Microsoft Zune: Down 54%
My pal JP notes that the iPod wannabe had an utterly disasterous quarter:
Overlooked in the carnage of Microsoft’s second quarter was the performance of the company’s Zune platform. Which was, quite simply, atrocious. Seems that $10 to $20 holiday discount didn’t do much good at all.
According to Microsoft’s latest 10-Q, “Zune platform revenue decreased $100 million or 54 percent reflecting a decrease in device sales.”
A precipitous decline. And one that stands in stark contrast to the record 22,727,000 iPods Apple (AAPL) shipped during its latest quarter, representing three percent unit growth over the year-ago quarter. Can’t really blame this one on the economy, can we Microsoft (MSFT)?
That is just a horrific comparable. It just goes to show you that Microsoft, without the advantages of the Windows/Office monopoly, is simply just another ordinary company — nothing special, nothing innovative.
What do you expect from a big bloated monopolist whose history is dominated by decades of a corporate culture that was more interested in stealing versus creating, in bullying versus cooperating.
Onwards! Their long slide into irrelevance continues . . .
>
Source:
Zune to Be Forgotten
John Paczkowski
Digital Daily, 12:00 AM PT on January 24, 2009
http://digitaldaily.allthingsd.com/20090124/zune-to-be-forgotten/
January 25th, 2009 at 6:57 am
Yes, I know you were thinking XBOX — but that was an enormous money loser. Some estimates were that MSFT sunk $2-4 billion in its development and R&D costs.
They managed to punish Sony through sheer horsepower, but is the X Box anywhere near as creative and innovative as, say, the Nintendo Wii ?
January 25th, 2009 at 4:55 pm
Microsoft has profited from foisting lousy products on IT managers who love to build big administrative staffs. For years, consumers thought they had to buy MSFT products to be compatible with their employers’ and software vendors’ mistakes.
Now, it is so clear that those thousands of bright MSFT people in Seattle have been working with both arms tied behind their backs by their highly flawed OS.
Those who say MSFT is cheap because of its low PE should take a look at its growth prospects, which are close to zero. That implies a PE of zero.
January 25th, 2009 at 5:19 pm
Microsoft has demonstrated time and time again, it cannot innovate.
January 25th, 2009 at 5:31 pm
businessword-
for those of us stranded in the reality based community, please explain how a company with no growth should trade at a p/e of zero.
Here, I’ll make it easy for you. Take an instrument that pays you $10 next year, $9 the year after that (not zero growth but actually shrinking!!) and falling by $1 each year until it reaches zero. Now sell me that instrument for $1 and keep the $1 as your “pure profit.”
Finally, apply for a job on the Merrill trading desk. I hear they are looking for people with your level of math ability.
January 25th, 2009 at 5:31 pm
Barry,
There are some monopolies that make economic sense. They usually are in the communications infrastructure field, like power lines, telephone lines, water and sewer, and yes, the communications platforms for businesses to talk with each other. (Notice I didn’t say in power generation, or water purification, etc–it’s the lines that are natural monopolies, i.e., the means of communication, or delivering the product, not the actual product). In that regard, it was immensely beneficial and efficient at the onset of the internet age that Microsoft muscled its way into providing a singular platform through which business communications could take place.
Its failure was, as you say, in leveraging that monopoly–which it more or less fairly won in the marketplace over IBM and all other comers–into trying to control content that would use the Windows platform for communication. It seems monopolists just can’t be content with raking in monopoly profits. Imagine that every time a windows PC was sold, for virtually no marginal cost, Microsoft got about $250-$500 (depending on the era) just for the pleasure of allowing one more person onto the platform. That should have been enough.
Incidentally, a singular fiat currency is also a natural communications monopoly in many respects. Money is the store of value, medium of exchange and method by which prices are signaled. This is especially true the US currency, which is does all those things for not just this country, but also the world.
Microsoft is not the only monopolist on the ropes for its attempts at excessively leveraging a dominant market position to do things outside its capabilities that ultimately damage its preeminent market position in those things it should do well. The Fed’s monopoly is getting shakier by the minute. I wonder which currency will be the Fed’s Apple?
