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.


  • You said,

    “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”

    I doubt that Steve is really unphased by the Zune. His nonchalant+mocking attitude is just consistent with Apple’s usual PR regarding the competition. With the iPod as successful as it is, it would be quite ill-advised for him to express any concern publicly.

    Regarding the “war” itself, I think we’re going to see a lot of (well justified) mocking from iPod fans in the first few years of the Zune’s market presence. If this were a one-time attempt by MS to enter the market, the Zune *could* theoretically go down in flames quickly. But this is Zune 1.0. Who knows what it will look like in 2008 and how MS will market it.

    neven had this to say on Oct 19, 2006 Posts: 14
  • If you look at the MS dominance in the PC market you need to understand that it cam about because IBM announced their PC and, because they were IBM, the PC got immediate acceptance in the business world.  Before IBM’s PC came out it looked like PC/M would be “the” OS outside of the Apple world.  If IBM had not selected MS and made the platform open then MS today might just be another penny stock.  MS was basically given the PC market on a silver platter.

    That’s not the case with the Zune.  MS is trying to join an already robust market and I believe that their egos are making them believe that they can rely on their name to make it a winner.  (I somewhat doubt that when one of the colors is poop brown, but that’s another post.)

    What we have is MS using a MP3 designed by another company, slapping on their little bit of software and believing that $250,000,000 in promotion spending will bring them to break even.  Wow!

    The other problem is that MS will basically be competing in the same market as those companies that have been paying them money to join the plays-for-sure market.  This market should probably be called the iPod Leftovers market.  It’s crowded and not that large to begin with.

    It’s starting to look like another “Bob” to me.

    MacKen had this to say on Oct 19, 2006 Posts: 88
  • Chris, you’re the first tech writer I have read recently to actually understand that this iPod vs. Zune vs. Everybody Else war has little to do with DRM systems. With current research showing that fewer than 20% of iPod owners and less than 5% of Windows based portable player owners are regular buyers of DRM-wrapped songs from online stores, that means that 80% of iPod owners and 95% of the other guys simply do not care about DRM file playback capability. To these buyers, the iPod preference is purely about the iPod + iTunes software user experience. When viewed from that reality, Zune comes up magnificently short. For starters, Microsoft made the classic “outsider” error: They failed to make the Zune sync with iTunes, the market leading jukebox software. From that bad choice, the errors in design judgment compound downward.

    People like what they like, tell others what they like, and influence each other through a peer-promoted human marketing chain. The iPod has that human promotion chain whirring in high gear.

    Good luck to Microsoft with the Zune. They will need it.

    Powerjack had this to say on Oct 19, 2006 Posts: 7
  • The first paragraph reads like a Chuck Norris joke, well done smile

    The problem is that I would never ever in my life associate M$ with fun, pleasure, or generally a positive experience. Which is what this is about. It is just not happening. They can buy as many X-Boxing Teens with their marketing$ as they wish.

    Bad Beaver had this to say on Oct 19, 2006 Posts: 371
  • For starters, Microsoft made the classic “outsider” error: They failed to make the Zune sync with iTunes, the market leading jukebox software.

    While everyone has seen the Zune, no one (to my knowledge) has yet seen the Zune software.  So to say that it comes up “remarkably short” is premature at best.  We just don’t know.

    As for not being compatible with iTunes, many Windows users would welcome the opportunity to abandon it; iTunes doesn’t work nearly as well in Windows as it does on the Mac.  Whatever comes with the Zune will be free and probably not that big of a deal to install.  And it should be another simple task of importing your library into it.  So in a matter of minutes, you are totally free and clear of iTunes.

    Beeblebrox had this to say on Oct 19, 2006 Posts: 2220
  • The problem is that I would never ever in my life associate M$ with fun, pleasure, or generally a positive experience.

    I would have said the same thing before the X-box.  The X-box 360 is simply mah-velous.  And Microsoft publishes probably one of the most popular games of all time - Halo.

    For the non-Apple fanboys, the Microsoft brand is relatively generic.  Some good stuff, some bad, some ignored.

    Beeblebrox had this to say on Oct 19, 2006 Posts: 2220
  • I give the XBox platform 2-3 years to extinction. Even if the software margins are keeping the XBox division afloat for now, the hardware losses are just too massive. Even the likes of MS’s billions of cash will wilt away in this crazy experiment.

    MS does not belong in the consumer electronics space. They do not have the necessary creative talents to maintain the small momentum of the X360.

    Now that an invigorated and very creative Nintendo is about to prowl with their latest creation (not to forget, it is still compatible with the GameCube games and controllers) and Sony’s uber-entertainment console soon afterwards, what is MS to do? Release another $billion losing X720?

