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What is a Zune?
Microsoft Zune was a constellation of products and services created as a beachhead in the market for digital entertainment previously and still dominated by iTunes and the iPod by Apple. With Zune, Microsoft has attempted to win some market share from Apple by creating an integrated handheld, PC and Web ecosystem. As their current product webpage1 says, Zune is everywhere you are. Microsoft has made several attempts to provide media playing software for streaming through their PC channels, but has had limited success. Their products have been sleek and usually quite excellent from a technology point of view. However they have had several resets over the years and have not made significant traction. Their history of software for handheld products based on the Windows CE operating system and successfully became an alternative to the original non-phone Palm handheld devices. With the popularity of the Rimm Blackberry handheld and later the iPhone, simple handhelds became obsolete. Zune was announced in September 2006 to much fanfare2. The product was released on November 14th, 2006. The battle for digital entertainment was joined. The initial Zune 30 handheld was a brick-like device not dissimilar to the original iPod. It had some innovative sharing features hitherto unavailable on any other handheld players. It came in 3 colors, Black, White and Brown. This was coincident with the release of the LG Chocolate Phone, and that 3rd color seemed like a direct response to a perceived opportunity (or threat) from the phone market. However, by early December 2006, the buzz had worn off as a result of decisions and adoption issues overlooked by Microsoft. Within a day of the November 14th announcement, it was discovered that the Zune was incompatible with music that was already on users Vista machines.6 On December 2nd, analysts were pointing out that the holiday sales of the new need to have device were off to a slow start and that the device was not necessarily targeted correctly.7 By Mid-December 2007, even Microsoft was backtracking on the Zune plan by pointing out the Zune was a 1.0 product and that this slowness in adoption was expected. Finally in February 2007, Microsofts executive in charge of the Zune, Bryan Lee, announced he was leaving to pursue personal interest. 8 Microsoft continued to upgrade the Zune ecosystem with new products and services, and in 2009 announced the Zune HD. The Zune HD again has technologies that the iPod and iTunes do not have such as handheld HD video playback, music rentals and a subscription service. The new model is sleeker than the original Zune 30 but now is competing against the iPhone and iPod Touch twin juggernaut.
PF506 Introduction to Marketing Management 4As Analysis of a Marketing Failure: Microsoft Zune
Microsoft vice president in charge of the Zune product line.3 Prior to the introduction of the iPhone and iPod touch, music sharing was an affair of conversion and transport via other media (thumb drives, CDs, email for example). In this sense, Microsoft was appealing to what appeared to be a legitimate market gap. In order to get around this, Microsoft allowed songs to be transferred wirelessly between Zunes that were within 30 feet of each other.5 The other market that Microsoft was appealing to was the broader digital music market, which in 2006 also included Sony, Amazon, Creative and Wal-Mart in various forms. These vendors had a hodgepodge of services and allied devices that they tried to knit into their branded coherent offerings. Microsoft, with the Zune 30 and Zune Marketplace seemed to trying to show that it could provide and end-to-end experience matching the closed system of Apple rather than the device agnostic experience that the other vendors attempted.
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PF506 Introduction to Marketing Management 4As Analysis of a Marketing Failure: Microsoft Zune
PF506 Introduction to Marketing Management 4As Analysis of a Marketing Failure: Microsoft Zune
is familiar, and the media now is more convenient. People have always owned their music libraries so this model would make the device psychologically unaffordable even if economically acceptable. Why pay for music I can rip from a CD that I borrow from the library or a friend? My suspicion is that this feature is underutilized. My affordability rating: 75%
Twenty percent MVC is really a tough place for a device from the largest software company in the world. Technologically the product has features, but the sales of Zunes during the period from its introduction in November of 2006 through January 2009 reached around 3 million.19 Throughout Microsofts annual reports, there is mention of Zune the product, and revenues of the Entertainment and Device division, but there is no mention of Zune unit sales as a number. During the same reporting period, in their 10-K, Apple reported sales of ipods which are highlighted in yellow below:
2008 Change 2007 Change 2006 Net Sales by Operating Segment: Americas net sales $ 14,573 26% $ 11,596 23% $ 9,415 Europe net sales 7,622 40% 5,460 33% 4,096 Japan net sales 1,509 39% 1,082 (11)% 1,211 Retail net sales 6,315 53% 4,115 27% 3,246 Other Segments net sales (a) 2,460 40% 1,753 30% 1,347 Total net sales $ 32,479 35% $ 24,006 24% $ 19,315 Unit Sales by Operating Segment: Americas Mac unit sales 3,980 32% 3,019 24% 2,432 Europe Mac unit sales 2,519 39% 1,816 35% 1,346 Japan Mac unit sales 389 29% 302 (1)% 304 Retail Mac unit sales 2,034 47% 1,386 56% 886 Other Segments Mac unit sales (a) 793 50% 528 58% 335 Total Mac unit sales 9,715 38% 7,051 33% 5,303 Net Sales by Product: Desktops (b) $ 5,603 39% $ 4,020 21% $ 3,319 Portables (c) 8,673 38% 6,294 55% 4,056 Total Mac net sales 14,276 38% 10,314 40% 7,375 iPod 9,153 10% 8,305 8% 7,676 Other music related products and services (d) 3,340 34% 2,496 32% 1,885 iPhone and related products and services (e) 1,844 N M 123 N M -Peripherals and other hardware (f) 1,659 32% 1,260 15% 1,100 Software, service, and other sales (g) 2,207 46% 1,508 18% 1,279 Total net sales $ 32,479 35% $ 24,006 24% $ 19,315
