Microsoft's Zune Is A Risk Worth Taking

[Ted] Okay, it's time to weigh in on Zune. In a word, Zune is risky. But the bigger risk is losing a place at the table when digital media decisions are made. So it's a risk worth taking.

Three things make Zune extremely risky for Microsoft because its Zune strategy will:

1. Cast Microsoft's DRM in a proprietary shadow. Today, Apple's FairPlay DRM technology is proprietary -- no other hardware manufacturer or media retailer can use it. That protects the tight link between iPod and iTunes and makes Apple the only mass market online outlet for protected music, movies, and TV shows. Microsoft has been the "open" alternative -- its WMA DRM technology is easily and cheaply licensed and available to anybody. But Zune, which will use WMA, will need to compete against Creative, Samsung, Sony, and SanDisk, as well Apple. And that means Microsoft will be tempted to introduce proprietary features that favor Zune over those other players. Adding proprietary features is a risk that Microsoft is takes at its own peril -- as the recent ruling in the EU over Windows Media Player shows.
2. Create a group of disgruntled MP3 player partners. Michael Garternburg's post on Zune's impact is worth reading.
3. Raise concerns about where Microsoft might go next. When your software component supplier starts competing with you or your buddy, you look at them with a jaundiced eye. Microsoft has entered market after market to the discomfort of long-established partners. Might Microsoft next build a Zune phone to compete with the Q? If you're Motorola, you've got start wondering . . .

However, for Microsoft, these risks are worth taking because every day Apple is locking in more control over the future of portable digital media. And if Microsoft can't make its DRM the dominant technology in digital media, then it will miss out on a great software-driven market. And Zune could be one vehicle to displacing Apple's dominance.

So, what should Microsoft do to make Zune a success? I wrote about the future of digital devices in a report called "Sell Digital Experiences, Not Products" (which costs $$ at Forrester.com). The report introduced a "connected devices" architecture that describes the relationship between a service such as a media portal, a control devices like a PC or set-top box, and portable device like an MP3 or portable game player. The advantage of this three-part architecture is that it reveals where the value-creating opportunities -- and the failure points -- are. For example, to beat Apple, Zune must:

• Significantly improve on music discovery. Apple's music discovery consists of hits and serendipity. Suppliers like Last.fm, ChoiceStream, and the emerging ZING offer an intriguing alternative -- replace the local record store guru with online expertise.
• Go way beyond music to video, gaming, voice, etc. This one's been written about.
• Put community and eBay-style entreprenurialism at the center. Xbox Live is proving that a marketplace can be built around gaming. Zune should build on that to give media programmers a place to establish and sell their expertise. Want a daily bebop recommendation? Sgn up for the Bebop-a-loo-bop RSS feed. Want a great soundtrack for Halo 3? It's yours for a fee.

Disagree? Lemme know.

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