January 25th, 2009 at 5:44 pm
only person I ever saw with a Zune was a microsoft zune salesman
January 25th, 2009 at 5:52 pm
Quote “It just goes to show you that Microsoft, without the advantages of the Windows/Office monopoly, is simply just another ordinary company — nothing special, nothing innovative.”
Kind of like Playboy-when they lost their casino license in the UK, the sins of pi** poor management were exposed and the corporation nearly died. (Thank Goodness it didn’t)
January 25th, 2009 at 6:22 pm
The really sad thing is that they are taking the same management approach with the Gates Foundation: hire lots of retread administrators and do exactly what has been done by every other Foundation working in development (and failed miserably), but dominate development thinking with the sheer volume of money flowing into projects.
It is bad enough that Gates had to mess up the computers on most people’s desktops, now he is going to make a mess of Africa too? This is like the second coming of AIDS.
January 25th, 2009 at 6:28 pm
If MSFT was really like the gov’t, they would pay TARP-like funds to the entrepreneurs they’ve put out of business with their copycat, bolt-on strategy. But they let them all drown.
And while the Fed has a monopoly on the local currency, it’s much easier to swap or buy euros than switch to Linux.
January 25th, 2009 at 6:29 pm
OT:
I have given the phrase “Ben Steinery” its own entry and page in the Rational Wiki … along with some notable and hilarious uses of it from this site. Enjoy …
http://rationalwiki.com/wiki/Ben_Steinery
January 25th, 2009 at 6:39 pm
I own a second generation Zune and I love it. The best bits about it (relative to the iPod) are the wireless synch, the radio and good quality video playback via a docking station on a 40″ LCD. Regarding the wireless synch, I dock it by the TV at night and while I fumble and bumble around during the evening, it automatically and wirelessly uploads my podcasts and anything else I have to synch with it. In addition, the dock allows me to watch Video podcasts on the TV (component cable) using my remote and the playback is pretty darn good. Yes there are improvements to be had especially on the interface when it is on a 40″ TV but overall I would urge critics to try it out first.
The biggest problem with Zune is that the marketing has been shite….no ifs and no buts. The first generation Zune was woeful on two counts, 1) it was an uglified Toshiba Gigabeat (same innards) and 2) the synch software was appaulling. After that, Microsoft should have apologised for their mistakes and relaunched without the brown (it still pervades although the units are black etc) and with a more mass market face (rather than the Social).
Go on all, touch a Zune in BestBuy and with a dispassionate heart, evaluate it for what it is
(Full disclosure – If I had my way, all consumer electronics would be open source and Microsoft would not be a Monopolistic pain in my a bum)
January 25th, 2009 at 6:52 pm
On the matter of MS monopolies with regards .doc, .xls etc…kindly look at the following article
http://en.wikipedia.org/wiki/Office_Open_XML
which has the aim of breaking open the monopoly that Microsoft has on file formats. You will also find links to the MS take on the OpenDocument
http://en.wikipedia.org/wiki/Microsoft_Office_XML_formats
which is an effort to prolong the monopoly while confusing the public and driving open standards its way. Bottom line, I think MS is on a downward path and it has 5 years to innovate, as opposed to basing their business model on buying innovative software, either to cripple its interoperability or simply to kill a viable competitor; and after that, MS will fail.
January 25th, 2009 at 7:03 pm
The average microsoft investor is a man in his late 40’s to mid 60’s, who is a mid level accountant, at a small to medium sized firm who realized in his early 40’s that he would never advance further in the company and has now fully resigned himself to this fact. He used to have dreams of becoming more important in his job and his life, but one by one the dreams were slowly stripped away until he just woke up one morning and there were none left. He now wears that permanent look of resignation a man gets when he comes to the realization that this is as good as it’s going to get for him. He drives a 6 to 10 year old GM sedan, always has, and believes it is his patriotic duty to do so. He and his wife both wear a wrist brace for Karpel Tunnel syndrome, his on the left wrist, hers on the right, although he wishes he could afford an operation which might relieve the pain once and for all. He and his wife stopped having sex, he’s not exactly sure when or why, other than it just got easier not to. They both are fine with that.
