Zune Death Watch: Microsoft Zune Revenues Plummet

Jan 23rd, 2009 | By | Category: Featured Story, iPods & Portable Media Players, Podcasting

Microsoft has revealed in a Security and Exchange Commission filing that the company’s Zune revenue in the 4th quarter of 2008 was less than half of what it was the previous year.

According to the filing, “Zune platform revenue decreased $100 million or 54% reflecting a decrease in device sales.”

The Zune was heralded as a product that would give the Apple iPod some real competition for market share. Zune users are a dedicated bunch, and the Zune Marketplace has some great original content that isn’t available on any other platform. However, their late entry into the portable media player market gave the iPod a head start that has been difficult to overcome.

The news of the SEC filing comes on the heels of an end-of-year debacle in which 30GB Zunes around the world froze up, and news yesterday that Microsoft was laying off up to 5,000 employees.

Microsoft notes:

“We make significant investments in new products and services that may not be profitable. We have made and will continue to make significant investments in research, development, and marketing for new products, services, and technologies, including the Windows PC operating system, the Microsoft Office system, Xbox 360, Live Search, Windows Server, Zune, Windows Live, the Windows Azure Services platform, and other software plus services offerings.

Investments in new technology are speculative. Commercial success depends on many factors, including innovativeness, developer support, and effective distribution and marketing. If customers do not perceive our latest offerings as providing significant new functionality or other value, they may reduce their purchases of new software products or upgrades, unfavorably impacting revenue.

We may not achieve significant revenue from new product and service investments for a number of years, if at all. Moreover, new products and services may not be profitable, and even if they are profitable, operating margins for new products and businesses may not be as high as the margins we have experienced historically.”

So, will Microsoft keep investing in the Zune, even as sales are way down and Apple’s iPod sales are up? Microsoft reportedly loses money on each xBox 360 system sold (and having to replace many units due to the widespread “red ring of death” hardware failure — our kids’ console has been repaired/replaced three times!), and yet, Microsoft has stood behind its gaming platform. Customers have stayed true to the xBox, too, given the popularity of games only available for use with that system.

Will the same hold true of Microsoft’s commitment and investment in the Zune? And what about Zune users?

Update: Adam Sohn, the Zune’s director of marketing, says several factors had contributed to the large drop in Zune sales.

  • “Some of them are environmental,” he said. “Everyone knows that the economy is not what it was a year ago and that is hurting some folks.
  • “We are in a position where the category is also shrinking. So I think those are things that affected everybody’s sales, including Apple.”
  • season.
  • “Last holidays we were introducing new devices,” he adds. ”We knew we were going to be at a lower volume simply because of the external factors and what happened with the 30s,” he said.
  • Sohn also once again insisted that the company was not giving up on Zune hardware.

via endgaget

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34 Responses to “Zune Death Watch: Microsoft Zune Revenues Plummet”

  1. zunenator says:

    I sort of hate to see this, because Apple could use some competition for the iPod.

    The problem for Microsoft, though, is that they are imitating Apple’s iPod, and the iPod is established and still moving forward. There’s no way for the Zune to catch up.

    Still – dropping your sales in half is pretty sad!

  2. Jerry Jameson says:

    Enough of the Apple fanboy BS!

    Microsoft introduced Flash players last year and they are cheaper – so it only makes sense that their revenue is less!

  3. Jan says:

    They introduced more models and it makes sense, that their revenue sinks? What kind of logic is this? Maybe Microsoft will reduce the number of models to zero – this should maximize profits ;-)

    Face the facts: The medial price of an iPod has sunk since the first one, but Apple makes a lot of money with them either.

    And there’s a lot of competition to the iPod. I’ve seen so many “iPod-killers” in the last eight years… I can’t count them. But they all suck in one or the other way. The Zune was probably the best one and superior in some features. But Microsoft hasn’t made it. Get used to it.

  4. Jerry Jameson says:

    Jan – not sure what you’ve been smoking but maybe you haven’t met the iPod touch yet?

    It’s more expensive than just about any player I’ve seen! There are a lot of people that are easily brainwashed by fancy ad campaigns and haven’t looked at the fact that Apple now has some real competition.

    Maybe you should try a Zune and see what you miss!

