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Should Microsoft Really Do Media? A Look at Zune

Should Microsoft Really Do Media? A Look at ZuneIf you ask people what kind of company Microsoft is, you may get varying answers (snarky quips aside), but the responses would probably converge around “software.” Windows, Office, Outlook, database software, the myriad of business tools…are all software. Sure, there are other aspects of Microsoft, including a hardware division where they make some great mice and keyboards. And of course, there’s the popular Xbox franchise and even Bing.com, but it’s arguable that these consumer-focused products actually supersede their parent company’s brand (i.e., how many people really think that they have a Microsoft game console when they slip Call of Duty into their Xbox 360?).

As a result, unlike Apple with iTunes and Amazon with their music and video services, Microsoft is simply not thought of as being a media company. Of course, that’s not for a lack of trying. MSNBC, after all, was a partnership between Microsoft and NBC (which has since dissolved on the cable news side).

Which leads us to Microsoft’s Zune service. Zune is a solid and proprietary media distribution and e-retail service that evolved from a failed portal media device strategy. The service was fairly innovative when it was initially designed and launched, but so much has changed in the past few years, it is questionable if Zune can practically compete in the rapidly evolving digital media landscape. Which begs the question: should it compete? Should Microsoft maintain a closed content distribution and e-retail system based primarily on the similarly-closed iTunes model?

Today’s Zune service shares features with a few of the major competing service out there—including music streaming (Zune Pass) and music/video content purchasing (Zune Marketplace). Despite this unique combination of content streaming and purchasing, Zune still does not provide a transparently compelling value proposition that itself would drive the adoption of Zune-enabled clients. For instance, what percent of consumers do you think buy a Windows Phone or an Xbox 360 due to Zune service integration? By comparison, Amazon (and, increasingly, Google) provide client applications across multiple platforms to encourage as many people as possible to access their content, while also selling devices themselves that provide seamless consumption of their content. This approach is “open” as compared to Zune and iTunes. And it’s working.

Due to the lack of market success of Zune portable media players, combined with the lackluster sales and market penetration of Zune-enabled devices like Windows Phone, the Zune service itself feels a bit out of sync with the current media distribution landscape. It might be a different story if Windows Phone devices had huge market share, which drove the mass adoption of Zune, which would therein drive demand and new innovation. But that’s just not the case as things stand today.

When discussing media distribution systems, it’s hard to avoid talking about digital rights management (DRM). There was a time not long ago when Microsoft felt that they had an obligation (to their position as industry standard-bearers and to the industry at large) to roll out the universal standard for DRM. Remember PlayForSure? Zune represented a full-fledged retreat from this “solution for all” position to a walled garden, safe-house model—mimicking Apple’s iTunes model. There’s an argument to make that Microsoft serves itself best when going with their unique strengths vs. emulating Apple’s approach, but it is also understandable that Microsoft felt they had to respond to a failing model of PlayForSure and the roaring success of iTunes. However, with emerging players like UltraViolet looking to make headway in video DRM, while audio DRM has all but disappeared from the scene, it truly puts Zune’s walled garden approach into question.

When considering the evolving dynamics of DRM, the newer, more socially-aware audio streaming services like Spotify and Rdio, and combine this with the continued growth of video services like Amazon, Hulu and even YouTube—it is becoming increasingly challenging to see where Zune fits. And, strategically, it makes one wonder if Microsoft would better serve itself if it were a software innovator that focused on media aggregation and delivery vs. being a media distributor and e-retailer.

Sure, Zune is Microsoft’s proprietary walled garden that ensures a simple content acquisition experience for compatible devices, including Windows PCs, XBoxes, and Windows Phones (and, disappointingly, not Windows Media Center). But is that going to be satisfying enough if the options outside the walled garden start looking more appealing than what’s going on inside the safe-house?

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