I’m not sure that Microsofts slide to irrelevance continues Barry, cause that would imply there is some relevance left. That ship left port years ago, and I don’t see where Ballmers navigational skills can bring them back to shore.
January 25th, 2009 at 7:05 pm
I agree completely with your assessment of MSFT. I am “in the business” as it were, and have maintained this view about MSFT’s technical and innovative ability nearly forever. Until fairly recently, this view, when shared with others, has resulted mostly in scoffs and guffaws directly my way. But not any more.
In the final analysis, after they have come and gone, I predict that they will be seen as nothing more than a giant wealth-generating engine for a certain Mr. Gates, enabling him in his infinite leisure time to perform victory lap after victory lap while simultaneously “doing good”, all in full tedious view, thanks to an impressive PR machine conducting an eternally uncritical, fawning and gullible media (see for example Kristoff’s column in today’s Times).
January 25th, 2009 at 7:13 pm
Of Microsoft’s $60+ billion in annual sales, around $44 billion comes from something other than Windows/OS sales for PCs. In three years, Microsoft will generate more revenues from just server/tools software than from PC operating systems. Long road to irrelevance? Perhaps, but it’s a road that will stretch on for at least another couple decades anyway.
January 25th, 2009 at 7:16 pm
I don’t know why these big software firms think they can easily turn themselves into hardware firms. It’s called microSOFT for good reason. Just look at what a disaster the google phone has been….
January 25th, 2009 at 8:00 pm
The Zune was/is an experiment for Microsoft. With all the cash they have, it would be kind of stupid not to experiment…but they definitely are not a consumer electronics company, like Apple is.
If the Zune fails, it won’t mean anything to Microsoft going forward. If they stomp out some dumb companies that directly competed in some marginal niche that would never be profitable anyway, too bad! If their legal budget wipes out some startup over a patent argument, well, patents suck anyway.
When there is an elephant running through a market, you run alongside it, not in front.
The Zune is definitely not in Microsoft’s market; it’s just a toy for them.
January 25th, 2009 at 8:12 pm
I still can’t believe they killed off Flight Simulator.
January 25th, 2009 at 8:35 pm
“Microsoft has demonstrated time and time again, it cannot innovate.”
Who needs to innovate when you have the unlimited cash to buy whatever you need?
Oops…
January 25th, 2009 at 8:42 pm
Here are interesting YouTube clips from a Steve Jobs interview, and one with both people together:
Jobs on copying
Jobs on Microsoft
Gates talking about Jobs (FF to 2:31)
As Gates suggests, Jobs is brilliant at personalizing technology. Akio Morita (Sony) is probably the only other person from the tech business who had the same ability as Jobs. I find this intriguing from the perspective that one person with such ability can transform a company. Well, one thing is obvious: Steve Ballmer is not that kind of person. I have no idea why the Microsoft board keeps him in the position. MSFT is untouchable except as a trade for that and other reasons as long as Ballmer is CEO. I think he is a decent person, but he just doesn’t seem to get it. An interesting question, of course, is who would be a good replacement? Microsoft is differs from Apple in the sense that enterprise software is much more important. On that note, here’s a bit from the WSJ about Muglia, who was demoted at one time and now has worked his way back up. No way to tell if Muglia has any consumer sense and would make a good CEO, though. Microsoft should probably spin off the consumer division and put someone with creative sense in charge of it.
MSFT could be an incredible long once they get a new CEO. Just something to watch for IMHO.
January 25th, 2009 at 8:51 pm
TPC: how much of a disaster has the google phone been? Google didn’t design the hardware, it was done by HTC. The phone itself is merely a launchpad for the Android OS mobile platform. The only disastrous thing I can think of regarding the G1 is that it didn’t have the benefit of a massive marketing blitz.
-Mike J
January 25th, 2009 at 9:14 pm
The general analysis of Microsoft in most of these comments is very shallow and narrow sited. As with all companies, Microsoft has areas they are very good at and areas they struggle with. Microsoft isn’t going anywhere, anytime soon, contrary to the hopes and dreams of many. Many of Microsoft’s server platforms are simply better or better values than any others. SQL Server, Sharepoint, Exchange, Office – these are high quality products and the best on the market for the average midsized company (most companies). The .NET framework and associated development tools are are outstanding and giving Java and every other development platform a run for their money.
