Zune Project

Graphic taken from Microsoft Stock Holders Presentation. Copyright Microsoft Corporation

The Zune Insider provides some information about a recent financial presentation given by Robbie Bach the President of the Entertainment and Devices Division for Microsoft. The Zune Insider provides information direct from the Microsoft Website. Whatever you may think of him this comes straight from Microsoft so it has to be good. Our analysis of The Financial Analyst Meeting 2006 reveals the details of what Microsoft plans for not only the Zune family of mobile devices but their larger plans for a future of interconnected devices and services catered to the digital lifestyle.

Bach statements are in italics for clarity.

Bach says while giving the presentation “One thing that hasn’t changed is our focus on the digital lifestyle. When I was here last year, I talked extensively about why we think the digital lifestyle is such a tremendous opportunity for the company and a tremendous opportunity for our group. And whether you’re at a PC or in your car or traveling or sitting down in front of the TV, we think we can deliver an amazing connected experience around the digital lifestyle.”

We can see that the Zune is but a small part of this Microsoft Live initiative. This is another step towards establishing a platform of devices, applications and services to help a person manage their entire digital life with a little help and a monthly subcription to Microsoft. Bach continues by saying.

“But in some ways more importantly, the secret sauce to our strategy is the community and services we are going to use to tie these experiences together, because in the world of digital lifestyles, how people interact with others, the community they build, the services they have access to, really is what’s going to lead this business to success. And it’s a great place for Microsoft to differentiate itself.”

Here he shows the “secret sauce” of their strategy and the way they plan to differentiate themselves is by building communities and services to tie things together. Well we’ve already seen them building communities with Xbox Live and we all understand the power of social networking (insert Myspace here). It appears that what Microsoft hopes to do is bring together an even greater audience with the integration of multiple media services in their own community.

Bach lays down steps for a grand plan with these statements.

“First of all, we have to launch Windows Vista. That’s critical to our gaming platform. This is the first version of Windows in probably four or five years that has significant advancements in gaming technology.”

Windows is of course the foundation of all Microsoft plans. The most profitable division in their organization has always been the OS and in building more devices to license an operating system on they secure a stable future of their biggest money maker. Future versions of Windows will no doubt take on more a home management function and control things around the house from a centralized platform. Envision your automated home maintaining your favorite temperatures in each room, it can record, store and play your favorite media, it will manage your finances, it will make a pot of coffee every morning and it can even water the lawn twice a week. All through mechanized controls managed from your home pc and Windows Live for support.

“We also have to keep growing the Xbox 360 business. This is about building an install base. And now is the time to do that. By the time we reach the end of the calendar year, we think we will have a 10 million-unit console lead in install base, and that is a huge advantage for us relative to our competitors.”

People wondered why they spent billions to win over the gaming market and here we realize it was much more than games. What they wanted was a dedicated base of users. In the gaming industry they can brand their users at a young age and develop a loyal lifelong customer. This base sits on top of a Windows OS and software applications. How easy will it be to have Xbox users working with Microsoft applications throughout the rest of their lives? Microsft had great vision to develop this Live initiative and ambitious plans on how far they want to go with it.

“We’ve done a spectacular job in the IPTV space driving trials worldwide. You look at the list of customers we have who are trying our software; it’s a who’s who of the telecom industry, and we’re getting real traction with those and leading those toward commercial trials”

IPTV is a flank move on the television industry to take control of an even larger base of users. By securing a foothold on the Internet Television market and establishing market dominance they can cut out cable providers and take over the entire television industry. The merger between tv and the internet will be more of the internet assimilating the television market as it consumes all other media providers. It’s but a matter of time before all everything is available through your broadband connection. If Microsoft takes lead on IPTV they may some day control every television viewer in the world.

“When you add that to the fact that there’s integration opportunities between what we’re doing in IPTV and Xbox 360, and we’re already taking advantage of the opportunity to integrate between Media Center and Xbox, you really have in this entertainment space a great position for Microsoft.”

This shows what we already can see about their integration plans. The Xbox and Media Center tie ins are well known. Having gamers playing on their platform has worked well for Microsoft and they are certain to continue pushing things as far as they can. The bigger picture of the Windows Live Anywhere project becomes more clear with the following.