  5. synthhead says:

    The Zune is failing because Microsoft is trying to take on Apple directly, and Apple’s an extremely well run company now.

    For the Zune to succeed, tMicrosoft will need to imitate Apple’s “think different” approach, instead of just imitating Apple’s iPods.

  6. Jerry: The original iPod was $399 for 5GB. A comparable iPod touch, the 8GB model, goes for $249. The highest end iPod touch is $399, but that’s 32GB now. So yes, the iPod has got cheaper. There doesn’t seem to be much crack involved, only looking up prices.

    The iPod touch can also do damn near everything. Comparing it to most MP3 players is more than a little unfair to the other players.

  7. I don’t understand why people are so surprised with the demise of Zune, after the blackout that affected the device EVERYWHERE in the world. It reminds me of the “year 2000 crash” that supposedly was going to zap all Microsoft systems – and it didn’t, but Microsoft made a lot of money (a LOT!) with service and patches to correct its own mistake…
    I also don’t understand why this company, employing zilions of programers, year after year comes out with poorly designed products or bad copies of somebody else’s ideas, and it is still making millions. It must be magic, but the magic is not in zune, or in vista…

  8. Maven says:

    I don’t know, I love my Zune 120 and hope Microsoft keeps on working on the software. The Zune Pass subscription is the best part. I can’t see myself buying songs for .99 on iTunes, sorry that is for teenagers.

    • Raistian says:

      I bought a Zune 30 when they first came out. Works great only had a propble with the leap year glitch, other than that no problems at all. Bought it to replaace my ipod that died the first time i dropped it. I've dropped the Zune 100s of time never had a problem yet.

  9. Scottitude says:

    I’m with Maven; The Zune Marketplace and Zune Pass are a significant improvements over iTunes, Rhapsody, and the rest of the currently available on-line “services”. Zune’s audio and video output far exceed iPod’s capabilities. On the device, everything sounds and looks better but the deal-breaker is two simple words: “TV out”.

    I’ll take high quality sound and video over mediocre output with a slick interface any day. iPod’s success has little to do with quality sight and sound reproduction and everything to do with marketing. My first generation Zen Micro sounds better than the newest iPod, including the Touch as do both my Zunes.

    And while I’m at it, spare the hyperbolic headlines and focus on real news; theres’ none of that here. This article is textbook link-baiting. Anyone with even an inkling of a clue about marketing and product development already understands the point made in the quoted text from the MS SEC filing.

  10. [...] Microsoft Zune Revenues Plummet – Podcasting News [...]

  11. Michael says:

    That type of language is in everyone’s 10Q. It’s more CYA than anything else. Microsoft will keep investing in Zune, they will ride the Zune Pass (very nice service) subscriptions to a nice recurring income business soon.

  12. jzbo says:

    I love my Zune. I was an avid iPod user and got my first Zune as a gift and would not go back. It may not be as trendy but I love the interface, the Zune marketplace and that I don’t have to all my songs stuck in the .aac format. I am still working on manually recovering my music from the itunes format.

  13. Tim James says:

    I had three zunes…the first two were great, no problems. The 3rd and final zune had a defective hard drive, songs skipped ALL the time. My own research revealed there were problems with the toshiba drives. Microsoft sent me a refurb but I went back to iPod by that time.

  14. Fanny says:

    How is this linkbait?

    The Zune sales dropped by 54 percent!

    It’s tanking hard and fast.

    Time for you Zunatics to wake up.

  15. Gus says:

    Hey, people – get a life!

    It’s only friggin’ MP3-players you’re talking about

  16. WhatAboutThis says:

    The “Major Nelson” of the Zune is leaving the company:
    http://zuneinsider.com/archive/2009/01/23/stay-classy-the-internet.aspx

  17. bavb says:

    face it zoonies, the Zune sucks. It’s ugly and where is the internet? email? applications? yea, i thought so.

  18. Isma'il says:

    @jzbo,

    All my iPods play mp3 format, so what’s the big deal??

