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Microsoft's Zune: Can It "Turn Up The Music" Over iPod?

Microsoft's new family of Zunes is generating quite the buzz this week: new colors, new capabilities, and for the first time since Zune's original release, talk that Microsoft--dare I say it?--could close the gap with Apple and the iPod. Or not.

PC Magazine just awarded the 80GB Zune its editor's choice award as being better than the iPod Classic. Which is nice, but the iPod Classic is a redux of Apple's player from years ago. Plain and simple. Next to Apple's new Touch, and the slick new Nano that now plays video too, the Zune continues to be an also-ran.

And to put a finer point on that video note: while net consumers continue to focus more and more of their time downloading videos and watching video online, Zune's new Marketplace still doesn't offer TV or movie downloads, the USB connection is exclusive to the product--so no real "U" for universal in that USB--and there's no Wi-Fi music streaming.

Still, bloggers have been saying that the new Zune is "elegant," "smart," "easy to use," "feels good in the hand," and is a marked leap ahead from the original. But the original was so far behind so many products already on the market, that Microsoft only had one direction to go.

The fact is, Microsoft has a long way to go to attract any meaningful market share to the Zune. The company's stated goal of selling 1 million Zunes by last June (it was released the previous November) may or may not have been met. During that same time, Apple sold around 50 million iPods, give or take. The new Zunes are enjoying some sweet reviews and that's certainly a start.

Pacific Crest's Brendan Barnicle tells me today that ultimately, there's only so much Apple can do, that iPod can offer, before it peaks. And at that time, Microsoft can start closing the gap somewhat. But when might that happen? Predicting when Apple will stop innovating on the iPod is like predicting the ultimate slowdown of online ad spending and how that will affect Google's revenue growth. We know it's coming, but it seems to be coming a lot slower than anyone predicted.

And that's a problem for Microsoft. If Apple were merely sitting still waiting for Microsoft to catch up, then this would be a race worth watching. But Apple's engineers have proven time and again that they've got their arms--and fingers--around what consumers want.

And therein lies the biggest challenge yet for Microsoft: no matter how good, how innovative, how cost-effective, how colorful the new Zune's are, they still have yet to come up with a way to compete with the intangible. Apple's iPods still enjoy a coolness factor for some, an aspirational factor for others, with which Zune simply cannot compete. At least not yet. iPods might be expensive; but they're compelling.

Apple has proven time and again that design and innovation can indeed command a premium, selling better than 120 million iPods and millions of Macs, even as other far less expensive MP3 players and computers languish on store shelves. And don't even get me started on iPod's tight relationship with Apple's iTune's music store.

Microsoft showed its acumen, or lack thereof, with its own online music store. Remember "Urge," once touted as the big MTV and Microsoft partnership for a new, online digital entertainment marketplace? MTV cut its ties with Microsoft and is now partnering with Real Networks and Verizon instead.

Microsoft only starts to make meaningful headway in the mobile market when it marries the Zune to the Xbox, and we get the new Xbox Mobile multi-media, Wi-Fi, entertainment, communications, media device. That will be a big deal, not just for Microsoft, but for Apple and Sony too. When? Anyone's guess.

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