Microsoft’s Zune vs. Apple’s brand building

Posted on September 20, 2006 , filed under Stocks | Print This Post

There has been a lot of clamor about Microsoft Corporation’s (MSFT) new Zune device. Zune is portable audio and video jukebox similar to Apple Computer Inc.’s (AAPL) video iPod. The devices have a similar form factor and both work with files downloaded from their respective proprietary a/v distribution platforms and non-DRM files. There are some key technical differences between Microsoft’s offering from Apple’s, including a larger 4 inch screen and built in Wifi.

I believe Microsoft’s entry into the portable A/V jukebox world is a case of too little, too late. Microsoft dominates in the Operating System world and it appears the company believes it can dominate a category from sheer technical innovation. Portable A/V players are now a commodity and there is nothing exciting about the launch of a new device, even from a company the size of Microsoft. The market has been saturated with players that offered technical innovation from other features such as form factor, battery life or file compatibility. None of these portable A/V players have the mass-market appeal of Apple’s iPod and video iPod.

Apple’s effort in building a brand name and a loyal following behind the iPod is what differentiates its offering from other portable A/V devices. When the iPod was first released it was a must be seen type of device. There was a special aura about owning an iPod and being a part of a group of owners that were more hip to Apple’s offering. Apple’s marketing machine built a campaign from the stylishness and personalized lifestyle aspects of owning an iPod. When Apple began offering engraving services on the back of the silver clad iPod’s, the company had definitely hit upon mass market acceptance of the device.

Microsoft should take a page out of companies like Apple and work on building a brand name and loyal following instead of concentrating on technical innovation as the key driving factor behind a product launch. While I believe Microsoft has its share of rabid fans behind the Window OS, my opinion is that it’s rare for me to find a fan of Microsoft’s products across the board. If you compare an Apple fan to a Microsoft fan, I believe the Apple fan will be more likely to buy only Apple products. This is more likely due to Apple’s brand building efforts.

Microsoft has aggressively branched into different product categories over the past decade. The company has launched a tablet PC platform, the MSN search engine, and the XBOX interactive gaming platform. These products are among some of Microsoft’s more technically innovative products and have enjoyed only mixed success. Microsoft’s most recent Zune launch shows a corporate culture all too willing to bet that technical innovation is all that is needed to win a product category.

Microsoft could do well to learn from Starbucks, (SBUX). Coffee on a retail level was well on its way to becoming a low cost commodity a decade ago. Today if you walk around any major city in the States you should be able to find a Starbucks every few blocks with patrons happy to pay $2.00 and up for a cup of Java. There are more expensive and arguably better retail coffee brewers, but none have had the success Starbucks has enjoyed for the same reasons none of the portable A/V vendors have enjoyed the success of Apple. Customers happily pay for a brand name and consistent quality.

In the case of Zune, had Microsoft done more to promote its brand name outside of OS development I believe the company would have a much better chance of competing with Apple. For now Zune will likely get lost in the shadow of Apple’s well built brand name and consistent quality behind its iPod line of portable A/V players. I believe Zune will add little to Microsoft’s existing revenue’s. I expect that future medium-term, 1-3 year growth for the company will be hedged on the success of the Windows Vista OS.

*Disclaimer: I do not own any shares of any of the companies mentioned above.

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