Analysts: iPod nothing to fear from slow-starting Zune

Financial analysts watching the consumer electronics space report that early sales of Microsoft Corp.'s Zune player should give little reason for iPod loyalists and Apple Computer Inc. to fear this holiday season.

Since its retail debut on Nov. 15, customer interest in Zune has been lackluster, analysts report. Early reviews of the product have been less than stellar as well.

According to a research note published Tuesday by PiperJaffray senior research analyst Gene Munster, only 8 percent of 40 retailers surveyed by the firm recommend the Zune to customers, while 75 percent recommend Apple's iPod.

Moreover, some MP3 salespeople hadn't even heard of Zune, even though the players are being sold at their stores, he wrote in his report.

Quotes from retail clerks cited in Munster's report range from them claiming they don't know what the Zune is, to comments that Zune is a good option if a customer does not use Apple's iTunes software.

"To be honest, I don't really know much about the Zune," one clerk is quoted as saying in Munster's report. Another said, "I don't suggest the Zune because it is really heavy," according to the report.

Zune also did not fair well against other MP3 players and Apple's iPod even during its initial week of sales, when the hype surrounding the product was at its peak.

According to Munster's report, during its launch week on Nov. 16, Zune held the seventh spot on online retailer Amazon.com's top 10 best-selling MP3 players list, and it fell from that spot to 13 on the list only five days after launch, on Nov. 20.

"The buzz that Microsoft was able to generate for the Zune's launch clearly helped the player in its first week, but much of the publicity took the form of Zune/iPod comparisons," Munster wrote. He added that these comparisons show that Zune "failed to match up in the eyes of most reviewers" to the iPod, a fact that negatively affected sales of the device.

Deutsche Bank analyst Chris Whitmore wrote Monday that the iPod continues to be a strong seller going into the busy holiday shopping season, and the 30G-byte video iPods -- with which Zune competes -- "appear to be immune to the Zune." He said both the 30G-byte video iPods and the new 4G-byte iPods nanos currently are popular with consumers.

A note about Apple's performance from financial firm UBS IT hardware analyst Ben Reitzes also said that Zune does not appear to be any threat to iPod at this time.

To be fair, Apple has a five-year head start in the music and video player market, and no one expected Microsoft's first entry would be comparable right away to the immensely popular iPod. Microsoft has said it plans to invest significantly in the Zune over the next several years, and the device is expected to become more competitive.

Microsoft's 30G-byte Zune costs US$249.99, the same as Apple's video iPod, but is different from the iPod in two key ways. Zune includes an FM tuner and wireless capability that allows users to share songs between devices.