Despite inferiority, Zune likely to see modest success - analyst
Although Microsoft Corp's forthcoming Zune digital media player is somewhat bulky and lacking appeal, its likely to see "some modest success" due to Microsoft's vast resources and the company's willingness to take a loss with each unit it sells, one Wall Street analyst says.
"Yesterday, Microsoft announced pricing for its Zune portable media player with 30 GB HDD storage at $250 and a ship date of November 14, 2006," American Technology Research analyst Shaw Wu wrote in a research note on Friday.Â*"As we mentioned recently, we believe Microsoft was caught off guard by Apple's aggressive $249 video Pod pricing and was forced to match Apple's pricing to stay competitive."Â*
Wu believes Microsoft inability to price Zune even lower demonstrates Apple's under-appreciated supply chain strength. With its current pricing, the analyst estimates Microsoft will suffer an approximate $50 loss with each sale of the player. This compares to Apple's industry-leading iPod profitability, which, according to his estimates, falls along the lines of 18 to 22 percent gross margin and 8 to 11 percent operating margin.
"To us, the key question is whether Zune priced in-line with a video Pod will take share with its bulkier form factor, same Windows software currently available from 15-20 vendors, and inferior battery life," Wu wrote. "Regardless, we believe Zune will likely see some modest success due to Microsoft's vast resources, but at the expense of its Windows "partners" (particularly ones that sell HDD-based players including Sony, Creative, iRiver, Samsung, Archos, and Toshiba)."
He said Apple retains key competitive advantages that include its strong brand, vertically integrated iPod+iTunes model, its proprietary clickwheel technology, and "unique and pleasant customer experience with its Apple stores."
Wu maintains a "Buy" rating and $91 price target on Apple shares and continues to recommend that investors buy on weakness.
"Yesterday, Microsoft announced pricing for its Zune portable media player with 30 GB HDD storage at $250 and a ship date of November 14, 2006," American Technology Research analyst Shaw Wu wrote in a research note on Friday.Â*"As we mentioned recently, we believe Microsoft was caught off guard by Apple's aggressive $249 video Pod pricing and was forced to match Apple's pricing to stay competitive."Â*
Wu believes Microsoft inability to price Zune even lower demonstrates Apple's under-appreciated supply chain strength. With its current pricing, the analyst estimates Microsoft will suffer an approximate $50 loss with each sale of the player. This compares to Apple's industry-leading iPod profitability, which, according to his estimates, falls along the lines of 18 to 22 percent gross margin and 8 to 11 percent operating margin.
"To us, the key question is whether Zune priced in-line with a video Pod will take share with its bulkier form factor, same Windows software currently available from 15-20 vendors, and inferior battery life," Wu wrote. "Regardless, we believe Zune will likely see some modest success due to Microsoft's vast resources, but at the expense of its Windows "partners" (particularly ones that sell HDD-based players including Sony, Creative, iRiver, Samsung, Archos, and Toshiba)."
He said Apple retains key competitive advantages that include its strong brand, vertically integrated iPod+iTunes model, its proprietary clickwheel technology, and "unique and pleasant customer experience with its Apple stores."
Wu maintains a "Buy" rating and $91 price target on Apple shares and continues to recommend that investors buy on weakness.
Comments
MS has a good market position for OS and software. How does that help them with an mp3 player?
Please note, the above is what is known as sarcasm. Please use the Mac OS X dictionary to look that up if you are uncertain of its meaning. I am fine with the price of the iPod, of course less money would be better, but I certainly don't feel ripped off by what I paid (which was more than the current prices), nor does my wife or the dozens of other people I know with iPods.
Wow, the world of business is sure changing.
So wait... "losing money" = "success"?
Wow, the world of business is sure changing.
Microsoft shareholders should hope that it is not too successful. If sales ever rival those of the ipod, you are talking about half a billion in losses per quarter.
Microsoft shareholders should hope that it is not too successful. If sales ever rival those of the ipod, you are talking about half a billion in losses per quarter.
They lose money on every one they sell, but they hope to make up for that in volume.
A year or two ago near Christmastime, a mother came up to me and said that her daughter asked for an iPod and wanted to know if the "Dell iPod" was as good as the Apple one.
It would rock if on November 14th, Apple were able to reduce the price of the 30 Gb ipod further, sending MS scrambling.
http://www.computerworld.com/action/...icleId=9003718
Apple would do well to add wi-fi sharing to its iPod, and make the iPod integrate well with the Wii and PS3.
man Wu sounds so biased....
Usually he sounds like a Mac Zealot!!! Maybe analysts can be agnostic?
This guy does make some good points though
He makes a couple mildly OK points...but also has some really bonehead statements that kill any credibility he otherwise might have:
"But the Zune's screen is just as good -- and larger than the iPod's. More importantly, it can be turned sideways for a wide-screen movie experience, which is vastly superior to watching movies on an iPod."
Sorry guy, the Zune is no more widescreen than the iPod is. Exact same aspect ratio, just a tiny bit bigger.
And it doesn't help when an article relies so much on statements like "Apple is scared". Give me a break, like this bozo has any clue what's going on inside apple.
