ZUNE'S NEW TUNE

Microsoft's introduction of three new Zune devices, combined with an updated version of the Zune digital music service, suggests that the relatively lackluster response to the initial Zune offering has not fazed the computing giant from advancing its digital music agenda.

The key to what Microsoft is calling "Zune round two" is not so much the features of the new devices—such as the touch pad and flash memory—but rather the added social networking elements the company is integrating into the broader service, especially via a development that Microsoft is calling Zune Social.

The service will automatically list songs that Zune users have most recently played, allow members to customize their own list of favorite artists and let visitors stream full versions of each song. Additionally, each Zune Social profile (called a Zune Card) can be added, much like a widget, to other social network sites, blogs and Web sites.

Together with the elimination of the three-day limit on songs shared from one Zune to another and the new ability for users to forward shared songs to others, Microsoft's latest Zune effort attempts to combine pieces of other existing digital music initiatives into one offering.

"We've got the hardware, the software, and now we have community," Zune GM of global marketing Chris Stephenson says. "We think we can pull all three exciting areas together and create one improved consumer experience."

That's easier said than done. Such music communities as Last.fm and MOG have already attracted millions of users, and such initiatives as Imeem are embracing ad-supported models that allow users to stream full songs discovered on other users' profiles. Combined with the move toward digital rights management-free tracks and widget-based sales, an interoperable community of music discovery and distribution is already in development while Microsoft works to build a self-contained version.

Microsoft has sold 1.2 million units of the original Zune, snagging the No. 2 market-share position for hard-drive-based MP3 players. It wants to achieve the same with its new flash-based devices on the back of its social sharing and networking strategy, but faces strong incumbents and equally innovative newcomers. Sandisk is second in flash-based-device market share at about 10%, behind Apple's 74%, and is integrated with such services as Yahoo Music Unlimited and Rhapsody. Additionally, new Wi-Fi-enabled devices are expected to hit the market this holiday season, particularly the Slacker model—which comes integrated with an online personal radio service.


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