It’s Never Too Soon to Zune

By now you’ve heard the news that Microsoft is launching a new digital music player that’s set to compete with Apple’s iPod (and if you haven’t yet heard the news, let me be the first to welcome you to the show I like to call, “The Battle for Christmas Now Begins in July”).

Some people– and by “some people” I mean “the folks at Microsoft”– are calling the new device, named Zune, an “iPod killer” and it comes tumbling out of the box with a host of features: video-enabled, a larger screen and iPod-esque click wheel controls and– get this– pocket wi-fi, which will allow people to download and share music wirelessly in localized, self-formed, where-you-happen-to-be-standing, hotspots.

Is it an “iPod killer?” I don’t think so (iPod has an entrenched 75% share of the market), but I do believe Apple should be worried– and for reasons you might not have considered.

Before I go into my line of thinking, let me stop here for a second and lay out on the table the fact I use Macs, own several iPods and don’t possess a video game console. What I do know is marketing and advertising– strategy and tactics– and, while Mack Simpson the Consumer wishes no ill will towards Apple, Mack Simpson the Creative Director Ad Monkey would do everything in his power to slit the iPod’s throat if he worked on a competing brand.

What you’re about to read takes what the public knows about Zune, mixes in some of the things Microsoft is currently doing, throws in a dash of music industry wants and desires with just a pinch of speculation and then bakes it all up into a strategic and tactical dish of business model goodness.

Hopefully I won’t use too much salt.

Ok. So here are the three most important things we know about Zune (as I see it): it’s video-enabled, wireless-ready and it was designed by J Allard’s team, the brains at Microsoft behind the X-Box and all things X-Boxilicious (including the X-Box 360 and the X-Box Live Marketplace).

The X-Box 360 is, of course, a wireless-ready gaming console, coveted by millions of 18 to 24-year olds, and the X-Box Live Marketplace is an online community/shopping mall where content (games, video programming, etc.) may be purchased with the use of “Microsoft Points,” something that will become important later on. It’s not too much of a stretch to believe that, if J Allard designed Zune, the chances are pretty good it will integrate wirelessly, in some form or fashion, into the X-Box 360.

On the content side of the coin, we know the music industry is in a love/hate relationship with iTunes; they love the incremental volume and popularity of the distribution channel but they hate that Apple’s really the only game in town and can dictate both price and percentage. Remember, this is a group of publishing houses that are accustomed to printing money– however much they want– at every step along the chain; they’re being held over the Apple barrel and they’re not exactly comfortable with the situation.

For them, competition amongst distribution channels is a good thing and they’ll be willing to do whatever they can to facilitate future bidding wars for their content.

Likewise, movie and television production studios.

The next to last thing I can mention that’s noteworthy is the 800 lb. gorilla sitting in the room: the iPod itself. And it’s a massive fucking ape. This thing has 75% of the digital music player market, is easily mastered by grandmothers in Iowa and has nurtured an end-to-end-to-end product system (the iPod connects to iTunes which connects to the iTunes store which connects to the iPod) that would make Bethlehem Steel envious. (How are they doing, by the way?)

The last thing I know is Microsoft is the Borg. Show them a market and present them with an opportunity and they will swoop in and commoditize the hell out of it. They’ll process it just as fast, charge half as much and do it almost as well as whomever got there first.

And did I mention they’d charge half as much? Yeah, I think I did.

One of the rumors floating around is that Microsoft will buy their way into the market, allowing switchers to re-purchase their music bought through iTunes (and which can only be played on an iPod) for conversion to Zune at no charge.

That’s some major coin and, while I recognize Microsoft has very deep pockets, there’s a limit to their largesse.

So that’s what I know.

Now, how would I, a devious ad monkey, attack an opponent sitting behind a Maginot Line of high design, rounded edges and hipster, first-to-market cool?

Well, I’d go after a mass market– because you have to see who’s willing to bite and welcome them into the fold– but, beyond that, I’d use the X-Box, the console’s supremely advertiser friendly, 18-24 demographic, and the points– the Microsoft Points.

