Microsoft eyes new Zune players in battle with iPod

Analysts aren't sure new players will help in the fight

More types of Microsoft Zune music players are in the works, but some analysts are unsure whether new designs or functions will significantly boost Zune's popularity.

Microsoft Corp. sees three main categories in the sector, and all of them are important as the company develops new Zunes, said Chris Stephenson, general manager of global marketing for Zune. The three categories include higher-end video players, midrange music-centric devices such as Apple Inc.'s iPod Nano, and low-end USB devices such as the iPod Shuffle, he said.

"We think of [the Zune] as a broad entertainment offer that is driven by music at the moment," Stephenson said. "We will start to play more aggressively in a broader number of categories." The current Zune is just the "tip of the iceberg," he added.

In the next month or so, Microsoft plans to reveal more of its vision for the future of Zune, Stephenson said.

James McQuivey, an analyst at Forrester Research Inc., isn't so sure that a very low-end version of the Zune comparable to the Shuffle will help. "I don't personally see that as something the Zune should do next. Zune should first worry about getting a base of users of both flash and hard drive versions before experimenting with little companions."

He said most users of Shuffles buy them essentially as companions to a larger iPod.

However, Microsoft could plan on selling such a lower-cost product as a way to quickly boost its user base "so no one counts them out," Stephenson said.

The Zune is currently a distant second in portable music player market share, behind Apple.

Developing a player like the Nano, Apple's flash-based best-selling music player, would be a good idea for Microsoft, said Michael Gartenberg, an analyst at JupiterResearch LLC. "If they're going to compete with Apple, they're going to need something that competes directly with the most successful in the line, and that means a flash-based player" like the Nano, he said.

Beyond the design, Microsoft is also likely to expand the Wi-Fi capabilities in the Zune, Stephenson said. Without revealing specifics, Stephenson described possible scenarios that are being discussed, such as enabling Zune users to download music over Wi-Fi in public hot spots or to sync with their PC-based music collections while at home.

Currently, Zune users can use the Wi-Fi connection only to share music with other Zune customers.

But even expanded Wi-Fi capabilities may not be enough to draw new buyers. Connecting a Zune to a home or public network could be technically difficult for some users, McQuivey said. "If you have the kind of know-how to do that, you're the person who bought an iPod four years ago," he noted. "So how do you grow beyond the iPod footprint? I don't know the answer to that."

While Microsoft has the resources and the talent to develop cutting-edge products, it's not clear that the company will manage to hit on a winning product or service. "They're going to have to find ways of being where Apple isn't and find ways of growing the overall market," Gartenberg said.

Copyright © 2007 IDG Communications, Inc.

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