Microsoft’s Zune

Falls Off Sales Pace

For Media Players

By CARMEN FLEETWOOD

November 28, 2006; Page B2

On Amazon.com’s Top 10 selling list for electronics yesterday, seven of the 10 products were digital media players. Nowhere did the Microsoft Corp. or Zune names appear.

“That’s a pretty good indicator of consumer interest,” Michael Gartenberg of industry group Jupiter Research said yesterday, one of the busiest days of the year with online shoppers.

The 30-gigabyte Zune player from Microsoft, which retails for $249, was on the Top 10 list of Amazon, the largest Internet retailer, for several days after its release on Nov. 14 before dropping off. But yesterday, the most popular model of the Zune, the black version, was at No. 76. The Top 10 digital media players included six iPods from top-seller Apple Computer Inc. and one MP3 player from SanDisk Corp. The 30-gigabyte iPod has a $249 list price and ranked No. 2 at one point yesterday.

“The product [Zune] wasn’t particularly attractive. At the end of the day, you put it on a shelf and it just didn’t compare,” said Rob Enderle of research firm Enderle Group.

Microsoft has noted the Herculean effort it would take to overcome the lead Apple has built up in the digital media market in five years since the introduction of the iPod. Microsoft is trying to build up a total ecosystem with the product and the Zune Marketplace music Web site in order to compete with Apple and its iTunes store. Sales of Zune in the first week after the Nov. 14 launch were “exactly within our expectations,” a Microsoft spokeswoman said. She added that she is still awaiting information for holiday weekend sales.

Analysts say the Zune is more likely to snag market share from other digital media players instead of Apple this holiday season. Sales estimates from a number of industry analysts for Zune ranged from 300,000 units to a high of about 500,000 units for the 2006 holiday season.

If Microsoft sells close to the upper range of sales estimates of 500,000, Zune would generate about $125 million, a miniscule amount in comparison to overall revenue. In fiscal 2007, analysts surveyed by Thomson First Call expect revenue of more than $50 billion and earnings of $1.45 a share. Microsoft has said it doesn’t expect to profit from this product right away.

Zune received accolades for its built-in wireless capability and ability to share music with other Zune users for three plays, something not available in the iPod. A larger screen than available on the iPod and a built-in FM radio were noted as positives for the Zune, which is also available in white and brown.

Critics found the Zune Marketplace, where Zune owners must buy their music, confusing. Also, the Zune is incompatible with Apple’s iTunes store. The Zune doesn’t support podcast audio programs nor can it transfer television and video programs from Microsoft’s Media Center. Others have faulted the lack of videos available on the Zune Marketplace site, and the device’s heavier weight and shorter battery life to an equivalent iPod were negatives to consumers seeking to purchase an MP3 player.