Thursday, November 30, 2006

Zune Makes A Positiv Debut

By Jefferson Graham, USA TODAY
The Zune, Microsoft's much-hyped answer to Apple's trend-setting iPod, had a good first four days of sales, says a leading research firm. But consumer electronics analysts don't think Apple has anything to worry about.

The NPD Group, which tracks sales at most top retailers, says the Zune digital music device had a 9% market share in its first sales days Nov. 14-18, compared with 63% for Apple. The research firm hasn't reported sales for the all-important Thanksgiving holiday selling weekend.

SanDisk, which is usually in second place to Apple, saw its share fall to 8%. NPD doesn't report sales for Wal-Mart, or the Apple Store.

"For a new brand that received limited to mixed reviews, and which is incompatible with the leading music store (Apple's iTunes,) as well as other music stores, it was a good launch," says Ross Rubin, an NPD analyst.

Zune comes with a 30-gigabyte hard drive and sells for $249, the same price as similarly featured iPods. Apple, however, has many iPods available, starting at $79. Its most popular iPod, the Nano, starts at $149. SanDisk Sansas are lower-priced, starting at around $50.

While NPD showed good initial sales for the Zune, the product hasn't fared as well in other surveys. On Wednesday, Amazon's daily chart of best sellers showed the iPod dominating the digital music player category, with Zune showing up at No. 17 by midafternoon. At online retailer's digital music player chart, Zune was No. 13.

Zune marketing director Jason Reindorp said Microsoft is on track to meet internal projections and is "confident Zune will only continue to gain momentum through the holiday season and beyond."

Michael Gartenberg, an analyst at JupiterResearch, says, "You can sell 50,000 of anything to early adopters. The question is whether Microsoft can be competitive a year from now."

Gene Munster, an analyst at equity firm Piper Jaffray, says despite Microsoft's promotional push, the message hasn't gotten to store sales staff yet.

He conducted a survey of 40 retail stores and found that clerks recommended iPods 75% of the time, compared with 8% for the Zune. Many clerks hadn't even heard of the Zune, he says.

The Zune's big feature — wireless music sharing — has gotten knocked by consumer tech critics as too restrictive. The songs play only three times over three days and then expire.

"Unless you have a grudge against Apple, it's hard to see why anyone would buy a Zune over an iPod," Gartenberg says. "But any company that underestimates Microsoft is crazy. They will make it better."

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