Dark Side of the Zune

More details of the Zune media player from Microsoft have been released. By most accounts and blogs, it’s a ho-hum affair, as I noted in my last blog entry. Microsoft and its partners will be losing money this holiday season by selling it at the announced price (see Zune? It’s the Aboriginal word for “loss leader”).

Zune is priced the same as a 30G iPod, but includes quite a bit of installed music (which you may or may not like). You can “beam” music from your Zune to other Zune-carrying friends through its wireless connection, but this feature is likely to be marginal until more people adopt the Zune. You can’t copy any music you bought previously at an online store that uses digital rights management (DRM) technology — that means you can’t copy music you bought from Napster, Urge, Rhapsody, or the iTunes Music Store. The Zune is tied to a new Microsoft store and works with paid subscriptions for free music.

Microsoft is making the classic mistake of using price, features, and incremental improvements to compete against an established leading product. There is no breakthrough technology, pricing model, form factor, or leveraging position associated with the Zune. While I could buy a Zune and copy to it all the music in my iTunes library — except of course the songs I purchased from the iTunes store — I have no compelling reason to do so. At least not yet. The only compelling reason to get a Zune is if you don’t yet have any media player and don’t like Apple or don’t like the iPod and iTunes for whatever reasons (mostly “religious” — the Zune is not open, either).

The incremental innovation that Microsoft introduced with Zune is a cash system, already in use in the Xbox Live Marketplace and planned for use in other online stores, that works like a prepaid phone card. You add money to an account and points are deducted as you buy things. For example, a single song is 79 points, equivalent to $0.99. The cool thing about this is that you can give a gift certificate of points, which the recipient can redeem at different Microsoft online stores — possibly splitting the points between purchases at the online music store and purchases in the Xbox Live Marketplace or future Microsoft stores. In other words, it will act as a common global currency for Microsoft products.

And yet, this is more a convenience for Microsoft than it is for the consumer. It’s no big deal to offer gift certificates redeemable in cash in any affiliated store — it’s just harder to keep the accounting straight. And how hard will it be for people to divide 79 points into $0.99 per song?

iPod users will not buy it. Only those who have a beef with Apple and the iPod will cross over to the dark side.