More MP3 player market data says Microsoft's Zune won't be shaving my head at CES

More MP3 player market data says Microsoft's Zune won't be shaving my head at CES

Summary: So far, I haven't heard back from Microsoft president Robbie Bach about my open challenge to him. In case you missed it, I caught a story where he said that Microsoft would be ranked #2 in the portable digital media player (PDMP) market by the time this year's holidays were done and said I would shave my head on the stage of Bach's choice if Microsoft hit that mark.

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So far, I haven't heard back from Microsoft president Robbie Bach about my open challenge to him. In case you missed it, I caught a story where he said that Microsoft would be ranked #2 in the portable digital media player (PDMP) market by the time this year's holidays were done and said I would shave my head on the stage of Bach's choice if Microsoft hit that mark. But Bach would have to reciprocate by shaving his own head if Microsoft doesn't hit that mark.

Microsoft, with it's hard drive-based Zunes is currently ranked #4 in the overall PDMP market (includes both hard drive and flash memory-based devices) with 3 percent of the market behind Creative (ranked 3rd with 4 percent) and Sandisk (ranked 2nd with 10 percent). To move into second place, it Microsoft must pass Sandisk. Yesterday, I made a mistake in my math. I said that at a bare minimum, Microsoft much reach 7.1 percent marketshare by stealing 4.1 percent of the market that Sandisk has (causing Microsoft at 7.1, to edge-out Sandisk at 6.9 percent). But 10 minus 4.1 does not equal 6.9. The corrected math is actually a bit more favorable to Microsoft. To pass Sandisk, Sandisk must sacrifice at least 3.55 percentage points, all of which Microsoft must take for itself, thereby putting Microsoft at 6.55 percent and Sandisk at 6.45 percent. Bear in mind that this assumes that other options and/or competitors (eg: the new crop of phones like the iPhone that would cause someone not to want a dedicated PDMP) don't end up taking away any percentage points that are in play.

Even so, the big question is whether or not, based on the new Zune PDMPs that Microsoft announced earlier this week, can Microsoft actually achieve Bach's goals (especially since the last PDMP marketshare data to come from the NDP Group showed Sandisk's share improving).

Portable Digital Media Player Data from NDPIn that last blog, I gave some justifications for why I wouldn't be the one to go bald should Bach accept my challenge (as well as why I might lose). Microsoft's most difficult challenge, given that its the holidays, will be in gaining that share during the holiday season with nothing but PDMPs that cost $149 or more. One of the reasons for Sandisk's success is that retailers shelves are loaded with Sandisk PDMPs that at less than $100 (in fact some are even less than $50), take up the value-end of the PDMP market where I assumed a lot of buying takes place. But that was an assumption (a dangerous one at that because if I was wrong, I could end up shaving my head). To find out for sure, I went back to NPD and asked for a breakdown of the flash-based PDMP market by price range and they responded with the table shown above right for the 12 months ending in August 2007.

Putting Microsoft's Zunes in the context of this chart is tricky since, at $149, the lowest priced Zune sits right on the cusp of two price bands. But let's start with the more-favorable-to-Microsoft math by looking at the number of buyers below the $125-$149.99 band, and the number that are in the next highest band or above. 51.7 percent of PDMPs sold cost less than $125. If this trend is projectable into the holiday season (which I'm guessing it is because so few people budget $149 or more for each gift they buy), I'm feeling very good about the hair on my head. I don't know what percentage of Sandisk's sales are in the <$125 range (I've been looking for this data but didn't have an official answer by the time I published this). But even if it's a healthy minority of Sandisk's sales (more than likely, it's the majority), it would be pretty much impossible for Microsoft to overtake Sandisk as #2 since it has nothing to offer those buyers.