    I hope they do so it would be really fun to watch their shareholders rip Balmer and Co. apart at their next shareholder meeting. What’s Balmer’s excuse this time? His rear-end burning?

    Now, to the focus of this article. The Zune is not a format and it will never be. To be a competitive format it must first win-out converts from the PlayForSure camps and I doubt many will. No idiot will buy a Zune knowing his investment in WMA-wrapped content will not readily import to the Zune’s.

    The iPod is The Format for digital music, period. Yes, it also plays MP3s nicely, and that’s why lots of people love it. Your investment is not lost and readily importable. Keep on buying CDs and the iPod will complement.

    You say the Zune will too? Good. But again, the Zune have to attract enough idiotic people first. With a pricing not much cheaper than a comparable iPod, who will? Aesthetics and usefulness are another matter that are discussed in other articles.

    Robomac had this to say on Oct 20, 2006 Posts: 846
  • I have an ipod mini… I like it. the battery has been dying lately. I want a brown zune. but before I buy a zune I would rather buy a creative zen micro in light blue.  the old version that doesnt show pictures and stuff.

    Why? because I want a freaking music player.  nothing more… If i wanted to export video to the TV I would buy a zune, but I don’t I just want to listen to my music.

    Karl Oscar Weber had this to say on Oct 20, 2006 Posts: 18
  • Seriously, wtf there robotech.  now you’re just going crazy.

    First of all, who the hell has an investment in WMA wrapped content?  Anyone?  Pfft, fake argument.

    Secondly, Sony is on the ropes in terms of whether they will be able to pull off a successful launch (not enough units to market, hence the delay for Europe).  Obviously M$ isn’t going to do well in Japan, but that’s kinda a non-issue.  If anything, it reminds me of a Royal Canadian Air Farce bit where Stockwell Day, the leader of the Reform party, was joking about how they had managed to win a whole two seats in Ontario from the recent election.  “I plan on doubling that amount next time around” or whatever.  The XBox didn’t sell at all over there except when it came to Tecmo fans (Ninja Gaiden and Dead or Alive) and that only amounted to a few hundred thousand units.  Square Enix on the other hand is apparently no longer content with only supporting one console platform, hence the Final Fantasy Online for the 360, but anyways, there won’t be any real answer for who has ‘won’ the console wars till after next holiday at the earliest.

    And I think one thing you’re forgetting is the whole Video aspect here, something that I’m hoping Microsoft will use to kick Apple’s butt, but that’s the topic for another post…

    Chicken2nite had this to say on Oct 21, 2006 Posts: 79
  • OK, here’s the deal.  Apple has the iTV coming out, apparently Yahoo and others have similar offerings in the pipeline.  The iTV is priced at 300 USD.  That’s quite a high price.  Not as bad as a PS3, but it’s just about on par with…

    The Xbox 360.  Now all Microsoft would have to do is create an IPTV interface for the 360, something that it’s more capable of doing than any of the other consoles really (with the exception of the PS3, although that is really being used as a vehicle for Blu Ray, so unless they were to integrate it with a Video Walkman or some other Sony device that they could use to create a closed system on par with itunes/ipod).  This is where I see things going, with set top boxes being used to access various video sites online, viewable on your tv and hopefully easy to convert to a portable medium.

    And I do mean a variety of sites.  there would be no point of buying an iTV if all it was to allow you to do is access your iTunes account.  I would want to be able to go to YouTube or Google Video or whatever else may be out there.  All that would be needed would be for the website designers to create a special version of their website designed to be accessed using a remote control.  If NBC and the rest of them were to follow suit on the experiment where they allow you to view the shows that are now being offered as a stream to be viewed on one of these set top boxes for free, than gratis.  If you had to pay in order to download it, then so be it, although that leads me to my next and perhaps final point on why M$ should win.

    People are used to owning music so that they can watch it whenever they would like.  The whole concept of renting music (what Napster tried to sell) is an unproven concept really, although we’ve been renting tv essentially since Cable came out.  If Microsoft were to transfer the subscription model over to television, where you would sign up to certain channels for so much a month (like cable) and then be able to access the shows on demand (not like cable), then they could all of a sudden screw over ComCast and other cable networks by taking their business.  That of course all depends on whether they want their business.

    Of course the other possibility would be for the networks or content providers to do this themselves, although it’s arguable that there needs to be a place for the consumer to aggregate the various content (the true usefullness of iTunes: podcasting) so that they don’t have to go looking everywhere for their favorite shows.  One would hope that the various set top boxes would be open enough to allow this sort of thing.

