Zunestory Microsoft Talks Zune Expectations

Stung by recent criticism of the marketing and functionality of its Zune portable media player, Microsoft this week revealed its plans for the device and in a rare disclosure its expectations for sales during Zune's first holiday season. According to a Microsoft representative who briefed me about these plans yesterday the company expects to ship more than 1 million Zune players by the end of its fiscal year which ends June 30, 2007. That's enough to give Zune 10 to 20 percent of the market currently dominated by the Apple iPod with which the Zune most closely competes.

Assuming that happens Zune wouldn't be a total wash because during last year's holiday season the number one non iPod product in the more than 200 MP3 player market sold only a fraction of that number. It's also worth noting that Zune went from its first whiteboard scribbles to a finished product in about 10 months a monumental feat for a company that isn't particularly well known for moving quickly.

Many, myself included, have criticized or even decried Microsoft's entry into this market the underwhelming marketing of the device and the lack of certain features. Microsoft has admitted to making some mistakes, such as the viral marketing scheme that appears to have fallen flat, in my opinion, with consumers but it defends its decision to enter this important market now and says it's here for the long haul. I'm told that Microsoft will ship numerous functional updates to the existing Zune player and launch new Zune devices with new form factors and unique features in the next year.

The key to Microsoft's decision to make the Zune I was told is that, although Apple controls 75 to 80 percent of the overall MP3 player market. Apple almost completely controls the only parts of the market that make money i.e. large capacity MP3 players. For all its work creating the underlying technologies for the PlaysForSure initiative Microsoft watched as its numerous hardware partners managed to collectively steal only tiny amounts of share in the low end flash memory player market. This business model clearly isn't sustainable.

Speed was another problem. Although Microsoft could do the plumbing work to support new features e.g. podcasting, as they arrived and then revise Windows Media Player (WMP) to support those features getting all its hardware and services partners lined up at the same time to support new features proved to be impossible. For Microsoft to offer any kind of concerted competition for the dominant iPod it had to do so alone. And Apple had proven that there were billions of dollars to be made in portable music. Thus, the people behind the Zune could champion the potential to Microsoft s leaders p p p p To ship a product quickly however Microsoft had to look at core functionality and try to deliver some key differentiators. Although the Zune does lack several features that the iPod boasts customers rarely use most of those features anyway and Microsoft intends to close the gap in time. Furthermore, the Zune does include a few unique features of its own such as Wi-Fi connectivity and a Send feature that lets Zune users wirelessly share content.

This holiday season is a beachhead period for Microsoft during which it's trying to change people's perceptions of the MP3 player market from Apple and everyone else to Apple and Microsoft and everyone else. From this perspective the company has been somewhat successful. Despite lukewarm reviews, the Zune is a hotly debated product among influentials. Looking forward, Microsoft intends for Zune to be profitable in 12 to 24 months. This is the fuel we need to go after Apple on a long term basis said the Microsoft representative.

There's a lot more to this story of course so I'll provide a more in depth look at Microsoft's plans for the Zune later this week on the SuperSite for Windows.

Microsoft Adds Book Search to Its Online Repertoire 

This morning Microsoft unveiled its latest online service, Windows Live Book Search, which lets users search the contents of digitally archived books. The service competes with the recently released Google Book Search. But Live Book Search which is currently available as only a beta in the United States includes the contents of books that have traditionally been off limits because they've been out of print for so long.

This release makes tens of thousands of out of copyright books available from our library scanning initiative, including books from the University of California the University of Toronto and the British Library Microsoft Director of Publisher Evangelism Cliff Guren wrote in the Live Search blog this morning. In addition, we are announcing new partnerships with the New York Public Library and the American Museum of Veterinary Medicine. There is a lot of trusted and authoritative content that can only be found in books today. With this beta launch we've taken our first steps toward making that content discoverable and easy to read.

Microsoft said it won't engage in the mass scanning of copyrighted works and will instead give publishers the ability to opt in with copyrighted publications. This move is an implicit stab at competitor Google which raised the ire of book publishers earlier this year when it announced plans to scan copyrighted books and make the content available online. Several publishers authors and the Authors Guild sued Google in the United States and elsewhere because of this questionable practice.

The initial public beta of Live Book Search is now available to US users from the Live com Web site.

Stuck in a Rut Yahoo Does the Reorganization Dance

Despite superior products and services and a larger customer base, online giant Yahoo has sat on the sidelines and watched as competitors such as Google and MySpace have sopped up all the online ad revenue and new users. Now the company is ready to act. This morning, Yahoo announced its biggest corporate shakeup in more than five years a change that's aimed at jumpstarting ad sales and refocusing the company on users instead of on products.

"We're moving aggressively to deliver the most possible value to our key customers audiences advertisers and publishers and seize the major new opportunities we see ahead for the Internet," said Yahoo Chairman and CEO, Terry Semel. The Internet is continuing to grow and evolve at a rapid pace and we're reshaping Yahoo to be a leader in this transformation. We believe having a more customer focused organization supported by robust technology will speed the development of leading edge experiences for our most valuable audience segments. In turn, we plan to drive growth and profitability by leveraging our deep audience insights to create a full fledged advertising network with a marketplace that meets supply and demand both on Yahoo's valuable owned and operated network and across the entire Internet.

Although some of Yahoo's problems are its own fault its highly touted upcoming ad network has been delayed several times some are not as easily explained. In the Internet services space Yahoo often offers solutions that are vastly superior to those of its competitors Yahoo Mail is a key example. The new version of the service is dramatically more attractive and useable than similar services from Google and Microsoft and yet Google's Spartan Gmail service in particular somehow manages to continue gaining converts.

Yahoo said it will rein in its practice of continually releasing new products although the same strategy doesn't seem to have harmed Google yet. Google, if anything, is even more scatter brained in regards to its seemingly never ending release of beta products and services. Yahoo will reorganize into three groups focused on its struggling, but still popular Web site advertising and technology. An executive memo that touched off the reorganization called for dramatic layoffs as well but Yahoo said it will continue to grow its employee base instead to jumpstart growth.

Regardless, Yahoo's future is murky. As the company continued to stumble throughout the past year, Google's stock soared past unheard of heights and Google recently purchased online video sensation YouTube for $1.76 million. Meanwhile, Yahoo's attempts to purchase facebook com a competitor to the social networking service MySpace have faltered.