Zune vs. iPod, round 1: Holiday shoppers

Microsoft is getting ready to tackle the digital music market, but analysts aren't expecting Zune to be a holiday sensation.

By Grace Wong, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The big splash Microsoft is determined to make in the digital music player market this holiday may end up being a flop.

Five years after Apple (Charts) launched its first iPod, Microsoft (Charts) is taking aim at the digital music market with its Zune player, which goes on sale Tuesday.

Microsoft's Zune goes on sale Nov. 14.
30 GB - Up to 7,500 songs, 25,000 pictures or 100 hours of video.
Available in black, white or brown.
Ability to send songs and pictures to other Zune users. FM transmitter lets users tune in to local radio stations.
Price and Availability
$249.99. In stores Nov. 14.

Industry experts, however, aren't convinced the company will be able to take a bite out of Apple, which has a 70 percent share of the market for portable music players.

"I'm very skeptical about its ability to take hold in a market that already has a dominant player. It doesn't feel disruptive enough to gain a foothold," said Ted Schadler, an analyst at Forrester Research.

Microsoft has played up features that differentiate Zune from just being another "me-too" product, including the ability for users to wirelessly send songs and pictures to each other - a capability the iPod doesn't have.

But many analysts aren't buying into the idea of "community" that Zune is built around.

The idea of connected communities has caught on like wildfire - just consider the viral growth of video sites like Google's (Charts) YouTube and News Corp.'s (Charts) MySpace.

But communities don't just spring up - there has to be something immediately valuable to users in order for them to take hold, Schadler said.

One of the reasons why YouTube is so popular is because anyone can post a video and share it with everyone immediately. In contrast, before a Zune user can share music, they have to find a friend who also owns a Zune player.

"That's going to be a slow transition," said Shawny Chen, a research analyst for Current Analysis.

She expects Zune to win over some consumers but doesn't expect it to attract a huge following this season, partly because of the sharing feature, but also because Microsoft is targeting a narrower audience.

Whereas Apple offers a range of music players - from its $79 shuffle to its higher-end video iPod - there's only one Zune option, and it's aimed mainly at college-aged buyers, she said.

To be sure, the iPod isn't flawless. Some consumers have been frustrated by its battery life while others have complained that some screens scratch too easily.

And while Apple dominates the market for portable music players, a survey conducted by technology firm ABI Research early this month suggests iPod users could be won over by rival products.

Fifty-eight percent of iPod users planning to purchase a MP3 player said they would consider buying Zune, according to the survey of 1,725 respondents.

"Our conclusion is that iPod users don't display the same passionate loyalty to iPods that Macintosh users have historically shown for their Apple products," ABI research analyst Steve Wilson said in a statement accompanying the survey.

Drawing up long term battle plans

As the battle plays out, one thing's for sure: Microsoft is in the digital music business for the long haul.

Robbie Bach, president of Microsoft's entertainment and devices division, said at the company's analyst meeting earlier this year that Microsoft plans to invest "hundreds of millions" in Zune over the next few years.

That's part of the company's big push to build its overall entertainment division. Microsoft recently announced a plan that would allow Xbox 360 owners to buy or rent movies and TV shows through its online Xbox Live Marketplace.

"Video, games and music are becoming a larger part of the PC experience. The ability to provide the right software and framework is important for Microsoft's overall strategy," said D.A. Davidson analyst Alan Davis.

Rent or buy movies through your Xbox Top of page

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