    Apple could do it themselves, of course with the iTV linking to google or something outside of the iTunes network, although it might not be in their best interest as far as they see it to do so, as it would divert people away from the payed download service they’ve cooked up.  Although without something like that, I really don’t see what the point of buying an iTV would be, which leads me to one last blurb of a post.

    Chicken2nite had this to say on Oct 21, 2006 Posts: 79
  • I hope against hope that the iTV would support Bluetooth for wireless connectivity and then open themselves up to third party developers to make games for the platform.  The bluetooth would be for the controllers, allowing people to play a variety of games, which could be either local multiplayer or online.

    Not knowing the specs on the iTV I wouldn’t know what it would be capable of, but I’m sure it would be capable of N64 style 3d and superb HD 2d games (HDMI port, baby).  Arguably some of the best games on the 360 at the moment are available on the online marketplace, and meanwhile Nintendo has their virtual console, so this is definitely a growing new market.  For Apple not to embrace it, that would be suicide with the thing costing 300 bucks.

    The ipod now has games coming out, but a lot of mac developers were pissed off because they were excluded from the process, with Apple only letting certain select developers in on it.  There’s no reason for this.

    Nintendo has announced that the virtual console will support independant game developers in some capacity, and Apple should jump on board too.  This would help to finance the transition to smaller games with some sort of episodic scheme to creating the content (SIN episodes, Sam and Max, Bone, etc). 

    Perhaps it would flop, but if Apple were to place that sort of thing on the iTunes store, and require those games to be compatible with any old mac as well, then maybe they could make themselves viable in this sort of a space.

    Of course, this whole tangent flies in the face of what Apple has been trying to do, in terms of doing one thing well and coexisting with the other guys rather than directly competing with them.  Still, that’s the way I see it anyways.  It’s not as if I’m going to get an iTV.  I’d rather just soft mod my Xbox and save 250 bucks or so.  Apparently there’s a way to trick the 360 into thinking that your Mac is a Windows Media Center PC, so if anything, that would be a better investment than an iTV if all you want is an iTunes connection to your television.  Heck, you’d get a game machine to boot.

    Chicken2nite had this to say on Oct 21, 2006 Posts: 79
  • there would be no point of buying an iTV if all it was to allow you to do is access your iTunes account.

    If I’m not mistaken, that’s all iTV does.  Which would be really cool if it didn’t cost $300.

    In relation to the Zune vs iPod, I actually do what iTV does with my video iPod.  I load up video and audio podcasts and play them on my TV.  I suspect one could do the same with the Zune (although it stupidly does not support podcasting yet).  Having a device that lets me do this all wirelessly would be a boon.  If it didn’t cost $300.

    Beeblebrox had this to say on Oct 21, 2006 Posts: 2220
  • The battle will be decided by which company can convince the public that their format will be the standard.

    I think all MS has to do is convince users of two things:

    1) Convince users they can easily use music purchased from iTMS on the Zune (which we know is easy to do - burn to CD from iTunes, import to Windows Media Player - or whatever the Zune uses, export to Zune ) If MS is smart, they’ll provide some sort of mass converter.

    2) Convince people that the Zune is more compatible with Windows than the iPod is. Again, easy. First it’s from MS, and second it uses software (WMP) already built into Windows.

    I actually think users will be relieved to get a MS player for the very same reason they are happy to use MS Word. It shouts 100% compatibility. It shouts no matter what MS do, it’ll be compatible.

    Now, what Apple has to do to retain it’s position is:

    1) Convince people the iPod is an accessory, just like mice, keyboards and speakers.

    2) Convince people iPods are best. Because when you buy an accessory, you want the best.

    3) Convince people that the compatibility that matters most is not Windows, but iPod.

    Chris Howard had this to say on Oct 22, 2006 Posts: 1209
  • I think a year from now, we’re all going to be a little surprised at what ends up playing out - no wonder what that is.  And at the same, it will all make perfect sense - in a hindsight sort of way.

    Beeblebrox had this to say on Oct 22, 2006 Posts: 2220
  • thing you’re forgetting is the whole Video aspect here, something that I’m hoping Microsoft will use to kick Apple’s butt… -Chicken.

    I hope so but I have my doubts in the whole thing. The VP-in-charge of this project can’t even paraphrase the Zune’s final features, or whether they are working.

    Now, that is bad. All this video stuff you’ve heard are probably just vapor or worst, F.U.D. to try to slow down the iPod momentum just in time for the Zune’s launch - when?? We’ll just have to wait for the released product to make two+two together and see if it stacks-up at all.

    Robomac had this to say on Oct 22, 2006 Posts: 846
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