Stop Laughing at the Zune, Apple

Windows Mobile blogging site WMPoweruser.com turned heads this
morning by posting apparent specs of the new ZuneHD, which is supposed
to hit the market in the fall. An alleged snapshot makes the new Zune
look freakishly similar to Apple's (Nasdaq: AAPL) iPod touch, capacitive touchscreen and all.

By now, you should be jaded enough to approach any leaked snapshots
and spec sheets as bogus until proven factual. The Web is ripe with
Photoshop-savvy pranksters and motivated firestarters. However, this
doesn't mean that investors should dismiss all chatter, especially when
it's clear that Microsoft is in no hurry to bury the Zune, despite its
lackluster market acceptance.

Hit the specs

If the rumor proves true,
the ZuneHD will be a pretty impressive beast. It may look like a
"me-too" Apple gadget, but it also might bring a lot of new things to
the table:

• Beyond AM and FM radio, or the contents of its
  16- or 32GB flash drives, ZuneHD will reportedly also receive HD Radio
  broadcasts. This fledgling digital format allows conventional radio
  stations to offer more channels within the same frequencies --
  typically narrow music niches with minimal advertising -- making it a
  factor that Sirius XM Radio (Nasdaq: SIRI) can't entirely ignore.
• The
  report also says the device will play 3D Xbox games. Some have
  suggested that enhanced games -- way beyond the casual gaming now
  available on smartphones -- will be possible if the ZuneHD integrates NVIDIA's (Nasdaq: NVDA) Tegra chipset, but the blog has not confirmed that spec.
• Speculation
  suggests that ZuneHD will eventually be powered by Windows Mobile 7,
  giving the device a high-end mobile browser, and likely refueling
  speculation that a Zune smartphone isn't far away.

Add it all up, and even if only a few of the whispers are legit, the ZuneHD could have a shot at the big time.

A history of silence

Microsoft's entry into the portable media player market in 2006 was uninspiring.
It did raise the bar with its wireless social sharing feature, but no
one seemed to care. The Zune couldn't compete with Apple's entrenched
iTunes ecosystem; it didn't even have a shot at the silver medal,
because SanDisk (Nasdaq: SNDK) was cornering the market as the anti-iPod substitute.

Microsoft spent a ton of dough on artsy but ultimately ephemeral commercials promoting the Zune, to no avail. Even GameStop (NYSE: GME), a video game retailer practically oozing with Microsoft-fanboy customers, stopped stocking the Zune.

For all of Microsoft's might and money, the Zune had to settle for a mere 4% of the market as of a year ago.

Source: NPD Group.

The empire strikes Bach

Mr. Softy could have quietly axed the Zune last year. That would have helped the company avoid the leap year fiasco over the holidays. Zune could have even have died a year earlier, instead of unveiling an updated model in 2007 that did little to move the market-share needle.

Has Zune outlived its irrelevance? Microsoft wouldn't have kept the
Zune alive for this long if it wasn't part of a larger master plan.
Microsoft is doing well with its Xbox 360 and its Xbox Live
Marketplace, but it remains the only video game console maker without a
handheld gaming device on the market.

At least one analyst was "fairly certain" last fall that Microsoft had a standing order to buy Research In Motion (Nasdaq: RIMM)
at $50. The BlackBerry maker ultimately traded as low as $35.09 in
December, and Microsoft didn't move a muscle. Could it be holding back
from taking on Apple in the smartphone market because it has an
in-house solution coming Zune -- er, soon?

I don't know how much of the ZuneHD chatter going around is true.
Those who do know probably aren't talking. However, I'd be surprised if
Microsoft kept a fringe device on life support for three years only to
let it die in vain.

Sooner or later, Microsoft will get the Zune right. And when that
day comes, the words "brown Zune" will no longer be an easy way to
garner cheap laughs.

© 2009 UCLICK, L.L.C.