  19. Sam says:

    the UI of both the zune device and software are superior to anything on the market, sleek, intuitive and easy to use. it is going to take some time to trounce the ipod, remember the Playstation vs Xbox? expect many surprises next Month when MS unveils the new wave of mobile and media services…

  20. Doug says:

    Try advertising!! A proven method for hundreds of years! I don’t know anybody that has NEVER heard of an iPod, even my mom and sister, but ask my mom and sister, and anybody else that is NOT living their lives on a computer, what a ZUNE is, they DON’T know!!

  21. Rob says:

    I suspect that some of this drop was due to Microsoft’s backward compatibility mantra. It was not necessary for a Zune user to buy a new Zune to take advantage of new features on the hardware or in the Zune marketplace. The portable device upgraded itself – and was 100% functionally equivalent with the new Zune 120. That was great thing for the Zune community, but probably a bad move for MS if they wanted to move new hardware. (Apple forces a hardware upgrade on people every year like clockwork.)

  22. The fact that Microsoft is a business software company trying to break into consumer electronics shouldn’t be lost on anybody.

    The fact that Microsoft’s corporate culture has lousy tastes in music shouldn’t be lost on anybody either, as proved by their SongSmith product and the execrable music produced on, by, and for it, YouTube is filling with examples of of the caliber of schlock which it is capable of producing, and your ears ask you “Why?”.

    Unfortunately, the difference is akin to almost any music which is produced by professionals when compared with rank amateurs

    Its so God-awful that the grand bald badness of Microsoft’s tone-deafness stands as a warning to all that some ideas should never be implemented and certainly not promoted.

    Why would anybody deliberately set out to produce music over which can be imagined some woman in support hose intoning “Third Floor; Ladies lingerie, apparel to the right, power tools to the left.”?

  23. Steven says:

    “Apple forces a hardware upgrade on people every year like clockwork.”

    In 8 years, I have had 3 iPods. The first one’s battery (5GB) finally failed after 3 years so I upgraded to a 30GB photo. I left it in a hotel room on a trip 18 months back so I went to the Touch.

    How does Apple force a hardware upgrade ever year like clockwork? They do offer new hardware but they do not force people to use it.

  24. PAUL says:

    If microsoft would take hold in their beautiful zune lineup and start pumpin out the docks and accesories and all the crap you see when your choosing a device they might give a better impression that they are here to stay and “hey we have more than one dock and one arm band sleeve” that you need to buy online anyway. The zune pass is fantastic, especially since the addition of the 10 songs amonth to keep. I have a 30 and just the fact that they didn’t abondon me with the software and firmware upgrades makes me feel all warm and fuzzy inside. As far as apple is concerned- they had the whole marketplace respectfully when zune started. they held their place because because everyone had already been suckered in to itunes and didn’t want to throw away all the money and time invested and start over. I have converted so many people to zune personally , with the same response. “this is so much cooler/nicer than the ipod and the software is so easy to use”. HANG IN THERE ZUNE LOVERS

  25. got80s says:

    One thing that would be nice is when you [podcasting news] & other websites that write stories about the Zune would use the latest gen photo of the Zune when doing an article about them instead of posting that old ass photo of the 1st gen Zune.

  26. Rob G says:

    It is a misunderstanding of Zune to assume that it is all about success of the hardware devices. It is correct to understand that Zune success in Microsoft terms is measured on a different scale and is a long-term software and hardware related platform project. Sure the company would like to sell a lot of Zune devices, but Zune devices sales are not a driver for continuing to build the Zune media platform. The company will continue to make and sell Zune devices for the foreseeable future. It is really a long-term media entertainment software platform that can be used to drive value to other revenue generating Microsoft businesses that includes Zune player devices as one outlet. I continually see Zune being treated in an negative, biased and unfair way by many bloggers who have never even touched a Zune or ever seen the Zune Marketplace software. I agree with the above comments that this blog should fairly represent the Zune devices by using images of the more current Zune 120 and Zune 8 devices and not the old Zune 30.

  27. James Lewin says:

    Rob –

    “It is a misunderstanding of Zune to assume that it is all about success of the hardware devices.”

    That may be true – but people’s concept of the Zune is of a hardware/software media player combination that competes with the Apple iPod. If Microsoft’s vision is different, it has not articulated it and promoted that vision effectively.

    “I continually see Zune being treated in an negative, biased and unfair way by many bloggers who have never even touched a Zune or ever seen the Zune Marketplace software.”