They don’t excel in all areas, especially consumer products. The Zunes sales are down, but this has much more to do with bad marketing and much less to do with bad engineering. I have seen and know people that use it and it is a high quality product. Those that I know that have them, love them – and they don’t work for Microsoft.
Microsoft has big areas to improve and, like all companies, will one day become irrelevant. It has big weakness and big areas of improvement. That said, it produces some great technologies and provides excellent support that many people take for granted. It has been an incredibly hard working monopoly, if not all that innovative.
Too often these conversations turn into religious feuds about “evil empires”, “greedy monopolists”, etc. I don’t care, one way or another, but, please, look a little deeper. The truth is always more complicated.
January 25th, 2009 at 9:17 pm
Can we add folding and walking away from the Microsoft Antitrust case back in 2001 to the list of Bush economic mistakes?
btw – I own 2 zunes – 1 1st generation, 1 2d generation. Love em both
January 25th, 2009 at 9:18 pm
“Onwards! Their long slide into irrelevance continues . . .”
I can’t wait !!
Linux rules.
2.6.27-9 generic
Ubuntu 8.10 Intrepid Ibex
Gnome 2.24.1
January 25th, 2009 at 9:49 pm
Spread the Love for MS Office: (from John Walker, Autocad creator)
The spreadsheets were originally developed in 1990 with Excel 2.1 on Microsoft Windows 3.1. Some of the components in the package use Excel macros which are, for the most part, relatively simple and straightforward compared to those found in a typical corporate Excel application. Nonetheless, thanks to Microsoft’s practice of “strategic incompatibility” and utter contempt for the investment made by their customers, these rudimentary macros have required specific modifications for every single new version of Excel in the decade since they were originally released, and things have gotten worse, not better, since Microsoft introduced the new Visual Basic programming language for Excel (itself a cesspool of release-to-release incompatibility), due to what appears to be a deliberate Microsoft strategy to destabilise the original macro language in order to force customers onto the new one (at a cost to Microsoft corporate clients I estimate on the order of a hundreds of millions of U.S. dollars).
The upshot of this is that while in a reasonable world spreadsheets and macros would be capital, created once and then used thereafter with no additional attention, in the world of Microsoft, software developed for their platforms is a “wasting asset” more like a stock option with an strike date about 18 months from the time it was developed. By then Billy Boy or one of his Kode Kiddies will have changed their mind about something (or simply introduced a gratuitous incompatibility, whether for strategic reasons, due to sloppiness or incompetence, or just for the Hell of it) which pulls the carpet out from under the application and its users when they “upgrade” to a more recent Microsoft release (which is increasingly involuntary as more and more new computers are sold pre-loaded with the latest releases of Microsoft operating systems and applications, offering the customer no option but to pay the “Microsoft Tax” bundled in the cost of the system).
January 25th, 2009 at 9:54 pm
Yes, anybody who knows the history of Mr. Softy knows that they legally but unethically stole just about anything they made money on. Their original MS-DOS probably was done half legally, but even that is tainted. They stole it from a guy they developed it for. Big organizations can’t really innovate (ever).
Such is the “innovator’s dilemma”.
It’s just as important that Gates’ dad is a lawyer that he is a software savant.
January 25th, 2009 at 10:11 pm
If Zune was this bad, I wonder how much MS lost on Live.com cashback. Why would MS(live.com) give back 65%-25% cash back via ebay.com. Or even 40% cash back from HP.com, 20% from Target, or 25% from Drugstore.com. Sure I’ll use your search engine once of twice but there’s now way MS can make any money this way?
