In the absence of any concrete news from Microsoft about Zune, the same rumors crop up every few months. We've known for some time that Microsoft is porting the Zune software and marketplace to some sort of living room device--it's called the Xbox 360. (I doubt they'll do a separate piece of hardware like Apple TV, especially given the recent rash of cost-cutting around the company.) And as far as the latest crop of Zune-phone rumors, I expected Microsoft to announce Zune for Windows Mobile back in February at the Mobile World Congress show, and was surprised when it didn't happen.
Supposedly a screenshot of the Zune interface planned for Windows Mobile 7.
(Credit: WMPoweruser via CNET Asia)Now I understand why it's taking so long. According to this unsourced rumor at WMPoweruser, Microsoft is planning to allow mobile operators to be involved in the process of selling downloads. In other words, when you download a song from the Zune Marketplace to your Windows Mobile phone over 3G, your carrier will set the price and handle the billing. Adding a third party--the carriers--to your development process introduces delay.
I believe the rumor for a couple reasons. The last time I talked to the Windows Mobile team, they emphasized that they consider carriers as a major customer, alongside end-users and handset makers. This is unlike Apple, which built the iPhone primarily to appeal to end-users, then told carriers they'd have to agree with Apple's terms to sell it--in other words, all downloads go through iTunes. Carriers want to keep control of the customer billing relationship, and they want to dictate prices for content downloads, especially ringtones. So I could see Microsoft capitulating here.
Second, Microsoft acquired a company called Musiwave in 2007, and has posted job ads for developers to work for Musiwave to help power the Zune Marketplace. Musiwave was a provider of back-end platforms for carriers such as Orange and Vodafone. That kind of expertise could be helpful in transitioning the Zune Marketplace to a model in which some transactions are handled by carriers instead of Microsoft.
Personally, I like Apple's all-in-one model, and if Microsoft's not careful, allowing the carriers in could create a usability nightmare. What if, for instance, Wi-Fi and PC downloads are handled by Microsoft, but 3G downloads are handled by carriers, leading to two bills and different prices for the same content? Epic fail. But I could see some advantages as well. For instance, today carriers subsidize the price of many phones (including, of course, the iPhone). What if Microsoft could convince them to subsidize the cost of a Zune Pass (Microsoft's all-you-can-hear subscription plan), or even build it into the monthly data plan fee? The result would be similar to Nokia's Comes With Music phones--a phone that offers you unlimited over-the-air music for a year or two.
Whatever the case may be, we probably won't see any Zune-Windows Mobile integration until Windows Mobile 7, which won't be out until 2010.
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Microsoft's mobile phone strategy and its digital media strategy often seem to be in different worlds. For mobile phones, the company has focused primarily on the Windows Mobile OS, a few mobile applications (Outlook being the most useful one), and--more recently--online services such as Live Search that can be used on many mobile platforms, including (gasp) the BlackBerry (the No. 1 competitor that Windows Mobile has in its sights).
For digital media, the company first pursued its partner-driven approach, promoting the Windows Media Platform for both online stores and devices, and then went with the end-to-end approach of Zune. At times, there's been overlap--for example, Verizon uses the Windows Mobile platform to power its VCast service, and there is a version of the Windows Media Player for Windows Mobile. (Does anybody use it? I have no idea.) But there hasn't been any big coordinated effort to push digital media on the Windows Mobile platform, and certainly nothing resembling the all-in-one experience of the iPhone.
On Monday, Microsoft announced its intent to acquire Musiwave, a provider of digital music services--downloads, ringtones, and so on--to phone carriers, mostly in Europe, although Canadian provider Telus is also a customer. The official release name-drops several Microsoft brands that could make use of Musiwave's services, including MSN, Windows Live, Windows Mobile and--yes--Zune.
So is this going to drive the long-rumored Zune Phone? I doubt it. It looks like this possible acquisition was driven by the Windows Mobile group, which still believes that the best long-term business model for Microsoft is to sell platform software and services to as many carriers and handset makers who will buy it. Zune and Xbox aside, Microsoft still doesn't have the DNA of a hardware company--it would prefer to sell huge volumes of broad-market, horizontal software. The margins are higher, the cross-pollination with its other pure-software businesses is more effective (if Outlook Mobile worked only on Microsoft-built phones, how would that help the company sell more e-mail servers to corporations?), and there's no dominant handset maker that threatens another core Microsoft business (unlike Xbox, which responded to the threat that network-connected game consoles would cut into consumer PC sales, and Zune, which responds to the iPod halo effect on Mac sales).
Two possibilities seem more likely to me than a Microsoft-built Zune phone. One, Microsoft could offer Musiwave as a turnkey service for operators to add mobile music services quickly and easily--the carriers get to retain control of the billing relationship with the consumer, which they're loath to give up, and Microsoft sells infrastructure software (Windows Server, for example) as facilitating technology.
Or, Microsoft could in fact be building a Zune client for Windows Mobile, or for various mobile platforms (as they did with Live Search). In that case, Musiwave might provide some sort of necessary technology to make the Zune Marketplace available via third-party carriers. Although I can't imagine the carriers being too happy about that, it's better than losing customers to the iPhone.
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