Psst, iPod versus Zune is really a format War

by Chris Seibold Oct 19, 2006

Steve Ballmer recently said that the iPod and the Zune were pieces of software wherein the profit was realized by selling hardware. Which explains why Microsoft is so determined to take the iPod on, in the world of Microsoft there are two software categories: Software categories that Microsoft dominates and software Microsoft chooses not to make. So, if you’re Microsoft crushing the iPod isn’t so much a question of if, it just a question of when.

Steve Jobs seems less than concerned, mildly amused might be putting his reaction a better way. This seems like sheer madness, even if the Zune doesn’t reduce to the iPod to yesterday’s cool it still stands to take away a good chunk of market from the iPod and any amount of market lost by the iPod will be disproportionately felt by Apple. After all,  the company’s recent heady stock price is based on continued growth in the iPod division and associated products. Put another way, even if Macs had double digits in the market share department the stock price would likely be far below the current level.

When it comes time to look for historical analogs in the iPod discussion, most people look to the once ubiquitous Walkman. In the eighties, everyone walked around wearing the personal tape player, listening to bad heavy metal or even worse pop music. Those who recall the eighties also recall the plethora of personal cassette players around. Sony players were the most popular, hitting the sweet spot of price, quality and brand recognition but there were plenty of other players that sold significant quantities. For the terminally cash strapped a Koss that would produce less than agreeable sound (much like a cat trapped in a 3’x3’ box with an angry baboon) had to do the job. The more economically advantaged would be able to show off an Aiwa or some other equally impressive player. Business abounded for all.

Under that scenario, the Zune is a bad thing for the iPod. No matter how horrible the Zune turns out to be the mere presence of a player made by Microsoft will suck away some of the iPod’s market. If the Zune was demonstrably superior things are even worse, and the iPod is suddenly just another .mp3 player. The probability is that the Zune won’t be horrible and it will neither be great so one would expect, using the Sony Walkman as the model, some significant share of the market to go to the Zune. Once again, a little business for everyone? Don’t bet on it!

Turns out that the iPod, in terms of the market, has more in common with Microsoft Word than the Walkman. Surely, the functionality is much closer to the Walkman but, where the Walkman was a standalone player, the iPod is all about the format. Not the Fairplay versus whatever DRM scheme Zune uses, but rather the interaction with the computer. In short, the iPod Zune thing isn’t about the hunks of plastic, chips and screens it is about the being the iPod or being the Zune, there is no middle ground.

There is something odd about format wars, something that differentiates them from the usual tussles in the marketplace. In a format war it isn’t the superior product that wins, the winner is the product people expect to win. Apple provides a hard to ignore example of this. The early Macs were clearly superior for computer neophytes (a category that included most everyone in the late eighties) but were trounced by IBM PCs and compatibles. While the situation has been examined from every angle, the truth is that people bought PCs because they assumed PCs would win. In the world of format wars, prophecies are always self-fulfilling.

What does a format war mean for the coming tangle between the iPod and Zune? It means that the battle won’t be one of features, or even price. The battle will be decided by which company can convince the public that their format will be the standard. Here, surprisingly, Apple is in a great position. Not only does the iPod have the early lead locked up when it comes to accessories, there is already a strong iPod culture. Add to that advantage that no one except a lucky few in Cupertino actually know where the iPod is headed and you’ve got one tough product to beat. Microsoft isn’t just going to have to convince people that the Zune is better, they’re going to have to convince people that they picked the wrong horse to begin with and that the iPod won’t be coming out with any new must have features. That will be a tough trick, once people make a choice it is hard to convince them that something better exists, witness the tenacity displayed when people clung to Apple’s Classic OS when Windows had clearly surpassed Apple’s operating system of yesteryear.

Those that expect a long, drawn out battle between the iPod and the Zune with both players owning serious market share a few years down the road are mistaken. The battle will tip in favor of one player or the other quickly with the winning device taking a huge chunk of the market and the loser in the big pile of electronic gadgets that didn’t stick around. If you’re wondering about Ccreative’s and othe .mp3 players out there, think of the situation as Betamax versus VHS with a side of Laser Disc.


  • who the hell has an investment in WMA wrapped content? -Chicken

    So, you’re saying FairPlay is the only game in town? I wouldn’t mind so but there seems to be about 20% of the music market owned by WMA w/ FPS.

    Younger sets that don’t care what technology wraps their music are also big on generic “MP3” players. And you got lots of people that really think $100+ for a music toy is excessive, let alone $200+!

    And what about those hardlined Windows people that no matter how great the iPod becomes, it’s all meaningless unless it is from good ol’ Bill’s company.

    Those people will never be enticed to switch to the iPod and those are the people that the Zune will be catering. That is, they must be willing to forego their collections of WMA + FPS-wrapped content first.

    I doubt many current iPod owners will plunk another $249 for Zune just so they can watch 320x240 video instead of 640x480 on their TV. And what of the missing podcast support? That’s another mistake by MS’s arrogance or lack of foresights.

    Really, the Zune will not be declaring an all-out war with the iPod ‘coz to be realistic, it doesn’t stand a chance. It is better off wiping out the remaining WMA FPS competitors first, then plan a long drawn-out battles with the king of digital music.

    And that’s my advice to the Zune project people. Do not directly attack the iPod for you won’t survice the onslaught. Launch quietly and ultimately claim second-best.

    Still, that will be an Iwo Jima-class of battles with SanDisk and Creative. Good luck, Zune!

