The Direction that Zune is Taking Microsoft

Posted Nov 25, 2006

There have been a few instances in which Microsoft used its buying and development power to bring the company to a market in which it has not been before.  Many people have criticized the Zune as not being replaceable to the iPod and believes it will flop.  My instinct was to believe that the Zune is one of the best products released by Microsoft.  The more I looked on blogs and on Digg, the more I found negative press about the Zune until I ran into a BusinessWeek article that seems to have shared my belief about the direction that the Zune is taking Microsoft.

Before I continue about the Zune, I’d like to remind you about the 1998 acquisition that Microsoft made of Sabeer Bhatia’s and what it did for Microsoft.  Some people list Hotmail as being part of the top 10 worst Internet acquisitions to take place, but HipMojo placed this acquisition as one of the top 10 Internet acquisitions to take place.

HipMojo states, “$400M is a lot of money to pay for any company, let alone a free email service firm, especially when Yahoo! had acquired Four11 for $92 million previously.  But, Yahoo! was an Internet company, Microsoft was a software company who thanks to their visionary founder missed out on the Webâ??s first hoorah.  So it viewed acquiring Hotmail for $400M as it cost of admission for its late entry online.” 

Microsoft clearly has the buying power to penetrate markets that differ highly from their core competency.  This is what the Zune is doing for Microsoft.  It is bringing Microsoft into a market that Apple has been dominating for the last couple of years.  In 2005 alone, Apple sold more than 30 million iPods.  The Zune is just chiselling away at the iPod’s market in which they have held a monopoly for the past couple years.

BusinessWeek had reported that at 3:32PM on Oct. 19, Microsoft’s J Allard sent an e-mail to the 230 Microsoft employees working on the Zune with a link to a video on YouTube of Steve Jobs from 1996 stating: “The only problem with Microsoft is they just have no taste.  They have absolutely no taste and what that means is- and I don’t mean that in a small way, I mean that in a big way.  In the sense that… In the sense, they… they don’t think of original ideas and they don’t bring much culture into their product.”

“I for one…want to see this guy eat his words,” Allard stated in response to the video. “Those are fighting words. He is speaking to every one of us and saying that we don’t get it.”  On November 14, the Zune was officially placed on the shelves and its development began 8 months prior.

Another market penetration strategy posed by Microsoft includes the Xbox.  The Zune is expected to a follow a similar path.  A minor setback of criticism followed by new releases that may begin to dominate the market.