Why Microsoft's Zune can't dent Apple's iPod

Microsoft's Zune music player has little or no chance of denting Apple's iPod juggernaut and contrary to all the digital ink spilled on product comparisons and reviews most of the reasons are strategic. Apple has built up quite a moat around its iPod business.

Bottom line: Even if Microsoft's Zune is just a first volley it has a tough road ahead. 

Exhibit A: Apple has managed to integrate the iPod into daily life. Today Apple announced it is partnering with Air France, Continental, Delta, Emirates, KLM and United integrate the iPod with in-flight entertainment systems. This development builds on an August integration deal with Ford, General Motors and Mazda and a January partnership with Chrysler. Overall, Apple has wormed the iPod into 70 percent of 2007-model automobiles.

Exhibit B: Apple has critical mass to thwart new features on the Zune. The most interesting feature of the Zune is the ability to wirelessly share and download music. The issue: There won't be enough Zune users to make this feature really sing. Apple has sold more than 70 million iPods. It could copy Zune's wireless feature and make a huge impact instantly. "The Zune's most talked about differentiator, wireless sharing with other Zunes, will not turn out to be a significant selling point. If, at some point, there are millions of Zunes in the market, the wireless sharing capability may prove to be a more compelling feature," says Piper Jaffray analyst Gene Munster in a research note. Of course, sharing restrictions may also render the Zune's wireless capabilities moot.

Exhibit C: Content partnerships. Speaking of critical mass, Apple has lined up more video and music deals with iTunes relative to Zune's market place. While this moat is formidable it may be the easiest to overcome. Why? The entertainment industry is wary of Apple's clout and it can't hurt to have another big player like Microsoft as a counterbalance. The customer experience may be a little harder for Zune to conquer.

Exhibit D: The grandmother effect. Ask your grandmom about the iPod and you'll get a response. That state of affairs has taken years of marketing to cultivate. The Zune? Still confined to geekdom and one swell launch party isn't going to close the gap soon.
Exhibit E: The halo effect (or lack of it). If you believe in Apple's so-called halo effect, which dictates that iPod sales lead to Mac sales the reverse could be true with Microsoft. It's the holiday season and Vista's delay is likely to hamper PC sales. Will that impact Zune sales?