Techsmart

FOR YEARS NOW, plenty of digital-music-device makers have made failed attempts to overthrow Apple Computer's (AAPL: 83.12, -0.22, -0.3%) dominance. Now Microsoft is joining the fray with its soon-to-be-launched Zune music player and download service. The behemoth from Redmond, Wash., may end up being the most formidable Apple challenger yet, but it won't be staging an iPod coup anytime soon.

Microsoft's Zune will be officially launched on Tuesday, just in time for the holiday shopping season. Inside the hip Zune packaging, consumers will find a player with quality sound that costs $249 for 30 gigabytes, the same price as the 30GB iPod device. The Zune has some neat features like an FM radio, a large three-inch display screen (the iPod's is 2.5 inches) and wireless peer-to-peer file sharing that the iPod lacks. Despite all that it's no iPod killer.

"At this point, [the Zune] is not even going to give the iPod a headache. At least not in this iteration," says Michael Gartenberg, an analyst at independent technology research firm JupiterResearch.

Microsoft has some work to do on the Zune. The device is bulkier and heavier than the competition and lacks some of the added extras that the iPod has like the ability to store data files. Plus, it remains to be seen how well the Zune Marketplace — Microsoft's answer to the iTunes Music Store — will fly with users. Right now, the Zune music store doesn't offer the video downloads, audio books and podcasts that iTunes does. Gartenberg predicts that for the next 12 to 18 months, the iPod will continue to unabashedly rule the portable music market.

That said, Apple might learn a thing or two from Microsoft's first Zune effort. One of the most revolutionary things about the Zune is its Wi-Fi file-sharing capability, which allows users to wirelessly zap music and photo files to friends. Microsoft is really banking on its first-mover advantage with this feature. In fact, it's marketing the player with the slogan: "Welcome to the social."

It's a great idea, at least in concept. However, Microsoft missed the mark by restricting the sharing solely to Zune-generated files. You can't wirelessly access the Internet to download music or check email. In order to be "social" the Zune way, you need access to a community of Zune owners that you can share your songs with. If your friends are all iPod lovers, then you're stuck zapping them into the ether.

But say you do end up with a bunch of Zune-owning friends. Once you share a song with them they can only listen to the song three times, and they have to do so within three days. After that, the song is wiped off of their player and you're blocked from resending them the song. It's a restriction that's bound to vex users.

Zune owners will be able to buy songs a la carte for 99 cents (as one does at iTunes) or purchase a monthly subscription for $14.99 that allows access to songs as long as the subscription is current, much like the model used by RealNetworks' (RNWK: 11.37, -0.01, -0.1%) Rhapsody service. Those songs can only be bought at the Zune Marketplace or Xbox Live, the web site where Xbox 360 owners download games and other media.

Is the Rhythm Gonna Get You?
The Zune is Microsoft's second attempt to make it big on the digital music scene. Its first effort was PlaysForSure, which is software that works with Windows Media Format files. It's supposed to guarantee consumers that the device they buy works with the music download service they're using. However, PlaysForSure hasn't been as reliable as its name suggests.

With Zune, Microsoft is abandoning the PlaysForSure platform for a different type of media standard. That means people with libraries full of PlaysForSure-certified songs surely won't be able to play them on the Zune. It hasn't been the greatest news for hardware makers like Creative Technology (CREAF: 6.92, -0.04, -0.6%), Dell (DELL: 24.89, -0.09, -0.4%) and Japan's Toshiba, as well as digital-music-store owners like Napster (NAPS: 4.48, -0.02, -0.4%) that have based their offerings on PlaysForSure.

Consumers who might initially be attracted to the "shelf-appeal" of the Microsoft brand name and the Zune's file-sharing capabilities may not continue to flock to the player if it isn't a seamless user experience, says Steve Wilson, the principal analyst of consumer electronics at independent tech research outfit ABI Research. "Whether or not it can sustain any volume is going to depend on how well their system works," says Wilson. "Unless they get those basics down, none of the rest of it is really going to matter."

For now, JupiterResearch's Gartenberg believes any Zune converts won't come at the expense of Apple's iPod fan base, but rather from that of other device makers like South Korea's iRiver or SanDisk (SNDK: 45.75, -0.38, -0.8%), the current No. 2 in the music player market. But that doesn't mean Apple can just rest on its laurels.

The digital music scene is getting a lot more crowded. Mobile-handset makers like Motorola (MOT: 21.38, +0.18, +0.9%) and wireless service providers like Cingular, Sprint Nextel (S: 20.37, +0.23, +1.1%) and Verizon Wireless are also making their way into the digital music world. And this is just Microsoft's first incarnation of the Zune. We can expect Microsoft, which is known for slowly evolving and refining its wares, to eventually get the Zune right. "Microsoft does these things in a marathon, not a sprint," says Gartenberg.

That means Apple will have to continue to innovate, whether by introducing new form factors like the iPod Nano or Shuffle, or more features like games or wireless connectivity. Rumors about Apple's next new product line abound. There's a lot of chatter about an iPhone that would take on both the music and handset markets. But when it comes to Apple, no one will know until Steve Jobs is ready for his next great unveiling.

One thing is for sure, though: Microsoft's entrance into this market will make things a lot more interesting.