Microsoft's Zune Misstep Marks the Gadget Road Not Taken

Microsoft (MSFT) launched the Zune multimedia player in November, 2006. It was to be the company's Apple (AAPL) iPod-killer. Last year, research firm NPD said Zune market share was a paltry 2%, compared to the iPod's 70%.

But the world's largest software-maker soldiers on. Microsoft still has a fancy Zune website. The device now has capacity for high-definition video and audio. The Zune Pass offers unlimited music downloads for $14.99 a month. Amazon (AMZN) sells the lowest priced Zune for $114.99.

Consumer Electronics Momentum

The product's failure is in stark contrast to the success of Microsoft's Xbox 360, which has offered substantial competition to the Sony (SNE) PS3 and Nintendo Wii. Perhaps that's because Sony and Nintendo aren't the formidable competitors that Apple is. Perhaps it's because the Xbox 360 launched about the same time as its rivals. The first iPods were in the market in 2001, five years before the first Zune.

The Zune's failure sent the company down a very different path than Apple's. Jobs & Co. were able to use the iPod's success to launch the iPhone, and now the iPad. Microsoft's mobile OS has struggled against the mobile operating system Apple uses, probably because Redmond never had a cell phone of its own to carry Windows Mobile as a follow-on product to the Zune.

Microsoft is forced to work with companies like Hewlett-Packard (HPQ) as venture partners to launch tablet PCs. These will likely not sell as well as the iPad. Microsoft's failure in the consumer electronics field can be traced back to 2006, when the first Zunes hit stores and no one bought them.