Sunday, July 23, 2006

Zune

This is the story of a company with a cute logo and an insanely great (in some ways - not so much in others) CEO. The CEO unveils a killer product that captures the hearts and minds of the entire nation. But then along comes another company with a CEO who is so cunning it's scary. According to legend, he somehow convinces the first CEO to give him a couple prototypes of the product, and his company proceeds to reverse engineer it (albeit slowly) and build a competing one. The company understands the power of creating an open system and foresees the commoditization of hardware. With this insight, its product proceeds to conquer and rule the industry, despite its technical inferiority, leaving the first company to slowly wither away. It does just this, until it is saved by yet another killer product in a completely different field...

Side note: I write this blog for the Valley-savy, but I realize most of you are probably college kids who didn't grow up with stories like the one above, so I'll explain. The two companies are Apple Computer and Microsoft, respectively, and the tale refers to the OS wars, which Microsoft won by eschewing Apple's proprietary philosophy and allowing others to build the hardware and develop software, among other things.

Funny how history repeats itself. Just a few days ago (sorry, this post is late because the draft I was working on got deleted), Microsoft announced Zune (click for details), a hardware and software package aimed at the heart of Apple's iPod. Reactions have been mixed, but the majority opinion amongst pundits is that Zune will have a hard time catching up to the iPod.

I disagree, and history is on my side. The parallels with the OS wars are eerie. As long as Microsoft thoroughly analyzes the industry conditions, they should be able to build a product to knock off the iPod. They must recognize and capitalize on their inherent advantage: Windows (and Vista soon). Their product should offer an integrated solution (not unlike Apple's iPod/iTunes) and interface that ties in with the OS. Cool features are a must, but following through on this advantage will set them apart. Apple should be scared.

A caveat, though. Microsoft should realize that hardware isn't the path to victory in the industry. The iPod is nice and very much in vogue today, but its days are numbered even without Zune because commoditization will set in. The principles that governed the OS wars will also come into play here (software over hardware, open system, etc.). Apple has already made the mistake of creating a closed system around the iPod (they make the iPod and every related product, much like they tried to do with the Mac), Microsoft should not follow suit. The greed to capture every penny of profit in the marketplace has sunk many companies. Microsoft should be wary of delving into the hardware world, one that has not treated them kindly in previous forays.

All in all, this should be fun to watch.

8 comments:

  1. No, the parallel to the OS wars was dead-on accurate (eerily in your words) when Microsoft was promoting their Windows Media/PlaysForSure software with a multitude of hardware producers and content providers. That, needless to say, has proved to be a failure, and now MS is switching gears to the vertically-integrated model--a model in which they have little experience, and none profitable. Simply put, MS is bad at this, whereas it has been Apple's modus operandi for the last three decades.

    This is the equivalent of if Microsoft were to have abandoned Windows and created their own vertically-integrated Microsoft Computer (and I doubt the name would have been much more creative than that, either).

    The Microsoft model of openness may have worked well in the PC industry, in which most sales were corporate and the 'total user experience' didn't matter, and there was an IT department to ensure that these very non-seamless products from different companies work smoothly together with a minimum of errors.

    But seeing as an ever-present IT department cannot exist for a singular consumer product, the snags of making multiple round pegs fit into square holes will prove difficult and most definitely not graceful. And now the user experience--hitherto the result of 3 competing visions from hardware maker, OS maker, and software maker, replete with overlaps they all did and gaps they thought the other would do--actually matters as the consumer is making the purcahsing decision and places more value on aethetics and experience than corporations did (which is to say, anything above zero).

    Seeing as they cannot benefit from Windows integration this time around (unless they start throwing a Zune in every Vista box), they have to compete on their own merits--the same merits that generate such unprofitable disasters as

    -MSN TV (attempts 1 and 2)
    -XBox (losing billions with no sign of stopping)
    -Windows Mobile smartphones (cannot touch Symbian--and is losing money)
    -Origami (just taking off)
    -Tablet PC (nice but unprofitable)

    Besides, Microsoft has a cool factor that puts it in a 3-way tie with the Pennchants and a Ford Taurus.

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  2. I have to side w/ Ravi here. The parallel w/ the OS is probably right. The important distinction here is who is going to win the music distribution platform - its irrelevant who wins the hardware battle.

    Unless iTunes opens its platform, Zune will probably win. This is because Zune's open platform will allow users to d/l songs and play it anywhere (CD player, iPod, Zune player, etc...) while iTunes only allows for music downloaded to be played on iPods. With a large, open alternative, why would anyone use iTunes? - especially given the market exposure that Zune will get through Microsoft's marketing and software distribution channels.

    Furthermore, iTunes has run into a whole spat of legal problems with its closed platform (it was banned in France and some Scandinavian countries) because it violated various IP or privacy laws (can't remember which). An open platform for music distribution will absolutely win. Hopefully Jobs won't make the same mistake and lose to MS twice.

    -the G. Su

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  3. Nice comments guys. Janus (who is Cletus, who is John) makes some good points. And I agree that if Microsoft attempts to vertically integrate, they will lose. My point was that they don't vertically integrate completely, hence not making the same mistake Apple does.

    For example, the software accompanying Zune shouldn't just allow for sync-ing with the Zune player, but rather support as many players as possible. Doing those kinds of things will preserve the open platform Microsoft needs to win.

    Something I completely forgot to add is that this is a all a little meaningless. In a few years, we'll be able to fit those 30+ gigs on a cell phone, and no one will want "just an MP3 player" anymore. Seriously, can you imagine us having to carry a separate piece of hardware just for songs (and maybe mediocre video) in 2 or 3 years time?

    Hopefully, Zune and iPod are prepared for the inevitable.

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