Microsoft has been in the news lately, first with intense speculation about their music strategy, then with confirmation of "Zune." Continuing their strategy of domination headlines, Microsoft has continued to dole out tidbits of news, but some of the attention is unwanted. The latest news comes from yesterday's second-quarter earnings conference calls with investors.
Robbie Bach, President of the Microsoft Entertainment and Devices Division, said yesterday that Microsoft is committed for the long haul with Zune. "This is not a six-month initiative, where somehow in six months we will have captured the marketplace. This will be a four-, five-, six-year investment horizon." As part of that focus, Microsoft is willing to lose hundreds of millions of dollars until they finally (they hope) manage to turn a profit. It is an unusual position for Microsoft to be in, spending money chasing the market leader, but it is not unheard of. They did it with Xbox, which will probably finally earn a profit in 2008, and the same team is in place with Zune.
However, while these assurances may make customers feel better, they're not at all what Microsoft's partners want to hear. One thing Mr. Bach was attempting to do is urge partners to continue using Microsoft's PlaysForSure platform with 126 licensed products, while Microsoft competes against them with the incompatible Zune platform.
One of those partners, Rob Glaser of RealNetworks, is very unhappy. "We think this a case where our technology competitors, in this case specifically Microsoft, have literally thrown the baby out with the bath water," he said, suggesting that RealNetworks would be looking for other hardware companies that would be willing to integrate tightly with Rhapsody, the RealNetworks' online music store.
Other partners, such as Creative and IRiver, are likely to be equally unhappy, if more reticent to talk about it. The big unknown factor is how consumers will feel. For several years now we've seen Microsoft's PlaysForSure logo on devices and online music stores, and it may surprise many casual consumers to find that any music they've purchased from, say, Napster, won't actually work on the new Zune player. In essence, this puts Microsoft into the same category that Apple is in with the iPod, with a "proprietary" platform, but without the 70% market share that Apple already has.
It is also unclear whether Microsoft will be able to deliver the Zune platform in time for the 2006 holiday season, or whether they simply hope to spoil sales of the iPod this year.
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