Well, it’s been a big week in Digital Audio Players (DAP). Apple updated all three iPod ranges, and Microsoft announced their competitor, the Zune. We now have the real fight on our hands; two technology giants who desparately want control of this area, each with their own strategic advantages and disadvantages. To split it up:

Apple
They already have about 75% market share on the hardware side and an even bigger share of legal downloads, particularly in the UK. They can use their massive sales to create an economy of scale, driving down prices, and can use the lock-in between the iPod and iTunes to their advantage as any music purchased on iTunes will be unplayable on a rival player. It could thus be very hard for the Zune to attract existing iPod users.

They also have three iPods in the line, the iPod, the Nano and the Shuffle, each catering to a different audience. This gives them a wider potential market share than the Zune can achieve with just one product. Having just renewed their range, they will also benefit from people upgrading their existing iPod.

The third major advantage is the brand. The name ‘iPod’ has become ubiquitous with DAP. You listen to your iPod, in the same way that you Google your holiday destination. Whilst this is not ideal from the point of view of defending the trademark, it does mean that less tech savvy people are more likely to think they want ask in a shop for an iPod than a DAP. The Zune has no such brand advantage.

Microsoft
Apple seems to be in an incredibly strong position. It is. However, if Microsoft plays its cards right, over time it could gain significant market share. The first point is that Microsoft has more money than Apple, and less to lose. Whilst the iPod is Apple’s main money spinner and they therefore cannot afford to take risks with it, Microsoft is much more diverse and can possibly innovate more. Microsoft also have the luxury of following the motto ‘if at first you don’t succeed, try, try, try again’. A good example is the XBox. The first generation was not a spectacular success, yet the XBox 360 is a much better product which looks as though it could become the market leader. Microsoft has learnt from its mistakes, thrown money at the problem, innovated and released a great prduct.

Microsoft also owns Windows, whilst Apple own Mac OS X. OS X has a fraction of the number of users that Windows has, and thus the chances for promotion through and integration into the OS are much more limited. Mac OS X comes with iTunes, and so there would be no reason why Microsoft could not give Zune Marketplace (ZM) pride of place in Windows Media Player, perhaps even given ZM features such as podcast management which WMP does not currently have, building the Zune brand.

Conclusion
Which do I think will win? A difficult question. My prediction would be that this first generation of Zune will make little impact. Faced with humilation, Microsoft will then renew and strengthen Zune, use massive advertising campaigns and build market share in the 2G, at the same time fleshing out the line. By 3G Microsoft will have about 30% market share, and struggle to get beyond that for some time.

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