New Zune players will face tough market

More types of Microsoft Corp. Zune music players are in the works, but some analysts are unsure whether new form factors or functions will significantly boost Zune's popularity.

Microsoft sees three main categories in the sector, and all of them are important as the company develops new Zunes, said Chris Stephenson, general manager of global marketing for Zune. The three categories include higher-end video players, mid-range music-centric devices such as the iPod Nano and low-end USB devices such as the iPod Shuffle, he said.

"We think of [the Zune] as a broad entertainment offer that is driven by music at the moment," he said. "We will start to play more aggressively in a broader number of categories." The current Zune is just the "tip of the iceberg," he said.

In the next month or so, Microsoft plans to reveal more about its vision for the future of Zune, he said.

One analyst isn't so sure that a very low-end version of the Zune comparable to the Shuffle will help. "I don't personally see that as something the Zune should do next," said James McQuivey, an analyst at Forrester Research. "Zune should first worry about getting a base of users of both flash and hard drive versions before experimenting with little companions." He said most users of Shuffles buy them essentially as companions to a larger iPod.

However, Microsoft could plan on selling such a lower-cost product as a way to quickly boost its user base "so no one counts them out," he said.

The Zune is currently a distant second in portable music player market share, behind Apple.

Developing a player like the Nano, Apple's best-selling music player that uses flash, would be a good idea for Microsoft, said Michael Gartenberg, an analyst with Jupiter Research. "If they're going to compete with Apple, they're going to need something that competes directly with the most successful in the line, and that means a flash-based player" like the Nano, he said.

Beyond the form factor, Microsoft is also likely to expand the Wi-Fi capabilities in the Zune, Stephenson said. Without revealing any specific plans for new Wi-Fi capabilities, Stephenson described scenarios that are being discussed in the marketplace, such as the potential for Zune users to download music over Wi-Fi in public hotspots or to synch with their PC-based music collections while at home. Currently, Zune users can only use the Wi-Fi connection to share music with other Zune customers.

But even expanded Wi-Fi capabilities may not be enough to draw new buyers. Connecting a Zune to a home or public network could be technically difficult for some users, McQuivey said. "If you have the kind of know-how to do that, you're the person who bought an iPod four years ago," he noted. "So how do you grow beyond the iPod footprint? I don't know the answer to that."

While Microsoft has the resources and the talent to develop cutting-edge products, it's not clear that the company will manage to hit on a winning product or service. "They're going to have to find ways of being where Apple isn't and find ways of growing the overall market," Gartenberg said.