    Robomac had this to say on Oct 22, 2006 Posts: 846
  • The Xbox 360.  Now all Microsoft would have to do is create an IPTV interface for the 360…

    Chicken, you are one wishful-thinking dude, but I’ll entertain…

    Well, the X360 is one good example of how MS can collect enough raw talent and inspiration that can muster good hw engineering.

    But hardware design is but one piece of a complex puzzle when dealing with TV over IP. The old Field of Dreams watercooler, “Build it and they will come”, will not work quite that easily here.

    Here’s why:

    1. The X360 has been marketed to compete with the PS2 with minor successes here and there. Not bad but not great, either. The PS2 is over five years old and kicking dust at the X360’s face per unit sold. The PS3 is about to launch and so is the Wii. X720 in the works? For MS, it better be.

    Now, MS can’t just reverse engineer a way out of this mess by making the X360 a video outlet that will salivate the masses. How can you do that with pricing more than an iTV with I’m sure, service far less than the iTS+iTV experience will offer?

    2. The iPod+iTunes+iTS are so well-engineered that each promotes the others in a way that a makeshift X360 online video/movie store would never match.

    It’s called Value-Added service. Each leg of the triad are so dominant but ever more so combined with the others. When the iTV is eventually mixed with these, only our imaginations can take us where Apple is hinting us at the moment.

    3. Open-source TV (as you described) is a horrific possibility (just look at those woeful vids on YouTube and Google Video). One thing is certain, to have good quality content, lots of $$$ has to be spent and merely having a DV cam and an internet access won’t do.

    I am not saying that IPTV has no future. It does and it will happen. MS does play a big role in its early infrastructure, just not with the X360. If Apple makes a splash with the iTV, things can change in a hurry with IPTV.

    How MS ends up in the IPTV world is up in the air. AT&T’s U-verse and Verizon’s FIOS services are just starting to offer compelling reasons to switch. AT&T’s rely on MS’s IPTV software but not Verizon’s. Just how successful will MS become with IPTV? No one knows the answer.

    Robomac had this to say on Oct 23, 2006 Posts: 846
  • 1. The Xbox 360 is a year old and is meant as a next generation system to compete with the PS3.  The Wii is not a next gen system, Nintendo is referring to it as a new generation system, as it is a sooped up Xbox with a new controller scheme and no HD support. 

    The early launch has given MS a leg up on the competition, which could either pan out or blow up in their face (ala DreamCast, although I don’t think that’ll be happening, considering the Xbox has some credibility in terms of gamers, as well as Microsoft making sure to have plenty of third party support, like the GTA franchise). 

    As for pricing it more than the iTV, it’s a gaming console with a triple core G5 with 512 megs of RAM, compared to a headless Mac Mini.  Here you would raise the argument over why people apparently bought a PS2: pay a little more and get a game console built into your DVD player.

    Meanwhile, they are the only Console company to have a successful integrated online strategy for gaming, something that is even further integrated into the 360.

    Also, the Xbox had a Media PC extender device where you had to buy the software/remote combo for 80 bucks.  With the 360, they’ve worked that into the machine from the get go.  Thing is, not many people have a Media Center PC.  If they wanted to make use of this sort of connectivity where all you would need is a Xbox 360 hooked up to your router and a Windows computer, yadda yadda yadda. 

    2.  I hate the whole notion of having to buy individual episodes of television shows.  I have no problem with buying them as seasons, but they’ve marked up the price so much that it puts potential purchasers into the mindset of waiting to buy until they eventually drop the price.  What I’d like to see is for more content being offered for free by the content providers, if this means that it would be either on subscription or with embedded ads, I would be fine with it.  I just hate the idea of having to pay for something that I’m only going to want to see once or twice (one reason why I slowed down my DVD purchases to either 10 dollar movies I’ve never seen or 40 dollar special editions with 12 hours of special features, not to mention no longer buying up seasons of 24).

    3.  There are some quality ‘open source’ tv shows out there in my opinion, but the signal to noise ratio is pretty noticeable to be sure.  This is why an aggregator like iTunes is so useful.

    If Google were to come out of the Web and have a Net App where you could watch the latest shows or older ones even, which are no longer on the air yet could still attract viewers if they were on for free (Mash, which I’ve never seen, Three’s Company, which I vaguely remember, Garfield, the old cartoon from my youth, Bugs Bunny and Tweety Show, etc etc) and then embed some ads in the somewhere to pay for the bandwidth and the use of the content.  This all stems from the desire as a youth watching Simpsons episodes in syndication to be able to pick and choose which episode to watch.  Nowhere in that picture is there the notion of spending 400 dollars for the entire series on DVD.  Maybe I’m a hippie, but I’d love to be able to picck and choose through the collection of Just For Laughs segments.  Comedy Central leaves the Daily Show/Colbert clips on YouTube because they offer them on their site anyways, but the viewers are on youtube, so getting them to go to comedy central’s website simply for comedy central content is kinda silly, just like NBC pulling the Lazy Sunday skit off of YouTube was silly (speaking of which, feel free to search out Lonely Island on youtube to find a bunch of stuff those guys had done before they made it big as it were.  Kinda funny if you ask me, but I am really ranting now.  Probably have to cut it down…

    Oh and BTW, Technically the Zune can’t support Podcasts, lest Microsoft intends on giving Apple ample excuse for another lawsuit, what with their claiming copyright on the word ‘pod’.  A similar anecdote would be how MS got a cease and disist from Adobe for having a save as pdf option built into one of their Office programs, while Apple is allowed to include it in Pages.  Go figure.  Perhaps if Microsoft asked nicely, they could get ‘Podcasts’, but still, they may just try and do something else yet similar.

    Chicken2nite had this to say on Oct 24, 2006 Posts: 79
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