For example, let's say 40 percent of Sandisk's 10 percent overall share of the market were in the <$125 range. In other words, whereas more than half the market is buying in the <$125 range, less than half of Sandisk's sales are in that same range. This is a guess that gives Microsoft the benefit of the doubt. If the data so far is projectable and since Microsoft has no way of selling into the same market where Sandisk scores 40 percent of its sales, then 4 of Sandisk's 10 percentage points are safe from Microsoft. Therefore, all Sandisk has to do is keep 2.51 out of the remaining 6 percentage points to keep Microsoft from taking over the #2 two slot. At 6.51 percent share (the 4 untouchable points + the 2.51 out of the 6 remaining points), Sandisk will have relinquished 3.49 points to Microsoft putting Microsoft at a 6.49 percent share. That would solidly place Microsoft in the #3 spot ahead of Creative but still behind #2 Sandisk at 6.51 percent.

If more than 40 percent of Sandisk's sales are in the <$125 price range where Microsoft has nothing to offer 51.7 percent of the PDMP buyers, then the situation worsens for Microsoft. For example, if 50 percent of Sandisk's sales are in the <$125 price range (meaning that, with its least expensive player at $149, Microsoft has nothing to offer 5 of the 10 market percentage points that Sandisk sells to), then all Sandisk has to do is retain 1.51 of it's remaining 5 percentage points to keep ahead of Microsoft. Moving one more notch, if 60 percent of Sandisk's sales are in the <$125 range where Microsoft has nothing to offer, all Sandisk must do is keep .51 of it's 4 remaining percentage points in order to preserve its #2 position.

<Update>The NPD Group has sent me the data I was looking for.  70 percent of Sandisk's sales of PDMPs are of units priced under $100 (a $50 or more price differential from Microsoft's least expensive Zune).   So, let's rerun the math.  Wait a minute. There's no math to do.  If 70 percent of Sandisk's 10 points of market share are in the <$100 range where Microsoft has nothing even close to offer those buyers, the game is pretty much over.  Even if Microsoft was able to take the remaining 3 points away from Sandisk (hold that thought, I explain why it won't in a sec), that would only bring Microsoft's total market share to 6 percent which is less than the 7 percent market share that Sandisk commands with offerings for which Microsoft will have no competition (based on existing announcements).  Now, here's why it won't be able to get the other 3 percent.

According to NPD Group's Ross Rubin, "most of the rest [of Sandisk's PDMP sales] are in the $100-$150 range."  In other words, with Microsoft's least expensive Zune costing $149, Microsoft has nothing to compete with almost the rest of Sandisk's sales (except for the buyers that are right on the top boundary).  So, almost all of Sandisk's command of 10 percent of the PDMP market is based on sales of units for which Microsoft doesn't have anything comparably priced.</Update>

This of course is all theoretical and there are other factors. For example, what if Microsoft gets some of Creative's, Sandisk's, and/or Apple's percentage points. Could those be enough to pass Sandisk? Or, what if Microsoft acquires Sandisk or Creative? (chances are, the transaction wouldn't close by the holidays, but I guess anything is possible). In that case, I'd void the challenge because the challenge is all about whether, with the Zunes that were announced, can Microsoft climb into the #2 spot.

With nothing to offer 51.7 percent of the buyers (and probably more since Microsoft's least expensive player comes in at the very very top end of a price band that covers 19.5 percent of the units sold) , it'll will take an act of God for Microsoft to make it into the #2 spot. Of course, ever since the day of the Windows 95 launch when the normally gray Northwestern skies over Microsoft's campus looked exactly like the box that Windows 95 came in (as well as the wallpaper that Win95's desktop defaulted to), I've often wondered if someone at Microsoft has that sort of pull. For my hair's sake, I hope they don't.

Topics: Enterprise Software, Microsoft, Operating Systems, Software, Windows

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14 comments
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  • Zune has a monopoly in the relevant market

    Microsoft must be punished for having a monopoly in the relevant MP3 player market. Using the same logic that eliminates OSX from the PC OS market (thus ensuring that Windows would be labeled a monopoly), we can simply define the relevant MP3 player market as including only MP3 players that use the Freescale iMX31L chip. Hey, the [url=http://www.usdoj.gov/atr/cases/f3800/msjudgex.htm] DOJ did something just as arbitrary [/url] :
    [i]in determining the level of Microsoft's market power, the relevant market is the licensing of all Intel-compatible PC operating systems world-wide.[/i]

