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Zune 2 backed to beat other iPod killers

But new Microsoft strategy won't harm Apple

Analysts have backed Microsoft's new effort to blend social networking with digital music. However they're sceptical that this week's announcement of new Zune players and a new community can topple Apple's iPod and iTunes combination.

Along with the three new Zune players, including Microsoft's first-ever flash-based model, Microsoft announced a new community site, dubbed Zune Social that it will fire up as beta in the US in November. According to Microsoft, Zune owners can automatically share their current playlists with friends using a Zune-to-Zune Social sync.

That sync will rely on user-made profiles that Microsoft's calling Zune Cards; other Zune owners will be able to view a friend's Card, then play short samples of those tracks and/or buy the tunes at the also-redesigned Zune MarketPlace online store. The sharing concept isn't new, as several services - notably iLike - already promote something similar.

"Microsoft must find a way to grow the coolness of the Zune," said JupiterResearch's Michael Gartenberg. "This isn't a bad strategy, and at least it's found a way to differentiate from Apple."

Van Baker, an analyst with Gartner, was more optimistic. "It's very important, this sharing," he said. "There's lot of activity [related to] sharing music on the web, and exposing people to new artists. I think this is good for the consumer and for the music business. I like what Microsoft's doing here."

"I think it's a great strategy," said Chris Swenson of the NPD Group. "Microsoft's been looking for a catalyst that will generate buzz."

Microsoft did not set a launch date for the players or Zune Social, but used the general 'mid-month' to describe the timing.

It also removed one restriction on Zune-to-Zune wireless sharing in the hope of fostering the feature that debuted last year with the first-generation player. Although tracks received from another Zune owner can still be played only three times, the three-day time limit has been dropped. Another limitation, that a song can be passed once - in other words, a shared tune cannot be shared by the recipient with yet another Zune owner - remains in place.

Last year's Zune-to-Zune experiment, then the only application of the players' wireless capabilities, was a disaster simply because there haven't been enough people with Microsoft's player to make it feasible. "That's part of the process," said Gartenberg. "One of the Zune's features is interactivity, but if there isn't someone to interact with, it's just a Catch-22."

"Again, anything that facilitates sharing is goodness," chimed in Baker. But will the new emphasis on sharing be enough to give Microsoft a shot at Apple and the iPod? Baker doesn't think so.

"Microsoft's got a bit of an edge here," he said. "But is it enough? Probably not. Will it help them against non-Apple players? Absolutely. They're going to steal share from the Creatives and SanDisks of the world."

Microsoft's digital music rivals - other than Apple - include Creative Technology, SanDisk and Samsung. In interviews yesterday, Microsoft executives said they had set the goal of holding down the No. 2 spot by the end of the year.

OPINION: Zune 2 shivers in iPod's shadow

"That's a reasonable goal," said Gartenberg of JupiterResearch. "But it's not something they're going to automatically attain. It's going to be a hard thing making it to No. 2."

Even at No. 2, there's no guarantee that Microsoft can compete, even in the long run, with Apple, whose iPod enjoys market dominance, accounting for more than 70 percent of the business by NPD's figures. "Microsoft can't just do something a little bit different," said Swenson. "They have to match the experience of iTunes, and find ways to surpass it. But they're not even close now to what Apple and iTunes have."

Or maybe Microsoft's not really putting its sights on Apple and the iPod, Swenson said. It may have different targets for Zune and its software. "I see lots of possibilities here," he said. "It's not just about devices. I wonder if Microsoft looks at the success of Facebook and MySpace, and is actually trying to use [Zune Social] as an entry into the social-networking realm."


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