Who in his right mind would step into the ring against the iPod? Apple Computerâ€™s sleek music-player, and its iTunes software and online store, dominate the digitalâ€“music industry as comprehensively as Microsoftâ€™s Windows operating system dominates desktop computing. But just an apple has tried for years to loosen Microsoftâ€™s grip on computing, so Microsoft now hopes to loosen appleâ€™s hold on digital music. The software giant will launch Zune, a music-player that looks and works very much like an iPod.
Zune is unlikely to make any dent at all in Appleâ€™s market share, says Tim Bajarin of Creative Strategies, a consultancy in Silicon Valley.
Microsoft probably has no choice but to try. During its first 25 years, Microsoft succeeded above all by bringing computer technology to businesses; to succeed in its next 25 years, it must turn its attention to consumer gadgets, for that is where the innovation and growth will be.
But the formula with which Microsoft achieved its dominance in the first round appears not to be working in the second. So Zune is based on a very different business model — evidence that Microsoft is changing.
Microsoftâ€™s music player is a device that is tightly coupled to music-library software that runs on a computer; and to Zune Marketplace, an online music store. The Zune device does not work with other online stores, even those of Microsoftâ€™s partners; and Zune Marketplace does not offer songs for non-Zune devices. Zune, in other words is a proprietary bundle of hardware, software and service exactly like Appleâ€™s iPod-iTunes combination.
For Microsoft this amounts to an about-face shocking enough that Robbie Bach, the executive who runs the companyâ€™s entertainment division and who devised the strategy, goes out of his way to play down its importance. Microsoftâ€™s traditional approach is to stay out of hardware and concentrate on making software, such as Windows, which it licenses to as many hardware companies as possible. Competition turns hardware into a low-margin commodity, but Microsoft, as owner of the software standard, makes a fortune.
In recent years, Microsoft tried to use the same approach with consumer technologies, its development music and video software and invited gadget-makers to build hardware around it, and other firms to build compatible online stores to sell content.
This didnâ€™t work, says Matt Rosoff of Directions on Microsoft, a specialist research firm. In the case of music, Microsoftâ€™s Plays For Sure software proved flaky: not all music from all stores would play for sure on all players, and the iPod remained unchallenged.
So Microsoft has ditched the idea of providing enabling software to other firms in favor of Appleâ€™s approach of doing everything itself. Its first move in this direction came with its Xbox games consoles, in which hardware software and an online service are tightly coupled.