Analyst: Zune could lead to ‘civil war’ between Microsoft and Windows Media partners

“Microsoft Corp. will likely lose money on its new music player, Zune, against Apple Computer Inc.’s ‘industry-leading iPod profitability,’ an American Technology Research analyst said Friday,” Barbara Ortutay reports for The Associated Press. “Analyst Shaw Wu said a perhaps unintended side effect of the software company’s entry into the portable music player market will be competition with its own licensing partners — even putting smaller ones out of business.”

“Wu said while it remains to be seen whether the Zune, with its similar pricing, bulkier form and ‘inferior battery life,’ will take share from Apple and its loyal customers, it will likely at least see modest success thanks to Microsoft’s vast resources and strong brand name,” Ortutay reports. “This success, however, may be at the expense of Windows “partners,” especially companies like Sony, Samsung, Toshiba and Creative Technology Ltd., and others that sell hard drive-based players.”

Ortutay reports that Microsoft’s “entry into the portable music player market, Wu said, will likely lead to a ‘civil war’ with its own partners. As the market now stands, customers either buy iPods or something else, regardless of brand name. For now, the non-iPod market is very fragmented, with 15 to 20 players. Some of those, especially smaller ones such as iRiver or France’s Archos, will probably exit the market — like Dell and RealNetworks did — or go out of business. ‘Ironically, it will hurt them more than it will hurt Apple,’ Wu said.

Ortutay reports,, “He reiterated a ‘Buy’ rating and a $91 target price on Apple.”

Full article here.

[Thanks to MacDailyNews Reader “Joe Architect” for the heads up.]

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  1. I disagree – I think that MS will hurt the medium size players – Creative and Sony – more than the smaller iRiver.


    Because people buying a niche player are probably buying on price or a specific feature. The Zune can easily replace the Creative offering because the Creative offering is basically the same as Zune without the Microsoft brand – which for whatever reason some people actually prefer.

  2. Undecided iPod buyer holds iPod in store:

    “Hmm, costs less that ZUne, longer battery life, looks great, works with free iTunes and iTStore on Mac and PC, huge user base and platform infrastructure, innovative design, well.. Heh, WTF! It doesn’t even come in BROWN?!? Sheeesh!

    Undecided iPod buyer puts down iPod, grabs brown Zune and heads to register.

  3. How can Zune be #7 on Amazon’s best-seller list for MP3 players?

    Well, let’s see….#6 is a SanDisk player.

    #8 is the discontinued 60 GB iPod.

    SanDisk is the 2nd best-selling player after the iPod. SanDisk as a whole has less than 10% marketshare. The Sansa e250 player that’s at #6 would be some fraction of that. Let’s be generous and say the Sansa e250 represent half of SanDisk palyer sales, which would give it a marketshare of 5%.

    So Zune is somewhere between 5% and 0%. It might be selling just a few units more than an iPod that has been discontinued 3 weeks ago and still come in at #7.

    Basically, we’re probably talking nothing more than a few thousand units bought by rabid MS fanboys since Amazon probably isn’t carrying that much leftover stock of the 60GB iPod now. That would result in one Zune user every 10,000 square miles or so. Big whoopee.

  4. The $91 target price is laughable. But this is an institutional thing with investment firms. They are afraid of being sued by those taking their advice if they guess too high. And most of the analysts are simply too stupid to see what is coming.

    Apple is a very special case with prospects that can not be captured by the normal metrics. It takes a deep understanding of the business, including the competition and the realization of the extremely high quality of leadership, management and engineering at Apple. After the October Jobs’ quarterly chit-chat with the analysts, I doubt that any investment firm will have less than triple digit targets – and the numbers they chose will still be way too low.

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