Switched On: Dark side of the Zune

Ross Rubin (@rossrubin) contributes Switched On, a column about consumer technology.

When the iPod touch swiped away the small display, aversion to WiFi and telltale scroll wheel of previous iPods. Microsoft was left with Zune models squarely targeted at Apple's state of an older art. This fall, though, Microsoft will close the features gap and, in some ways, leapfrog the iPod touch with the Zune HD, which takes advantage of the startling contrast of OLED screen technology and will be one of the first (and likely the most popular) portable HD radio receivers. But no DNA test is needed to see that the Zune HD is inspired by the iPod touch, with a single button below the screen, side-mounted volume controls, and a power button at the top.

Now that the Zune HD will have a hardware exterior that looks like a credible challenger to at least today's iPod touch, what about filling the flash memory in its interior? Here, Microsoft has a number of opportunities that could improve the Zune's standing if successful, or leave it in the iPod's shadow if not.

First, there's the music, of course. Microsoft has been fighting the subscription crusade with Zune since the device's inception, but may be on to something with the Zune Pass 10 MP3 song/month "use it or lose it" subscription credit. While the downloads are on some level at odds with promulgating the notion of "access", the downloads help combat consumer fears about losing access to music, provide an escape clause out of the Zune since they are unprotected MP3 files, and at least more closely resembles one established music subscription business in the US – the Columbia House music club (now at yourmusic.com) that dates back to the days of cassettes.

The download credits idea has also been picked up by Napster, which is offering an even lighter version of the Zune Pass plan with five songs per month for $5. That price hearkens back to what the now defunct Yahoo Music subscription service charged for unlimited on-demand streaming, which both Microsoft and Napster offer. But that becomes almost a bonus as consumers rationalize the subscription as a sort of monthly music allowance.

Second, there are the applications. The iPod touch has benefited mightily from the success of its subsidized brother; the vast majority of iPhone applications can also run on the iPod touch. But Microsoft is clearly in a state of transition with its smartphone applications. The Windows Mobile app store won't launch until Windows Mobile 6.5, but even bigger changes are likely in store for Windows Mobile 7, the interface of which Zune HD may offer foretell. Microsoft is certainly starting to focus on consumer applications for Windows Mobile that could transfer over the Zune HD, but the road ahead is long if it is to create the kind of library Apple has. Even at launch, the world of Windows Mobile will be the genesis for the Zune HD's most important application, its Web browser.

Finally, one non-PC platform where Microsoft has certainly seen developer adoption and critical mass is XBox. The company has already rebranded Xbox Live Marketplace to Zune, signaling tighter integration of the devices that began in the company's Entertainment and Devices group. Games have been the most popular application category for the iPod touch, and the category in which Microsoft has the strongest position of any application category.

And yet, Microsoft has done nothing beyond the design of the iPod touch to make the Zune HD more appealing to gamers – no D-pad, no joystick, and no extra buttons to mash. Granted, the Zune HD is not being dubbed the XBox Portable and need not take on the likes of Sony's PSP Go. But in creating a design that simply enables developers to port over their iPod touch user interfaces instead of adding some minimal physical controls that could enhance gameplay, Microsoft is passing on an opportunity to leverage an area of strength and further differentiate from the iPod touch.

Convergence products such as the Zune HD place their bets. Microsoft's are that a new way of valuing music subscriptions will drive content, a focus that eschews optimization will drive authenticity, and that some source of high-volume mobile applications can drive the platform versatility to make inroads against that pocket computer sold with white earbuds.

Ross Rubin is director of industry analysis for consumer technology at market research and analysis firm The NPD Group. Views expressed in Switched On are his own.