October 5, 2006

Sheer “Zune-acy” a.k.a. How the Zune will destroy businesses and confuse customers

So we’re a few weeks away from the much bally-hooed launch of the Microsoft Zune. And while a lot of people are talking about the wireless capabilities or the questionable choice of brown for colors, no one seems to be discussing the most important impact of the Zune…the lack of backwards compatibility with the PlaysForSure DRM.

I understand what Microsoft is trying to do here. They’re building an integrated stack (read: MSFT has full control over the player, the DRM and the content store). This is what has worked for Apple so well and indeed the lack of an integrated stack (read: the general yuckiness of slapping Microsoft DRM on content from Yahoo/Rhapsody/Napster and then trying to play it on a device from Creative or iRiver) is what has caused Microsoft to lag in the media world over the last few years. And if the crew in Redmond wants to truly have an integrated stack then they can’t support anything outside of that stack which means they have no choice but to drop compatibility with PlaysForSure.

But the implications of not supporting PlaysForSure are huge. Let’s assume for a second that the Zune is relatively successful in the market (it takes more than a 15% market share in the next couple of years). If that’s the case then that will likely mean the following:

1. Companies that are supporting PlaysForSure content are screwed. There are hundreds of companies out there selling PlaysForSure content, the most famous of them being the music services listed above. A good chunk of Zune’s market share will come at the expense of other PlaysForSure devices which means that the number of devices that can play content from those services will dwindle.

2. Companies that are supporting PlaysForSure content are screwed twice. So the easy solution seems to be for the companies selling PlaysForSure content to encode their content with the Zune DRM and either sell Zune content exclusively or sell both formats. Except for the fact that this won’t work. Microsoft won’t allow companies to sell Zune-DRM-laced content because that destroys the integrated stack model. So your only hope for getting on the Zune will be to work directly with Microsoft to get your content into their store. And that pretty much destroys the market for the middlemen (all retailers currently selling WMA DRM content).

3. Companies selling PlaysForSure devices are screwed. I hadn’t planned to use the word “screwed” so much in this blog post but I couldn’t help it because a lot of people are getting…well, screwed. Creative and Samsung and iRiver and all the other companies trying to compete with Apple get screwed twice as well. On one hand, they now have another device to compete with (and one that will no doubt have tons of marketing muscle behind it). On the other hand, the services they are so dependent upon (e.g., I bought my Zen almost exclusively because of the Rhapsody-To-Go service) will lose ground and may even shut down if they can’t gain traction in a post-Zune world.

Yikes, not pretty. So that’s what could/will happen if Zune takes off. What if it doesn’t?

Well, if it doesn’t then the situation isn’t necessarily any brighter. What you’ll have is a lot of customer confusion as people rush out to buy Zune devices and can’t figure out why they won’t work with Rhapsody or buy a Creative/iRiver/Samsung player and are at a loss to understand with they can’t load content from Microsoft’s store on it. Let’s face it…DRM is already causing a fair amount of confusion on the part of customers. The launch of the Zune will likely more than double that confusion.

The funniest thing is that I’ve yet to see anyone talk about this all that much. Several of the content retailers I’ve talked about (people selling PlaysForSure content) didn’t even seem to be aware of the situation. That’s kinda scary when you think about it because there’s a good chance that their businesses will change drastically in the coming months and years. Bloggers seems to be talking about everything else related to the Zune but not this. It’s kinda eerie…

So is there a silver lining in this cloud? Perhaps. My hope is that customers get so sick of this DRM-nonsense that they start gravitating towards DRM-free audio and stop buying content that will someday be viewed as the 8-track tapes of the digital world. If the Zune accomplishes that then I’ll applaud Microsoft for doing this…not because they made the right decision but rather because they made this thing such a mess that people looked for more sensible choices elsewhere.