January 25th, 2009 at 10:45 pm
Anyone here of a little thing called .NET? Judging by the responses, probably not. MSFT inspite of all your hate and vitriol will be around for a long time. As much as most of you think you are on the bleeding edge with your “Intrepid Ibexes”, there will always be a market for the non-computer savvy user who wants something on his PC to just make things “work”. MSFT has had that cornered for decades and as I see it, they are going nowhere as there is no real, usable alternative in sight. To maintain 90% market-share in an ever-evolving market over decades is no mean feat and while they’ve had their fair share of missteps like Zune, write them off at your own peril.
Disclosure: Never was a MS employee or shareholder.
January 25th, 2009 at 11:03 pm
While we’re celebrating Microsoft’s ineptitude, check out classic songs butchered by Microsoft’s Songsmtih program.
January 25th, 2009 at 11:44 pm
Barry,
OFF TOPIC but I think you want to know this. IBM is going to lay off about 500 at Essex Junction, Vermont on tuesday. The rumor from one employee is that this plant will close this year due to Vermont tax policies.
http://www.allianceibm.org/jobcutstatusandcomments.php
January 26th, 2009 at 12:14 am
Out of curiousity, has there ever been in the history of humankind, any large multi-national corporation that hasn’t been evil? Or is this conversation of the ilk, “Yeah, but Microsoft is eighteen units of evil, while Apple is only four…”
Profits and committees rarely coalesce for the benefit of humanity.
January 26th, 2009 at 12:25 am
As can be seen here, MS is the company people love to hate. They will still have a long time to do so.
Long slide toward irrelevance?
Barry, I think you are taking the Apple propaganda a bit too seriously.
Yeah, MS has never been good at consumer electronics, although I hear that the current Zune interface it very cool. Xbox is supposedly a really good game machine, but a big money loser.
They do make some great mice though – they even have multiple buttons
OTOH, consumer electronics is a sideline and, as someone else points out, even consumer OS”s aren’t the major source of MS income.
Apple apologists keep touting Apple’s phenomenal marketshare growth. It’s easy to grow by a big percentage if your share isn’t big: going from 4-8% is a lot easier than going from 10-20%. Apple still hasn’t gotten a 10% share domestically and, in fact, its share declined last month despite the fact that it increased shipments. My guess is this is likely due to its pricing disadvantage in a slowing economy. People will pay only so much for cachet. Or is it that only so many people will pay for cachet? Whatever.
http://www.gartner.com/it/page.jsp?id=856712
http://www.macrumors.com/2009/01/14/apples-us-market-share-growth-slows-in-4q-2008/
Worldwide: 78,000,000 pc’s sold. Apple: 2.5 million. Fact is, MS still has a stranglehold on the market. It’s also doing a great job creating buzz for Win7, which is getting good writeups even though it’s really just Vista 1.2 or so.
January 26th, 2009 at 1:59 am
What’s a Zune? Seriously. Never even heard of it.
January 26th, 2009 at 2:29 am
This one’s easy:
In a competitive market where the margins naturally drop to to the costs of production, players of iPod or Zune quality would cost, perhaps, $20. They would be impulse items at the checkout line. Not only that, but you should be able to buy a generic unit and program it with whatever user interface features you like. Such is the nature of the technology. Equilibrium in this market lies in that direction.
Currently, premium rents are commanded in that player market *solely* on the back of catalogs and in-production artists, combined with IP laws as rather unconvincingly upheld by the likes of RIAA. The expensive players are expensive solely because the “cool content” is only officially legally safe via those players, at least in any convenient form. The devices are incidental – it’s the I.P. monopolies that dominate.
It’s not simply MSFT that is the big bloated monopolist – it’s the entire industry in its current form. iPod is the last big star in that universe.
Change is coming because the record companies are failing in the early stages of their pipeline: the new artist stage. No young musician at all, any more, plans to make a career of the record company scheme. Nobody (who matters, artistically) is hitchhiking to L.A. or Nashville, any more, so to speak. And so the record companies have reached “peak value” on their catalogs and consequently the software-restricted-player market is all about making margins on the downside of a trend whose death is visible on the horizon.
The actual product here (one of these players) is some input devices, an LCD, some memory and a slot for a memory card, some networking HW, and a (mediocre at best) D/A converter. This is a generic, useful set of inexpensive components. The entire iPod/Zune industry is a bunch of BS around the idea of making that combo of simple hardware precious through legal trickery. *Of course* that industry is going to fall to pieces and go to hell.
