Pushing Zune: Is Microsoft fighting an uphill battle?

When Microsoft on September 15 launched its next-generation Zune HD media player, the software giant billed the device as “a significant step forward,” touting its ability to play high-definition (HD) video and receive HD radio signals, along with a state-of-the-art, organic light-emitting diode (OLED) screen.

Experts at Wharton say that the Zune HD will need to be a big step forward in the eyes of consumers, because it faces the nearly impossible task of competing against Apple and its iPod player.

“The iPod is clearly the leader,” says Lawrence Hrebiniak, a management professor at Wharton. “The iPod has become the generic name for this type of product, like Xerox and Kleenex [became for their product categories].”

Microsoft’s Zune line of music and video players debuted in 2006, but it has failed to capture significant market share.

According to research firm NPD Group, Apple’s iPod had 73 per cent of the market as of July 2009. Milpitas, Calif.-based SanDisk had nine per cent of the market, followed by Sony at three per cent.

Microsoft trailed with two per cent. Peter Fader, a marketing professor at Wharton, says that Microsoft’s Zune HD has no chance against Apple.

“The Zune does a lot of marginal things well, like digital radio, but none of them is enough to get a consumer to say, ‘Hey, I’ll buy that thing,’” Fader notes. “The Zune HD is absolutely doomed to fail, and I don’t think Microsoft should continue to push in this direction.”

Other experts at Wharton stopped short of saying Microsoft should give up on the Zune, but they question whether the company is wasting resources by chasing the iPod juggernaut, which Apple refreshed earlier this month by adding a video camera to the popular iPod Nano.

Meanwhile, Microsoft has cut the Zune lineup to one model, the Zune HD.

The company previously offered Zunes at multiple price points and configurations.

“Microsoft has to ask whether the Zune is strategically important,” Hrebiniak says.

Microsoft, however, is likely to continue with the Zune experiment, largely because it is showing improvement with the device —at least from a product perspective, say experts at Wharton.

The Zune product evolution follows Microsoft’s usual playbook: Start out with a so-so device and improve each generation. What’s unclear is whether the new HD features will be enough to help the device gain traction.

“Somewhere in there is a business strategy for the Zune,” says Kendall Whitehouse, director of new media at Wharton. “Microsoft will try and try again and throw money at it until they get somewhere.”

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