Breakthrough Insights

What Did We Learn: Microsoft Zune

Misfires are tough for companies to endure, but they can also provide excellent lessons for others. What Did We Learn is an ongoing feature series focusing on insights gleaned from unsuccessful companies and products.

Way back in 2001, Apple’s Steve Jobs unveiled the first iPod on stage at a televised press event.

Its introduction changed the music industry forever. With its handheld, sleek design and user-friendly UI, the iPod was revolutionary. Once released, stores could barely keep the devices in stock. In the years to come, the iPod and its iconic white earbuds were ubiquitous and instantly recognizable, and its name became synonymous with portable music players.

Of course, this post is not about the iPod. It’s just tough to tell the story of Microsoft’s attempt at a portable media player, Zune, without it. More than anything else, the iPod’s juggernaut success and ability to capture the cultural zeitgeist defined the Zune’s ultimate trajectory and legacy.

The Zune was many things, but for the purposes of this article it’s a cautionary tale for otherwise extremely successful companies that invest heavily in taking down a runaway market leader while not giving potential customers a strong enough incentive to make the switch.

Starting Late Isn’t Great

In 2006 — years after the iPod had already been on the market, and one in which Apple had sold nearly 40 million of the devices — Microsoft waded into the portable music waters by introducing Zune.

With a larger body and screen, array of body color options and three buttons, the original version of the Zune didn’t radically deviate from the iPod’s design at the time, but it was enough to distinguish itself. And the device’s software carried a few surprises, which we’ll get into later.

In Zune’s first week of launch, sales were fairly promising, but not spectacular or unexpected for a big-name software company jumping into the white-hot portable music player space at the time. Despite the late entry, Zune quickly jumped to the number two portable media player on the market, capturing a 9% unit share.

The only problem? Apple’s iPod at the time had secured a 63% unit share, and that was growing.

Killer Features Are Critical

Although many critics seemed to prefer its competitor, Zune had some interesting software features that made it a favorite among a modest but devoted crowd.

With an emphasis on Wi-Fi functionality and the social aspect of music, Microsoft attempted to create a Zune community of sorts, where users could sync devices and even send (or “squirt,” in oddly chosen Microsoft parlance) songs or photos to other Zunes within 30 feet, enabling the receiver to play the media.

But since it was still the extremely early days for digital music (Spotify didn’t even officially launch in the U.S. until 2011), and industry labels hadn’t fully embraced it as a legitimate revenue stream, shared songs would disappear after only three days, which greatly hobbled the usefulness of the squirting feature and rankled some users.

Innovate the Ecosystem

Then there was the disparity in the digital marketplaces from which you purchased media to bring your player to life. Again, Apple was first-to-market and the clear leader.

Early on, Apple’s Jobs had cannily read the public demand for digital songs and the music industry’s piracy struggles with file-sharing sites like Napster and LimeWire. After securing deals with several major record labels, Apple was first to market with the iTunes Store in 2003, providing a legitimate way for consumers to purchase digital music. The service sold 70 million songs in its first year, and has now sold upwards of 10 billion.

Alternately, Microsoft launched MSN Music in 2004 as an alternative to iTunes, only to shut it down in 2006. That was okay, because, at the time, Microsoft also had Zune Marketplace — the digital media store to serve up media for Zunes and PCs. Zune Marketplace functioned in a similar fashion as iTunes, and it did have some distinguishing features.

Its subscription service, for instance, let you pay a monthly, flat fee and download all the music you wanted to your Zune (so long as you kept up the subscription.) In terms of breadth of content, in its early days, Zune Marketplace’s selection was somewhat lacking compared to iTunes— it didn’t have videos or podcasts, for instance — but it did dramatically improve over time.

Messaging Matters

If you’ve noticed a trend of Microsoft playing catchup to Apple on the digital music front at this point, that’s no accident. And the marketing campaigns for both companies at the time really spelled things out.

Apple’s “silhouette” ad campaign for iPod became an instant and iconic classic, featuring characters dancing against colorful backdrops, with the only splash of color against the dark human figures being the white iPod and earbuds. They were brilliant in their simplicity, had mass appeal and are still widely remembered even 15 years after their introduction.

Alternately, Microsoft favored a different approach, with not as much cohesion or consistency in messaging and style compared to Apple’s campaigns. For instance, some ads portrayed Zune users literally entering their devices and exploring the looking-glass like universe. Other commercials highlighted Zune’s sharing functionality. The problem was none of them really highlighted what was different about Zune.

It’s also worth mentioning that, at the time, Apple was simultaneously running another extremely successful and highly visible campaign, “Get a Mac,” against Microsoft, that would later be named the best of the decade by Adweek.

Gone Too Zune

Despite ongoing sluggish sales figures, Microsoft plodded along iterating on the original Zune, attempting to go shot-for-shot with Apple, while introducing features like larger capacity, flash memory and later an HD touch-screen. But it was never enough to dislodge Apple’s firmly held market grip.

In a relatively short amount of time, retailers began ditching Zune, with GameStop announcing it would no longer carry the Microsoft media player just two years after launch. In 2012, Microsoft finally officially pulled the plug on Zune entirely, shifting focus to its Xbox Music service.

By that time though, the portable gadget space had already been completely transformed by the Apple iPhone and, in its wake, the rise of smart phones. Streaming music was also on the rise and sales of MP3s were declining, leading to lower demand for iPods. While there was once a variety of models — like the Classic, Shuffle and Nano — today Apple only sells the iPod Touch.

Now 12 years after Zune, Microsoft has bounced back strong, finding success in a number of other categories, from the Xbox to Outlook to Azure.

Zune itself was not a bad product for its category. Its Wi-Fi and song-sharing capabilities were both ahead of their time, and the software was thoughtfully designed and functional. In fact, there are still some Zune diehards out there heralding its modern value as a bastion away from the hyper-connected devices of today.

The problem was Zune didn’t innovate enough on the stratospheric success of its competitor, which was only gaining steam at the time of its launch. To quote a character from another popular 2000s pop-culture phenomenon, HBO’s The Wire: “If you come at the king, you best not miss.”

The fast-paced nature of consumer electronics leaves little room for error, and yet the majority of engineers in this industry say their projects are constantly running behind schedule. That leads to delayed launches and more opportunities for competitors that have already hit the market. Learn what some are doing to improve their processes and overcome these challenges with the report, “Developing for Success in Consumer Electronics.”