Wu wrote. "Regardless, we believe Zune will likely see some modest success due to Microsoft's vast resources,
Wu was telling investors to get behind apple stocks causing a little rally, and now he's trying to lower the share price of aapl ?
must have some investor friends who missed out on relatively cheap stocks
'Microsoft will make the movement of media between Windows, Soapbox and the Zune natural and seamless'
Show me one example where they have, since when have MS ever been able to get this sort of thing right? Why do so many MS Zealots think this is so easy? Of course one company has achieved this on Windows, with a product called iTunes.
Interesting that MS have finally clocked the whole 'bigger picture' thing, that maybe the experience includes several components and the do have a good XBox install-base for leverage. Maybe this will spur Apple to go global with iTS & get smarter with their TV Show marketing
McD
This guy does make some good points though:
http://www.computerworld.com/action/...icleId=9003718
Apple would do well to add wi-fi sharing to its iPod, and make the iPod integrate well with the Wii and PS3.
oh comeon they could give the 360 some integration too. They aren't competing directly with xbox, so it wouldn't matter if their devices played well with it. ( I would personally be very upset if new Ipods didn't work with my 360 )
See http://en.wikipedia.org/wiki/Dumping...cing_policy%29
Shouldn't one of the rival Windows MP3 player manufacturers be contacting the US Commerce Department and/or the International Trade Commission?
While Wifi may seem like a hard feature to implement successfully at this point, that and the additional radio (that Apple sells as an add-on), hardly makes the Zune 'inferior', it offers features that current iPods lack. If Apple doesn't keep pace with prices/features, they could end up with MS nipping at their heels, not even great marketing can keep something going forever.
I doubt it will sell well, especially at the same pricepoint as the iPod.
I wouldn't completely discredit MS if they want the market bad enough. While it is a different segment, they took the PDA market away from Palm because MS continued to offer more features and Palm got complacent. Once the Palms started lacking in features and an putting out an updated OS, Pocket PC's buried them.
While Wifi may seem like a hard feature to implement successfully at this point, that and the additional radio (that Apple sells as an add-on), hardly makes the Zune 'inferior', it offers features that current iPods lack. If Apple doesn't keep pace with prices/features, they could end up with MS nipping at their heels, not even great marketing can keep something going forever.
What sold the iPod was the interface/ease of use. And the whole design and ergonomics. Folks would rather pay for that VS adding a slew of extra features they would never use just to put more checkboxes on the side of the package.
I wouldn't completely discredit MS if they want the market bad enough. While it is a different segment, they took the PDA market away from Palm because MS continued to offer more features and Palm got complacent. Once the Palms started lacking in features and an putting out an updated OS, Pocket PC's buried them.
While Wifi may seem like a hard feature to implement successfully at this point, that and the additional radio (that Apple sells as an add-on), hardly makes the Zune 'inferior', it offers features that current iPods lack. If Apple doesn't keep pace with prices/features, they could end up with MS nipping at their heels, not even great marketing can keep something going forever.
If "features" make an MP3 player competitive with the iPod, we would have seen erosion of iPod market share already. Instead, we see relentless growth, even as Samsung, iRiver, Creative, SanDisk et al pile on "features" till the cows come home.
WiFi, as implemented by MS, is not even a compelling "feature", at that. It's usefulness is entirely dependent on robust sales of the Zune, or else you have nobody to share with. But, robust sales of the Zune depend on perceiving WiFi as desirable, even after early adopters go wandering around looking for the one in a thousand they can link to. Classic chicken and egg, and almost impossible to overcome without some other compelling reason to buy at the outset.
Plus, big hits on battery life and sharing enabled only on "promotional" songs make the WiFi gimmick pretty much a non-starter, in my book. Of course, the MS idea of "competing" has always been "add features", so it's not at all surprising this is the tack they'd take.
The PDA market is a poor comparison, as the "PDA ecosystem" is limited to the software that lets you synchronize data from your computer, which isn't exactly a barrier to entry, and seamlessness across desktop and PDA apps, which allowed MS to once again leverage their OS monopoly. Palm had nothing like the iPod/iTS lock-in to protect their early lead.
The Zune has to create an entire new world of: lots of Zunes for sharing to be even remotely useful, all new song purchases with an all new DRM (no playing all your "Plays For Sure" stuff), adapters for cars and stereos, cars and stereos with Zune compatibility built in, amplified speaker docks, cases, sports monitors, lanyards, arm bands, marketing tie ins, media store library depth, podcasts, etc., etc., to even begin to get traction. No game makers to buy to goose sales, ala the Xbox.
And as I have said elsewhere, I don't see any evidence that MS is particularly good at consumer system integration. The Xbox was supposed to be MS's back door into the living room, remember? A computer in its own right, with internet connectivity and a DVD player? Hasn't exactly merged with the audio and video systems, has it? Or how about Media Center? Sure, they can point to sales figures, but that's just because a lot of PC vendors license it as a sales incentive. How many people have made a Media Center PC the center of their media?
And now Zune is supposed to take its place in this "framework"? And I don't think anybody would argue that Xbox/Media Center/Zune represents any kind of methodical strategy for locking up the living room.
Apple really has the upper hand here, not just on the appeal of the hardware but the systematic approach they've taken to laying the groundwork for genuine digital media ubiquity in the home, in their OS, in their apps and in their devices.