MSFT To Kill Zune?

When I read that MSFT was "to Kill Off Development of New Zune Hardware" my first reaction was: someone is still selling Zune hardware?

I thought the killing-off of the Zune had been done already, by the marketplace's long yawn at the product. Decisions about the product in Redmond in 2011 smack more of coup de gras than of execution. I declared the Zune dead here in late '08, when it was clear its share came mostly at the expense of Microsoft's "partners" in its PlaysForSure DRM strategy (remember that?). Heck, just to illustrate what a lousy deal MSFT "on sale" was in 2008, I've prepared this little chart to compare it to the Dow (which I believe it's lagged since joining) and to two stocks that have the Jaded Consumer Seal of Approval (Apple and American Capital):


+25% isn't bad in two years, but it's peanuts compared to some not-too-hard-to-find alternatives.

In 2008 Microsoft's web browser share had just dipped below 90%. Now, Microsoft faces the same fate not just in browsers but on the whole operating system. Microsoft faces not just a raft of Unix and Linux distributions in various high-end-server and ultra-low-budget markets, but even one single competitor with double-digit OS share in an increasing number of markets. (MSFT's "share" in Asia and Africa, where it certainly doesn't garner retail or even US-standard OEM licensing revenues, might not be something to brag about.)

More interesting than desktop os share (c'mon, some of those are Internet-unaware point-of-sale systems whose idea of a peripheral is a cash drawer; I've seen an iPod Touch do better, wirelessly, with a cash drawer built into an Apple Store table) is the OS share as seen by online vendors. NetMarketShare offers this view of Microsoft's share of operating systems used by those who browse the web (this ignores, for example, most of the installed Unix and Linux – those are largely deployed in servers, not desktops that would run a browser). Microsoft's share of web-facing consumer machines has, according to that survey, crossed below the 90% threshold that Microsoft crossed in web browsers a couple of years ago.

This doesn't mean Microsoft is irrelevant – there are definitely areas in which neither Apple nor Google have any hope of competing at present – but the Zune isn't part of MSFT's best case for future upside. Identifying the next success story isn't necessarily obvious, and every Goliath must fear a David behind every little pile of rocks (or fall accordingly). Apple can't sleep on the music market or the phone market, and Microsoft sleeps on the desktop operating system market at its significant peril.

The death of the Zune isn't the death of MSFT, but it's a sign that the company is capable and willing to put a lot of resources into things that don't produce returns. Is that a management you want on your side? MSFT's significant cash cows (MS-Windows OS licensing and MS-Office licensing) will keep filling the milk trucks for years to come, but what is the expected upside in a world increasingly based on standards and not on locked-in proprietary formats of the sort that keep people using MS-Office?

UPDATE: despite claims that Zume is not dead, Zune has gone out of stock and the Zune podcast series terminated.