Zune Sales Tumble As Microsoft Tries To Compete With Apple iPod

By: Kara Gilmour
Staff Writer
Published: Jan 25, 2009

Sales for the Microsoft Zune MP3 player tumbled by 54 percent during the last quarter while the Apple iPod grew more than 3 percent in market share. The battle of the multimedia players might have met its final match.

Microsoft Corp reported last week that sales on its Zune MP3 player tumbled by 54 percent during the last quarter. The Zune rival, Apple Inc's iPod, grew more than 3 percent in market share and is seen as the dominate music player. While the software giant is cutting divisions that don't have improved sales, some analysts wonder if Zune is on the way out.

Microsoft Zune sales dropped $100 million during the quarter. Last week, Microsoft announced a workforce reduction of 5,000 employees. Most of those employees work for divisions that aren't earning enough revenue in a time when most technology companies are cutting costs. However, it will probably take more for the software giant to remove its Zune multimedia player from its product line.

For example, the Xbox 360 console is still hurting Microsoft with costs. The company is losing money each time the gaming console is sold. Even so, the future market share looks promising and the company does earn a profit on the video games designed for the Xbox 360 console.

The Apple iPod is the only real obstacle that Microsoft has to leap if it expects the Zune music player to survive. While it is highly unlikely the Zune will turn into a mobile phone, as some published rumors are reported, the company could find a niche that could offer more features over the iPod. Since the iPod is the only real threat to the Zune, it's also another reason to keep the product on the market.

However, let's take a step back and analyze the theory of the Zune multimedia player becoming a smartphone device. In theory, it's not that difficult to believe. Microsoft's Windows Mobile operating system is currently in jeopardy because of other platforms for mobile phones.

Mobile phone companies such as Palm Inc, Research In Motion, and Google Inc's Android are growing in popularity. This reduces market share for Windows Mobile. What if the Zune player became a mobile phone using Microsoft's Windows Mobile? This is a theory that could drive more sales for the player.

In theory, it sounds good and does make sense. However, Microsoft CEO Steve Ballmer responded to Zune smartphone rumors by stating the company is in the software business, not the hardware business. Although he never indicated why they already sell hardware platforms such as the Xbox 360 and the Zune portable player.

The bottom line is, the Zune player took a $100 million hit last quarter and sales tumbled 54 percent. Microsoft has other problems, as mentioned about the Windows Mobile platform. Even if the software giant was working on a mobile phone, we would never hear about it during it's development and Steve Ballmer would make the same pitch that Microsoft is not a hardware company.