, music subscriptions–as if anyone downloads anything any more–and the latest in surface and cerebral interfacing technology. More than 2 million Zune’s have been preordered on Zune.net.

“Tomorrow brings our fifth generation Zune and consumers are lining up outside the Zune stores to get their hands on the No. 1 MP3 player in the market,” said Microsoft CEO J Allard. “The personal is now more personal than ever as we anticipate your entertainment needs through our cerebral interfacing software.”

Boy after reading that statement I was taken back by a few things. First, the Zune actually got some momentum. And then there’s the CEO quote. What happened to Ballmer? And how the hell did Microsoft get a CEO who not only doesn’t have a first name, but is too cool to even use a period after the initial. Talk about Wow!

So I fished a little more. And found this Wharton case study on the MP3 wars. The date: Feb. 20, 2011. Here are a few choice excerpts:

In many respects, Microsoft’s Zune playbook followed other products throughout the company’s history. At first, the product is lacking and far from the market leader. The second generation shows improvement with the third gaining market acceptance. However, the Zune’s big breakthrough came courtesy of Apple (NASDAQ:AAPL), which bet entirely on music and video downloads. The company’s reluctance to offer a subscription service turned consumers away from the iPod. Meanwhile, Department of Justice proceeding against the iPod/iTunes link hampered decision making at Apple.

Ok, so music subscriptions helped turn the tide. But how did Microsoft actually get this consumer thing down? Turns out that ditching brown as a Zune color was only the beginning. Luckily I found this passage in the case study.

After Google took away much of Microsoft’s Office cash cow, the software giant doubled down on its consumer businesses. The company was still large, but management became decentralized into small teams. In many respects, Microsoft became an incubator for new businesses. The Zune was one of the early efforts. Once this model took off for Microsoft it was clear that Microsoft CEO Steve Ballmer was no longer needed. He retired to lead a dance troop. Microsoft named J Allard CEO in January 2010. Allard became the first CEO in U.S. history without a first name.

Well that explains a lot. I always thought Ballmer’s calling was dance anyway. Nevertheless, I was still skeptical about the Zune becoming such a hit–until I found this press release from NPD. Date: April 20, 2012.

Port Washington, NY, April 20, 2012 – According to a new report from the NPD Group, a leading consumer and retail information company, sales of Microsoft’s Zune are outpacing Apple’s iPod by a 5 to 1 margin.

The latest sales data indicate that the Zune has a 40 percent market share and the iPod commands 30 percent. This is the first quarter where the Zune has led the iPod in market share.

I know. I know. This is fiction. Dignan has spent too much time at the pub (again). It is quite hard to believe. But I’ve seen the future and the Zune turns out a helluva lot better than you thought it would.