Is the Zune doomed?

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An article by Mike Ferro over at Blorge cites Microsoft’s recent quarterly FCC filing of a 54 percent revenue drop in Zune sales and the Redmond giant’s planned layoffs to propose that “It is more than likely that the Zune business will receive a good helping of the layoffs and possibly the end of the Zune as well.”

Ferro goes on to say:

The thing about the global financial crisis is that it’s forcing companies to undergo reality checks. Microsoft, by now, should be realizing that it’s never going to be as “cool” as Apple, so why waste its time with the Zune where it has no competitive advantage?

Whether you agree with that statement or not, it begs the question: How does Microsoft perceive the success of the Zune internally and does it feel that it’s a wise business move to keep moving forward with it in the face of a pretty serious financial downturn?

The Zune has been around for a little over two years and in that time, over 3 million units have been sold. In comparison, the iPod has been around for a little over seven years and over 173 million units have been sold.

What’s not clear is whether or not the Zune is making money for Microsoft. It doesn’t need to beat Apple in order to turn a profit. If the 3+ million units that have been sold generate more revenue than losses for the Zune division, Microsoft may very well keep the Zune in its portfolio.

I’d submit that, if anything, Microsoft might decide to get out of the hardware side of the Zune and focus on the software for Windows Mobile smartphones. Indeed, rumors have been floating around that members of the Zune UI team are already moving over to the WinMo team. Whether that’s to try to create a secondary Zune platform on Windows Mobile or to transplant the Zune platform to Windows Mobile entirely is the big question.

Some would argue that the best thing the Zune has going for it is its interface, while the actual hardware has always been sort of so-so. If you could take the Zune experience and transplant it into your WinMo phone, it’d sure beat using the mobile version of Windows Media Player, right?

I posed that same question to one of Microsoft’s Windows Mobile developers at the Embedded Systems Conference here in Boston last October: How closely do the Zune, WinMo, and Embedded teams work together and would we ever see elements of the Zune interface on a WinMo phone? He dodged answering the question directly but conceded that the Zune and WinMo teams shared a fair amount of info with each other (the Embedded team was more separated).

It doesn’t seem likely to me that Microsoft would ever pursue a Zune phone. It seems far more likely that Microsoft would integrate elements of the Zune UI into its already-established Windows Mobile platform. So, just for the sake of argument, if Microsoft decided to drop the Zune hardware — and there’s no clear indication that it would aside from the layoffs and the drop in revenue – it’d be a shame for the Zune UI and platform to die just because the hardware does.

Keeping the platform going on smartphones, the next closest thing that Microsoft has to portable audio/video devices, seems logical when you consider all the over-the-air features you’d be able to integrate into the Zune experience, like direct music downloads and streaming over 3G.

Microsoft to exit the Zune business? [tech.blorge.com via Slashdot]

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