“Finally, one of the things that we just announced last week is a move into the music and video space in portable entertainment, something we call Zune. I want to spend a few moments here talking about Zune and give you a little bit of context. I think the first thing to understand about Zune is that we are taking a more integrated approach to this. Microsoft will be involved in the hardware, in the software, and the services. We think that’s important to produce the number one thing that has to happen in this marketplace, which is a great customer experience. And we have to tie those things together in some ways like we have in the Xbox world, where in the hardware, software, and Xbox Live service we have tied things together in a great experience.”

There has been some confusion about whether the Zune is a real product. We think you can see once again that this is a real project and that this device will soon be available. You can have all the leaked insider reports and photos you want. This is the President of a Division in Microsoft explaining to financial investors about their new portable entertainment device. He is not speaking about some far off future plans but stating facts about real products and services soon to come.

“Looking at Zune as part of our broader picture. You know, in the case of Apple, they have certainly an iMac business, they have their iPod business, and they’ve sold a few things in the home that compete with Media Center, although the numbers there are actually quite small. Look at our business: We have a burgeoning IPTV business that we think is going to grow and be successful in the home. We have Media Center in over 14 million units and growing around the world. We have Xbox 360 in place and growing around the world. We have Xbox Live, MSN, and our Windows Live initiatives expanding. Put all of those things together, and then take Zune and put it in the context of that. It enables us to complete the picture. It enables us to have the full entertainment and connected entertainment experience that we want to have. And so that’s why Zune is important, and it is a way we’re going to differentiate ourselves, because the experience of having Zune in that connected environment is going to be a dramatically better experience than you get just from having a portable music player.”

Bach shows what we already know that they are planning a big push with the Zune family in order to once again grab a larger base of users for their future plans. The Zune is probably as big if not bigger then Xbox because with Zune if they fail it will destroy their plans for integration into the future services. We think that Microsoft will be taking a very serious approach to market dominance with the Zune portable media devices. The Zune has to have at least a moderate level of success and pay for itself in order for them to pursue further investment of this Live Anywhere initiative.

“I want to talk a little bit about further out something called connected entertainment, because our ultimate vision here in this space is how do we bring all these things together into an experience that is new and different for people? How do we enable people to have their content—whether it’s a movie, a game, a video, a piece of music, someplace in their environment—and be able to get at it from wherever they want, whether they’re in their car, whether they’re walking on the street, whether they’re in their living room, whether they’re in the den in front of a PC? That, we think, is a very powerful vision, and the combination of what’s going on in the networking space, and the work we’re doing with our devices, and our service, much like what you saw in Live Anywhere, we think we can deliver on a very integrated approach to content, that is very powerful not just for us and for our customers, but also for the content providers, because it gives them access to new experiences and to new customers.”

In this final statement he just about wraps it up. These points lay out the ground work for integration of a variety of media platforms through a set of interconnected devices and services. Windows Live Anywhere really is a grand planl. If Microsoft can pull it off they will have a huge base of users. By tying the pc, the portable entertainment and home gaming system they create a complete entertainment system. As soon as they can add mobile communication services such as phone and text messaging to be connected through the same services it would be amazing.

The Zune portable player is an important step in their goals towards this Live Anywhere initiative. They have a strong position in the pc and game industry and are now focused on building and maintaining that. The mobile device has been the weakest link and Microsoft now feels it best that they do it on their own. They have had success with Xbox by taking more control of things and with any luck they will have great success with the Zune as well.

The mobile device is also the most powerful in the group since it is the one device to tie them all together. The Zune will be much more than a music player. If Microsoft is capable of completing this suite the Zune mobile communication and entertainment device will be the center piece of a digital lifestyle and interconnected community. One thing is for certain. Microsoft has a lot riding on the success of the Zune and they are going to do what it takes in order to see it succeed.

We think there will be a huge battle fought between Apple and Microsoft to see who has the coolest player. Right now Apple leads the pack with a high cool factor and a huge base of users that bought in because it was the hip thing to do. If Microsoft wants to beat Apple they have to be that much cooler. Possibly the smartest move they make will be in courting the artists as their spokespersons. If they provide more incentive to the artists through a larger cut of their profits they will make lots of friends in the recording industry and every wanna be hip hop mogul and movie star will be sporting the new Zune for the holidays.

What better way to be make your product cool than to let the cool people do it for you?

Graphic taken from Microsoft Stock Holders Presentation. Copyright Microsoft Corporation