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PF506 Introduction to Marketing Management 4As Analysis of a Marketing Failure: Microsoft Zune
Unit Sales by Product: Desktops (b) Portables (c) Total Mac unit sales Net sales per Mac unit sold (h) iPod unit sales Net sales per iPod unit sold (i) iPhone unit sales 3,712 6,003 9,715 $ 1,469 54,828 $ 167 11,627 37% 38% 38% --% 6% 4% N M 2,714 4,337 7,051 $ 1,463 51,630 $ 161 1,389 12% 51% 33% 5% 31% (17)% N M 2,434 2,869 5,303 $ 1,391 39,409 $ 195 --
Consider those numbers for a moment: 3,000,000 Zune devices vs. 106,000,000 iPods and 13,000,000 iPhones! Two orders of magnitude difference in the number of handheld devices that can connect to the iTunes store full of digital media and games. Microsoft may have eaten away at smaller players in this market (Creative, Sony and the like), but they had no effect on Apple and the iPod/iPhone ecosystem. In January 2009, Microsoft reported a 54% drop in sales of Zunes and many hailed this as the death of the Zune handheld.12 Microsoft, like any good product company, came back with a new Zune in the form of the Zune HD in September of 2009, again trying to defeat Apple marketing with product features. It is too Zune to say what the result will be.
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PF506 Introduction to Marketing Management 4As Analysis of a Marketing Failure: Microsoft Zune
Citations
1. 2. 3. Description of Zune products on MS website: http://www.zune.net/en-us/products/default.htm Endgadget, Paul Miller, Sept 14, 2006 Microsoft launches the Zune: http://www.engadget.com/2006/09/14/microsoft-launches-the-zune/ Linn, Allison. "TECHNOLOGY; IPod rival aims for easy sharing. " The Houston Chronicle (Houston, TX). (Sept 15, 2006): 3. General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS> "Microsoft sets Zune price at $249.99. " Europe Intelligence Wire. (Sept 29, 2006): NA. General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "U. Wisconsin: COMMENTARY: Microsoft & the children of Zune. " The America's Intelligence Wire. (Nov 14, 2006): NA. General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "Microsoft's Zune hits a compatibility sour note. " Evening Standard (London). (Nov 15, 2006): NA. General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. Zune off to slow start. " The Online Reporter. 519 (Dec 2, 2006): 13(1). General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "MICROSOFT DEFENDS POOR ZUNE SALES. " World Entertainment News Network. (Dec 11, 2006): NA. General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "Microsoft executive overseeing Zune will depart. " The America's Intelligence Wire. (Feb 1, 2007): NA. General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "Microsoft's muscle hasn't helped Zune. " The Christian Science Monitor. (Nov 29, 2006): 17. General Reference Center. Gale. Bentley College-Solomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "Microsoft Unveils Device Customization via New Zune Originals Store, New Zune Players Available Tomorrow. " PR Newswire. (Nov 12, 2007): NA. General Reference Center. Gale. Bentley College-Solomon R Baker Lib.. 28 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "Zune sinking with cement shoes.(PRODUCT WATCH). ." The Online Reporter. 622 (Feb 6, 2009): 19(2). General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 28 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "Zune HD price in very leaky ships.(MOBILE INTERNET DEVICES). ." The Online Reporter. 648 (August 14, 2009): 14(1). General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 28 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. "Obama's Zune story crashes news site. " UPI NewsTrack. (Dec 5, 2008): NA. General Business File ASAP. Gale. Bentley College-Solomon R Baker Lib.. 28 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. Dumenco, Simon. "A guide to help you stop talking like such a Zune." Advertising Age 78.2 (08 Jan. 2007): 25-25. Communication & Mass Media Complete. EBSCO. Bentley College-Solomon R Baker Lib.. 22 Sep. 2009 http://search.ebscohost.com/login.aspx?direct=true&db=ufh&AN=23659313&site=ehost-live "Technology: Newly asked questions: Why is Microsoft so bad at brand names for its products?(Guardian Technology Pages). ." The Guardian (London, England). (August 2, 2007): 2. General Business File ASAP. Gale. Bentley CollegeSolomon R Baker Lib.. 28 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS> "Belkin Introduces New Accessories for Zune(TM). " Business Wire. (Nov 6, 2006): NA. PROMT. Gale. Bentley CollegeSolomon R Baker Lib.. 27 Sept. 2009 <http://find.galegroup.com/gps/start.do?prodId=IPS>. Apple (AAPL) 2008 10K Thomson Financial - Bentley College-Solomon R Baker Lib.. 01 Oct. 2009 http://research.thomsonib.com.ezp.bentley.edu/gaportal/ga.asp Jenna Wortham. "Year-end glitch sends Zune crashing into '09. " International Herald Tribune 2 Jan. 2009, ProQuest Newsstand, ProQuest. Web. 1 Oct. 2009.
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