Microsoft to exit the Zune business?

January 24, 2009

Microsoft to exit the Zune business? In light of the news of the massive layoffs Microsoft has planned, word has been trickling out about which divisions will be hit the hardest. The Zune division is probably fairly high on the list due to its poor sales performance during the 2008 holiday season.

As we heard yesterday, Microsoft is laying off staff in its Entertainment and Devices Division (EDD). The EDD houses various departments such as the Zune, PC Gaming and Xbox division. We already know that ACES, a veteran gaming studio within Microsoft, has shutdown as well as the Gamerscore Blog, which is a company owned website.

Apparently the management team will also undergo an organizational restructure in the coming weeks.

However, one piece of news that seems to have slipped by is how much Zune sales have plummeted in the past several months.

According to Microsoft’s quarterly filings to the Securities and Exchange Commission, the Zune platform experienced a revenue drop of 54 percent, or $100 million. That is a significant drop especially during the holiday season.

This is in contrast to the Apple iPod, which experienced a 3 percent sales increase and a slight drop in revenue. The iPod earned $3.3 billion in revenue in contrast to the Zune’s paltry $100 million in revenue.

Many have started to ask whether Microsoft should just exit the Zune business altogether. With a drop in over half the revenue during the busiest time of the year, things do not bode well for Microsoft’s “iPod killer.”

It is more than likely that the Zune business will receive a good helping of the layoffs and possibly the end of the Zune as well. There are some indications that Microsoft may be putting more focus on its core businesses such as Windows.

The thing about the global financial crisis is that it’s forcing companies to undergo reality checks. Microsoft, by now, should be realizing that it’s never going to be as “cool” as Apple. So why waste its time with the Zune where it has no competitive advantage?

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9 Responses to “Microsoft to exit the Zune business?”

  1. James Keane:

    My question, if Microsoft does exit the Zune business, would any one even notice?

  2. Masticina Akicta:

    What to say about it, yeah it isn’t as cool and really there are better alternatives for Zunes. Definitely the fact that it only works on windows pc’s and is bound to some terrible software..isn’t good!

    Hell even of the ipod they hacked together some software that makes things possible.

    The zune with to say it’s last joke of “oh geeh this is a leap year” bug. That and yes it is microsoft the “evil empire” atleast in the mind of many. Can’t say apple is much better .. but microsoft is todays IBM, big huge “evil empire”

    People always root for the small guy.

  3. Mark Wolfe:

    My question is, when it become necessary to be “cool”? I thought just making a product that some people bought was enough.

    Does this mean all the other MP3 and DMD manufacturers should bow out as well? Surrender to the unstoppable force that is the iPod brand?

    And by the same logic, should Mac bow out of the OS business? They’ve been loosing for more than a decade now, they’re never going to catch up with Windows in North America, much less worldwide.

    Personally, I like having alternatives.

  4. IGnatius T Foobar:

    Microsoft *should* exit the Zune business. And the Windows business. And the Office business, the Exchange business, the XBox business, and pretty much every other business. They need to go *out* of business, preferably via a thermonuclear detonation at the Redmond campus. The sooner that den of scum and villainy is off the map, the better off the technology world will be.

  5. Xofis:

    >People always root for the small guy.

    In MP3 players, Zune *is* the little guy.

  6. bszlachta:

    “And by the same logic, should Mac bow out of the OS business? They’ve been loosing for more than a decade now”

    Far from “loosing” (new to the language, Mark?), Apple’s Mac business is very profitable and growing. The Zune business is neither profitable nor growing. That’s the big difference, and the reason why MS should drop the Zune.

    I like alternatives too. But the Zune never was an acceptable alternative.

  7. SkateNY:

    I don’t doubt that many or even most Zune owners are satisfied with what they have. Here’s my thing: Apple dove into the MP3 market when that market was already well on its way to maturity. The iPod quickly made a big splash, and iTunes has played no small part in helping the iPod acuire a 70% market share. Apple did not engage in illegal, monopolistic business practices in order to achieve that level of prominence; nor did Steve Jobs hypnotize buyers, steering them towards the iPhone.

    When the iPhone was released in October of 2001, it succeeded during a recession caused by the terrorist attacks of 9/11. If the current economic climate adversely affected the Zune and other consumer products, then it stands to reason that it also adversely affected iPod sales. Yet, Apple reported a growth in iPod sales for the most recent quarter, versus a 54% drop in Zune revenues. How much better would the iPod have faired this quarter without the deepening recession?

    I believe that Microsoft and its investors need to re-evaluate the Zune with regard to how it affects other products, and how it affects shareholder interests. If I’m a Microsoft competitor — and I don’t believe that Apple and Microsoft compete in the sense that they appeal to very different groups of customers — then I truly hope that Microsoft continues to throw money and other resources at the Zune.

  8. Mike:

    > When the iPhone was released in October of 2001,


    > it succeeded during a recession caused by the terrorist attacks of 9/11.

    The recession was caused by the bursting of a credit bubble in the dotcom internet businesses. The terrorist attacks caused, among other thigns, a boom in ‘homeland security’ spending.

  9. coffee:

    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

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