    If you really want to blame the messenger for delivering bad news, it’s coming directly from Microsoft, in this case. The most negative bit of this post would probably be this: “Zune platform revenue decreased $100 million or 54% reflecting a decrease in device sales,” which is a quote from Microsoft’s SEC filing.

  28. coffee says:

    Revenue for the Zune might be down because of the recession, or it could be because people are afraid it will freeze up again next New Year’s Eve

  29. Rob Greenlee says:

    This Zune Death Watch is a non-starter as Zune continues to develop – see the latest. Zune launched web-based Podcast Directory – http://social.zune.net/podcasts/. Podcasters (mac only users) can now submit podcast feed URL’s via this new directory and users can post reviews about the podcasts on the pages in the directory. Zune keeps improving and getting better. I would also say that the tech and new media community should be excited about this as not many other companies are being aggressive about building more podcast support. I recall many in the early days of podcasting begged and trashed Microsoft for not jumping into supporting podcasts. MSFT is jumping in with both feet and it seems very few people notice. I have spent all most two years working every day on building podcasts at microsoft with Zune. We are moving downloads and building audience fast. This fact will only grow with Zune over the coming years and everyone one in the podcasting space should be excited about that fact and spend less time bashing the Zune. Many in the podcasting space have been very supportive of Zune, but many have not and it is very frustrating. We will keep pushing on this at MSFT Zune and will prove our worth in this space.

  30. Ted Randall says:

    I do several radio shows and have podcasts of the same released each week.
    These shows are on various subjects one show Radio Disclosure covers a wide variety of topics.
    These were submitted to Zune Marketplace months ago and nothing ever happened.
    The same submission on ITurnes and the shows had a listing almost overnight.
    I have had listeners call and complain about Zunes that passed two weeks after they were recived as gifts.
    Zune wanted $100 to repair the units even though they were less than 30 days old.
    Each Zune has a serial number and should be traceable as far as when it was manufactured and sold.
    Apple does not treat customers like this.
    Microsoft displays the same arrogance over supporting their operating systems.
    It is quite a shame but that is reality.
    Zune probably has not caught on because of Microsofts’ aloof non involved attitude with their product.
    Aople gets involved with the custome and I dont get listener horror stories like i do with Zune.
    I as a talk show host wrote Zune an email requesting that they show up on our show and talk about Zune problems and solutions.
    They sent me back a folm letter and never responded beyond that .
    Our RSS feed is correct but the Zune site has an old picture that had been deleted from our server and the wrong audio files and discripetion it’s a mess.
    Yet the same RSS feed is showing up fine on ITuntes.
    I guess they must be getting ready to shut the Zune player down.
    They obviosly dont care about all the people who purchased them.

  31. [...] never been bullish on the Zune, though I’ve generally been more gracious towards it than some of my fellow podcast enthusiasts. I do believe, though, that it’s the height of irony that Microsoft seems to better understand [...]

  32. Rob Greenlee says:

    Ted, I looked at your podcast feed and it is missing an active album art url. Please replace and would be happy to include your podcast. As for some of the other issues you raise, Zune is not shutting down soon. All 600+ of us here at Zune are charging ahead with coming updates and improvements over the coming years. This person here cares about about all of our loyal millions of users. I work here everyday on the podcast content side to get our users the best podcasts available online.

    We have even now launched a web-based podcast directory – http://social.zune.net/podcasts. The Zune podcast platform is growing in usage and expanding. If you are having a hard time getting your podcast into the catalog then send me an email to rob at zune.net and would be happy to help. Rob Greenlee, Zune Podcast Producer

  33. Ron Giuntini says:

    I got a three or four 30g ZUNES over a year ago, for a great price, ($90) from Woot. Since then, I have only had to use one, because it holds plenty, and is very reliable. I love my Zune, and run it about two or three hours each day, minimum. In the car. I got the Zune car stereo xmtr, and it is great. I do podcasts only from the zune software, and it is great. The video is good, but mostly I just listen to John C Dvorak and Adam Curry. Plus a few other podcasts. Too bad nobody knows what I mean when I mention ZUNE. That’s because most people are so easily led, and Apple got there first. Even the name Podcast is totally Appley.

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