-t
January 26th, 2009 at 6:50 am
Dow: Not surprised you haven’t heard of Zune. Don’t think I’ve ever seen a commercial for Zune. Or the Xbox either. I only know of them since I keep up with tech, although I don’t think I’ve ever seen either product in person.
One of MS’s big failings over the past several years has been its lack of advertising for its products, feeling that because it was MS, it didn’t need to. Perhaps the biggest advertising failure being in the case of Vista, which is actually better than XP, but which MS did not feel obliged to advertise, leaving consumers with little but now-invalid 2 year old rants about compatibility floating around the net and the Mac switcher ads which are effective if often deceptive. It seems to be trying a different tack with Win7. Ballmer is a marketing guy. We’ll see if they have wised up over the next 9 months.
January 26th, 2009 at 7:08 am
THE AVERAGE MSFT investor might be a middle-aged man who feels he’s peaked – but the average TBP Blogger is a rocko-socko, foot-stomping, non-stop, data-driven, NEWS HOUND who’s still convinced better days await. Don’t Let The Rapture pass you by.
January 26th, 2009 at 7:40 am
Barry,
When it comes to MSFT, your usually astute analysis seems to go completely out the window. I don’t know why, though I understand you have some personal history that clouds your perspective. Whatever the case, your comments simply aren’t based on the facts, which renders your analysis completely useless.
Off the top of my head, I can think of a wide variety of Microsoft innovations, not the least of which would be the technology that underlies .NET. The next time you park yourself in front of a Mac, you might be interested to know that nearly half of the user interface elements (combo boxes, movable-modal dialog boxes, spinner controls are just a few examples), were first developed either on Windows or in Microsoft applications running on the Mac.
Have you forgotten how long it took for Apple to deliver an operating system that did not require users to tell it how much memory a program needed in order to run? And they couldn’t even accomplish that simple feat without starting out with someone else’s operating system.
The copiers in Cupertino run just as hot and hard as do the copiers in Redmond.
As for Zune sales vis-a-vis the iPod, don’t you think the fact that Apple has their own retail outlet chain might have had something to do with these results?
January 26th, 2009 at 7:45 am
Apples are overpriced- my prediction is that Apple will see sales erosion in the upcoming quarters due to the current economic climate and although I am not a Microsoft aficionado by any means and have long thought that fee for service and free alternatives would start to erode Microsoft’s grip on office software- the Xbox is by far the most popular game system for teenagers because I have teenagers and that is what EVERYONE uses- it also has the best online service by far. So . . . Barry please- Apple is like an upscale fashion statement- I bought this Compaq laptop I am typing on for $399 on sale- beat that with an Apple. Additionally, the netbooks which are smaller and less powerful versions of laptops will increase in sales because they are cheap and do the web surfing and email tasks that is all that’s needed for 90% of the folks out there. You could not give me an Apple because its like the snowboarders I see on the mountain with the $1000 snowboard but can’t get down the mountain- but boy do they have fashion sense and they sure look good falling down all the time. Maybe a starter board would have been more appropriate.
January 26th, 2009 at 9:25 am
dasht, your analysis of the consumer electronics market is a bit light. Using your logic, all pairs of blue jeans should only be $15, given that they are just stitched-together cotton, a little bit of brass and maybe a thin patch of leather.
January 26th, 2009 at 9:43 am
“That is just a horrific comparable. It just goes to show you that Microsoft, without the advantages of the Windows/Office monopoly, is simply just another ordinary company — nothing special, nothing innovative.”
I think that you need to look up the definition of the word ‘monopoly.’ There are many alternatives to Windows and Office and nobody is forcing individuals or corporations to purchase MSFT products.
January 26th, 2009 at 10:39 am
Maybe I take back what I said:
http://www.theregister.co.uk/2009/01/26/songsmith/
January 26th, 2009 at 10:45 am
I have several ipods and a zune. My humble opinion is the zune is far superior to the ipod. Better sound quality, no DRM, more supported formats and the marketplace is far superior to the itunes store.