Rather than building a Zune-branded smartphone, Microsoft plans to take the software and online store it built for its Zune media player and bring them to your television set in the hopes of emulating Apple's phenomenally successful iTunes Store. But it still plans to deviate from iTunes in strategy.
The store, called the Zune Marketplace, offers millions of songs, podcasts, music videos and TV shows for purchase and download. It's accessible to Zune users as well those who've downloaded the software onto their Windows PCs.
That hasn't been enough for critical mass, judging by the US$85 million Microsoft reaped from sales of Zune hardware and music and video downloads during the Christmas quarter. By comparison, the iTunes Store cleared about US$3.5 billion last year, according to Apple's filings with the US Securities and Exchange Commission.
The Zune Marketplace remains outgunned because the Zune has made little progress against the iPod's dominance. Only two million Zunes had been sold as of May 2008, the last time Microsoft publicly announced figures.
Meanwhile, nearly 200 million iPods have been sold, along with almost 18 million iPhones.
Still, Microsoft hopes it can unshackle the Zune Marketplace and mount a more serious challenge to the iTunes Store.
Instead of building its own ZunePhone, Microsoft is bringing the Zune Marketplace to the upcoming 6.5 version of the Windows Mobile operating system.
Microsoft is "bringing our Zune Service, not the Zune hardware but the Zune entertainment service, to all three screens, PC, phone, and TV," CEO Steve Ballmer told Wall Street on Tuesday (download Microsoft Word transcript). "So it becomes a fundamental part of building a real business around TV sets."
Ballmer's words echoed those of Enrique Rodriguez, the Microsoft vice president in charge of the Zune software, who told CNET earlier this month that "Zune the service needs to transcend Zune the device."