Zune And Universal Make Friends
Microsoft and Universal Music Group today announced an agreement under which Microsoft will pay Universal $1 for every Zune music player sold. In return, Microsoft gets to sell Universal's music library at its Zune Marketplace online music store. I've read several commentators who see this deal as a desperate Microsoft caving in to a greedy music company. I think they have it wrong on all counts.
Let's start with Universal. It has a 30%-35% share of the worldwide market for music sales. A recent study revealed that Apple sells 20 songs per iPod. The rest of the music on iPods, at least 95% percent, are songs customers say they have copied from previously purchased CDs. Anecdotal evidences suggests that those "previously purchased CDs" are often "borrowed" from a "friend." At iTunes prices, neither Apple nor the music companies are making much from iTunes sales, even with the large sales of iPod's. Apple makes its money from the razors, not the blades. In the long run, it is better business for Universal to get revenue from music player sales and lighten up on worrying about digital rights management. Universal's position is sensible and forward looking.
For Microsoft, we must remember Why Microsoft Needs Zune. Zune serves Microsoft two purposes. First, it is a weapon Microsoft uses to attack iPod/iTunes and divert Apple resource away from unleashing OS X against Windows on PCs. Second, it is a long term investment in a new growth line of business. Microsoft does not need Zune to be a great success right away. It can wait three, five or more years for Zune to become a true iPod competitor. Remember the history of Xbox (Why Microsoft Needs Xbox). Microsoft is patient, willing to invest for the long term, and relentless.
What Microsoft needs now are friends in the music industry, where Apple has tense relations and uses its iPod success as a club. The new, improved Steve Ballmer sees Microsoft's future better served by cooperation and trust than the less admirable traits Microsoft was known for as it rose to dominate the software industry. He has made peace with Sun, entered an alliance with Novell, settled numerous lawsuits, accommodated regulators, and on and on.
As Abe Lincoln said: "The best way to destroy an enemy is to make him a friend."
Copyright © 2006 Philip Bookman
Technorati: Zune, Microsoft
Let's start with Universal. It has a 30%-35% share of the worldwide market for music sales. A recent study revealed that Apple sells 20 songs per iPod. The rest of the music on iPods, at least 95% percent, are songs customers say they have copied from previously purchased CDs. Anecdotal evidences suggests that those "previously purchased CDs" are often "borrowed" from a "friend." At iTunes prices, neither Apple nor the music companies are making much from iTunes sales, even with the large sales of iPod's. Apple makes its money from the razors, not the blades. In the long run, it is better business for Universal to get revenue from music player sales and lighten up on worrying about digital rights management. Universal's position is sensible and forward looking.
For Microsoft, we must remember Why Microsoft Needs Zune. Zune serves Microsoft two purposes. First, it is a weapon Microsoft uses to attack iPod/iTunes and divert Apple resource away from unleashing OS X against Windows on PCs. Second, it is a long term investment in a new growth line of business. Microsoft does not need Zune to be a great success right away. It can wait three, five or more years for Zune to become a true iPod competitor. Remember the history of Xbox (Why Microsoft Needs Xbox). Microsoft is patient, willing to invest for the long term, and relentless.
What Microsoft needs now are friends in the music industry, where Apple has tense relations and uses its iPod success as a club. The new, improved Steve Ballmer sees Microsoft's future better served by cooperation and trust than the less admirable traits Microsoft was known for as it rose to dominate the software industry. He has made peace with Sun, entered an alliance with Novell, settled numerous lawsuits, accommodated regulators, and on and on.
As Abe Lincoln said: "The best way to destroy an enemy is to make him a friend."
Copyright © 2006 Philip Bookman
Technorati: Zune, Microsoft
Labels: software strategy
posted by Phil Bookman at 9:56 AM
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