It seems to me the Zune, X-Box and the X-Box Live Marketplace are to Microsoft what the iPod, iTunes and the iTunes store are to Apple. Replace the X-Box with a computer accessing a particular website and you’re reaching a truly mass market, but for now, let’s stay focused on the X-Box.

The X-Box serves as the “master control” for Zune, ordering the playlists and whatnot and the X-Box Live Marketplace serves as the clearinghouse of music and multimedia products for purchase– all communicating wirelessly between devices.

In any case– X-Box or PC-meets-web scenario (depending on your demographic)– you have a readymade end-to-end-to-end distribution channel that competes favorably with Apple.

But how do you get people to put down their iPods in favor of the Zune?

First, you focus in on the early-adopting 18 to 24-year olds who are sitting around playing their X-Box. You hit them and you hit them hard, making Apple’s iPod advertising look like a pharmaceutical company pushing pills to senior citizens. Then you follow through on the rumor and you pay people to switch– you make it insanely inexpensive (possibly even free) for them to port their iTunes-purchased music over to Zune, and here’s how you do it on the cheap: You insert advertising into the mix.

The cogs within the X-Box Live Marketplace are oiled by Microsoft Points, a stand-in for dollars, which can be purchased or given away to end users for participating in promotional activities. Those users then, in turn, use them to purchase content.

So here I am, a male aged somewhere between 18 and 24, and I walk into a Starbucks. Suddenly my Zune lights up, receiving a wireless feed from the T-Mobile hotspot inside, asking me if I’d be interested in learning about their wireless Internet rates while I’m drinking my coffee. If I agree to watch a 30-second add, streamed to my video-enabled device, I’ll earn 50 points. Oh, and by the way, would I also like to see another 30-second spot touting T-Mobile’s latest rollover minute plan? Another 50 points. And how about another 30-second spot extolling the virtues of Nokia’s latest clamshell offering? Bingo. Another 50 points.

Let’s wrap it up with a 30-second spot branding Starbucks while we’re at it and I, a member of that demographic so sought out by advertisers, could easily rack up several hundred “points” to be used for the purpose of purchasing music for playback on my new Zune.

Throw in the fact that the music publishing companies would probably be willing to take a hit on converting people over to the Zune just for the potential long-term payoff and that Microsoft would likely subsidize a little more in addition to what paid advertising just purchased for me, and I could easily use my points from my one grande latte pit stop for the purchase of a complete album to replace my iTunes songs (or to get something completely new). (And at a fraction of the cost to Microsoft of what it would have been if opt-in advertising for the purpose of earning points hadn’t been employed.)

Suddenly we’ve demonstrated a couple of things: one, people are willing to migrate over to Zune– even if slowly– and, two, we’ve demonstrated that the Zune handheld device is a legitimate media vehicle for reaching a highly desirable target demographic.

Advertisers will beat a path to Microsoft’s doorstep and the users will gladly watch their ads, all for the sake of collecting ethereal “points” used for the purpose of purchasing digital content.

Now Microsoft has a revenue stream above and beyond Apple’s iPod, and that means, because of the additional revenue, Microsoft is now capable of charging only 79-cents per song and offering the music publishing houses 20% of the take instead of just fifteen– and still make money on the deal.

Before you know it, because of the favorable terms, Microsoft is getting sweetheart deals on new releases and exclusive access to hot artists and albums– and movies and television shows, remember– and is forcing the iPod into the territory of being that quaint device that people over the age of fifty use to store their 1950’s Buddy Holly collection.

All because of Zune’s ability to reach a desirable target with opt-in advertising.

I would SO murder iPod.

So will this come to pass? Who knows, but if it does you read it here first.

And if it doesn’t, at the very least I’m looking forward to seeing the advertising death match between two West Coast heavyweights: Apple’s advertising agency, Chiat/Day, and Microsoft’s Wieden+Kennedy.

They’ll have to get started soon because the battle for Christmas now begins in July.

[This post was recreated after a server crash; hyperlinks have been lost, sorry. –M.]

07/23/06: The original Zune prediction/marketing plan
08/18/06: Update #01
09/14/06: Update #02
09/28/06: Update #03
11/14/06: Update #04

1 commentEmail Article Sunday, July 23rd, 2006 at 09:09am Mack Simpson

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