If you wanted proof that Microsoft's strategy for its Zune brand involves veering away from the actual Zune HD device, look at its plans for Europe and other international markets: Starting tomorrow, Xbox owners in some 18 markets (including the United Kingdom, most of the European Union and Australia) will be able to stream Zune-branded movies to their televisions.
Microsoft Chief Software Architect Ray Ozzie has spoken often of the "three screens and a cloud" strategy, which seeks to port Microsoft content onto PC screens, phone screens and TV-sized screens. Sounds good, no? But if you're going to be zipping content around something as nebulous as the cloud, it helps to group that content under a single branding umbrella; in Microsoft's case, that brand would be one it already wants associated with media, Zune. That Microsoft is doing this with the Zune name, but not actually releasing the Zune HD to international markets, suggests the relative importance of the consumer-cloud concept to Redmond's overall strategy.
(Using the Xbox 360, which has sold an estimated 34 million units worldwide, basically guarantees Microsoft an audience for the new Zune service.)
Hyperbole aside, a Piper Jaffray analyst at the time estimated that Microsoft would take between 5 and 10 percent of the portable-media-player market in the first year of the Zune's release.
But that never happened; a recent NPD Group report suggested that for the first nine months of 2009 the Zune owned about 2 percent of the market. When the Zune HD was released in September, it attracted a fair amount of media buzz but relatively low initial sales--which is unfortunate; I thought it was a perfectly worthy competitor to the iPod Touch.
Microsoft is intent on creating a cloud-based music/video/games apps ecosystem, and for now the Zune HD will remain a part of that strategy--but I'm betting that, unless sales of the device pick up, Redmond will take steps to progressively marginalize the device, eventually phasing it out entirely.
But then that leaves Microsoft in somewhat of an awkward position. After all, execs are calling it the "three screens and a cloud" strategy for a reason--if the Zune HD is no longer an essential part of the ecosystem, what picks up the slack on the mobile front? It could be Windows Mobile 7, due for release in 2010, but Microsoft's steadily eroding mobile OS market share makes that an uphill battle at best and a Waterloo in the making at worst.
Microsoft could decide to go back to the proverbial drawing board and release another portable media player; but for branding purposes, any such device would likely need to be marketed under the Zune name--which just places the company back at Square One; it might as well pour all that money into promoting a new version of the Zune HD. And despite the marketing dollars spent on the Zune HD so far, it hasn't been able to gain much traction with regard to public mind share.
In sum, Microsoft's international Zune strategy shows its progressive thinking with regard to cloud-based services and media ecosystems--but it also shows, glaringly, a potential Achilles heel for Redmond in the months and years ahead.