    Time to shave your head David because Zune is now #1 in the [i]relevant[/i] MP3 player market.

    snicker, smirk :)
    NonZealot
    • Thankfully

      the market was defined in my first entry (the challenge piece) as the overall PDMP market that NPD Group tracks.
      dberlind
  • maybe I just might help your cause.

    although, why not just shave your head? sometimes change is good. lol. anyways, here's what might help out sandisk here in canada...

    http://www.futureshop.ca/catalog/proddetail.asp?sku_id=0665000FS10079592&catid=10205&logon=&langid=EN

    btw, bestbuy bought out futershop here in canada a few years ago but maintain their individual identities..

    gnu/linux...giving choice to the neX(11)t generation.
    Arm A. Geddon
  • If one wants to substitute cost for quality...

    Then they deserve what they get. The Zune is the most advanced music player on the market. "The Social" represents the freedom of choice that our forefathers had in mind. Why use a closed solution like SanDisk when one can engage in the The Social and squirt one another at will. My house is a total Zune-home. I can go to any room in the house and squirt my wife and kids with music from the Zune. The really nice thing is using the FM Tuner to catch up on some really good Conservative talk-radio. Mr. Berlind, I accept this challenge on Microsoft's behalf; but I want to change the rules: I think Microsoft will take the #1 position in music players. Mr. Bach accepts those terms; let the battle commence!
    Mike Cox
    • Squirt my wife and kids with music from the Zune....

      You desperately need to get a life when you are looking forward to squirting your family around your house.

      Hello, it is only a (at best - third rate) music device, not the Second Coming.

      Everyone can understand if MSFT vastly overhypes it because that is its current excuse for existence - but going around the house squirting?

      Next year when it is still a very costly and robust failure, you?ll read your above post a feel like such a silly dork. Get a jump on it now.

      Go out, take a walk; breath in some fresh air; spend time with some intelligent friends.

      Get a life.

      Now.
      Jeremy W
    • 8.0 - got one hook, line & sinker...

      n/t
      bksgs1
    • Ewwww!!!!!!

      Squirting people around your house?? That's sick!!! ;)


      Gotta give it an 8.5, since you got one fishy!!
      JLHenry
    • 7.5

      One fish is good, but you can do much better.

      My how I have missed you Mike. You should drop by more often. Your wife and kids might get lonely when I go on this next business trip.
      nucrash
  • David: Why don't you...

    ...make the bet with J Allard so that if he loses, he has to grow hair?
    Userama
    • 10.0 Burst out loud laughing. (nt)

      nt
      TripleII-21189418044173169409978279405827
  • David, let me see if I can find you Britney Spears' number ...

    ... just in case you may want to wear a wig.
    P. Douglas
  • David, I just had a scary thought . . .

    They could become #2 by buying out Sandisk . . . .
    JLHenry
    • I mentioned that in one of the blogs about this....

      ....and said that would void the challenge. The question is whether, on the merit of what it just introduced, Microsoft can overtake Sandisk in the #2 spot by the time the holiday sales have been tallied.

      There's no contest here. Sandisk has made it to the #2 spot based almost completely on the sales of portable digital media players into market price bands where Microsoft currently has no offering.

      We can look at this a lot of different ways. For example, maybe the existence of better more multimedia capable smartphones like the iPhone and LG's Voyager or devices like the iTouch will cause people to make different sorts of substitutions and that could hurt Sandisk. But Microsoft won't gain from that either. In fact, in the higher price range where Microsoft has its least expensive offerings, the higher priced devices (eg: iPhone, iTouch) will likely hurt sales of Zunes more than they will hurt sales of Sandisk devices since the Sandisk devices really target price bands where an iPhone or iTouch simply isn't in the consideration set.

      David

      David
      dberlind
      • Agreed.

        If you look at the numbers, in Actuality, Sandisk is probably #1 in the Under $125 Market, maybe in the under $150 market, but I don't know what percentage the Nanos make up, selling at the $149.99 price, as well as the shuffle . . .
        JLHenry