Nostradoofus

The Zune is Microsoft’s recent entry into the handheld music player business. I explain this for posterity, as the product will likely be little remembered 5 years from now.

Currently, the Zune PR whisper machine likes to say the hardware was done by the xBox designers, somehow implying that’s an advantage. That’s mistaken. The xBox is a strategic and software success, but absolutely not a great hardware design.

xBox beat PlayStation because Sony failed to understand what everyone else in IT has understood for 25 years: it’s extremely valuable to create a stable software layer to abstract programming from hardware. This “abstraction layer” makes it inexpensive for both hardware maker and software maker to preserve backward compatibility across major hardware revisions. It also allows programmers to re-use code and knowledge for a longer period of time, which reduces software investment cost. Since game software is a high fixed cost, low variable cost business, a relatively small reduction in development cost can turn a big loss maker into a big profit maker. Multiply this across the hundreds of software titles available for a game platform, and you start to see the value of the abstraction layer.

Microsoft’s core business for over 20 years has been to build that sort of abstraction layer for PCs. For xBox, they simply built a similar layer atop a competently executed video game machine, and the battle was over. Microsoft didn’t win, so much as Sony fumbled. A competent software roadmap for Playstation 1/2/3 would have made it impossible for Microsoft to get a foot in the door.

Now, back to the ill-fated Zune. In music players, architectural control does not depend upon a client-side abstraction layer, because the media is not software, but simply music data. There’s no advantage for Microsoft in being expert at operating system development.

Instead, the key feature in music players is ease of use, which means software design and seamless integration. Say what you want about the roller coaster that is Apple Computer, but if there is one thing they have consistently done for over 20 years, it’s simple, elegant software design and seamless integration. It’s their hallmark.

Unlike Sony, Apple does not lack insight or execution. Their reputation is profoundly the opposite. Since 2001, they have become a rare combination: a design-driven firm that appreciates the value of architectural control. They have pursued that control relentlessly with iTunes, using superior integration and ease of use to establish their position, and then network effects to remain there.

Apple still lacks scale. If they’re beaten in the music business, that will have been the reason. It will have nothing to do with product quality, because there is no meaningful way to outperform what Apple already offers. It’s good enough. Their 70% share is proof of this.

Built into that compliment, however, is a bigger risk for Apple: the iPod is maturing rapidly. It may turn out to be a onetime sale with no followup, rather like the PalmPilot. 99% of the music buying public already can fit every song they own on a $300 iPod. Why ever buy another? To continue to grow, or even to sustain sales, Apple is almost forced to move up to cellular phones. That is a very big, very risky step.

The safest way to tackle this might be to turn the iPod into a WiFi phone. There is no organized competition, the system can plug directly into Apple’s existing iChat system, and it then becomes a network effects business, in which 30 million iPod owners can all phone each other. In certain settings, e.g. high schools and colleges, practically everyone has an iPod, so there is critical mass. Also, students are price sensitive to cellular airtime, while a WiFi phone would be free.

Still risky, but perhaps a logical next step.

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