In following the reaction to Microsoft's Zune announcement today, I came across this piece from Reuters claiming that Zune's wireless connection is one of the characteristics that make it an "iPod killer". So I started thinking about consumer usage scenarios, and suddenly ran into a brick wall.
Now first, credit where credit is due. Microsoft marketing has decided sharing is Zune's big differentiating characteristic, so they are emphasizing that characteristic in all of their messaging. That's good marketing strategy.
But stop and think for a minute. A consumer decides sharing is for them, and they run down to their nearest Best Buy on the day that Zune is actually released. There they plunk down their $299 (at least that's the price at which Crutchfield sells Toshiba Gigabeats), run home, load up their Zune with ripped CDs, and head out to their favorite hangout for a full night of music-filled sharing. Sounds great right?
Only problem: no one else there has a Zune to share with.
Do the math. Microsoft can probably ship at most one to two million units by Christmas, and that will be the peak selling season for the year. During that same quarter, Apple will probably ship anywhere from 14 to 20 million iPods to add to the 60 million it has already sold. So Zunes are going to be two to three percent of the installed music player base this year -- and that's about the best case scenario. How do you have a great sharing experience with only two to three people of out a hundred? You'll be lucky if you see anyone else with a Zune in the first year -- after all, that was the way iPods were in 2001.
And then think about the purchasing decision and the purchasing profile. These aren't inexpensive devices. They cost as much as an XBox 360 (and, if Microsoft decides they don't want to take a complete bath on the extra cost of WiFi, more than an equivalent iPod), and therefore, they aren't an impulse purchase. And while they are ramping up, for every Zune sold, five or ten other people will buy iPods because they are the obvious choice for a music player.
So let's recap. Microsoft's target market is a group of people who have high disposable income, like to think differently, enjoy sharing experiences, and like going against the crowd. This is actually a wonderful target market. We know a lot about them. In fact, they've created some of the highest profit margins in the entire computer and consumer electronics industry for a single company.
The only problem: they've been buying Apples for years. Oops.