El Segundo (CA) - Who would have thought that? Market research firm iSuppli today said that Microsoft in fact is not meeting market demand for its Zune portable media player. However, the reason may not be just a jump in demand for certain models, but an overly cautious market strategy of Microsoft as well, the market research firm speculated.
Reports about out-of-stock Zunes have surfaced from time to time over the past weeks, and some even suggested that Zune may be outselling at least some of Apple's iPods. iSuppli added its insight in the current PMP market today, stating that the Zune sales spike was largely limited to the "deeply discounted Zune 30 model". Short supply of the newer Zune 80 however may much more due to the fact that Microsoft may have "erred on the side of caution when placing initial orders for the new Zunes, which include the Hard-Disk-Drive (HDD) based Zune 80 as well as the flash- memory-based Zune 4 and 8," iSuppli analyst Chris Crotty suggested.
iSuppli said that Microsoft has a "surprisingly passive approach" in a market that is still showing explosive growth that is estimated to end up at global unit shipments of 211.5 million and revenue of $19.5 billion for 2007. The research firm criticized Microsoft's decision to wait "nearly a year to follow-up its initial Zune launch with the Zune 80" and noted that Microsoft is treading some unfamiliar territory because of the Zune's proprietary, closed operating system and the fact that it is dealing with a market segment in which it is not the market leader.
The firm highlighted that the Zune family may not be able to become an iPod killer. "One of Apple's long-term competitive advantages is the ever-increasing cost for switching among its customer base. The longer a consumer owns an iPod, the more content that consumer purchases from the iTunes site.
To move to a non-iPod player, the customer would need to repurchase the content or reformat through a cumbersome process that degrades quality—and breaks the law," iSuppli said.
Microsoft tries to copy this strategy with its closed Zune system, but is unlikely to steal market share from Apple. Zunes are much more likely to steal share from the many non-Apple competitors, iSuppli analysts believe.