There is a not going around about a Canalys research analyst predicting the Microsoft Surface Tablets would be another Zune.   While they could fail, as any new product often faces challenges in a segment dominated by one offering (in this case the iPad), the elements that caused the catastrophic failure for Zune aren’t all evident here.   However, I think it would be useful to revisit why the Zune failed and then to compare the Surface Tablets to the Zune to conclude these are vastly different efforts. 

Zune

Zune was driven by Steve Ballmer who felt strongly that Microsoft needed a gizmo to compete with Apple’s iPod which had moved to dominance and rendered Microsoft’s own Plays for Sure initiative obsolete. There were two common mistakes made in its creation, Microsoft chose to compete against Apple in their area of strength (hardware) and it chose to chase Apple not go where Apple was going.   The alternative view at Microsoft at the time was to build a phone like the iPhone but executives in power felt strongly that the Smartphone was an IT driven platform and shouldn’t drift to entertainment.   They were in good company with RIM but both, in hindsight, were horribly wrong.  

Consumer products that are successful have to be attractive and the initial Zune was not. It did have an advantage in design in that it was vastly more durable than an iPod but that advantage was not marketed and did not play a significant role. The team that drove the Zune was largely made up of external hires from the music industry which led to a significant potential advantage in content (Microsoft could do subscription music while Apple could not).   

In addition, Microsoft was first to work out legal music sharing but only between two Zune users, it marketed this as a major advantage but given a user would have a problem finding another to share with, this wasn’t an advantage for the vast majority of buyers. The initial product also anticipated video and could play video better than the iPods of the time but Microsoft supplied no video content and ripping DVDS was neither common nor as legal as ripping music.

In the end, the initial Zune was based on bad strategy, was fielded by a people and a company that didn’t consumer electronics, and was marketed based on advantages that didn’t work vs. advantages that did. After that, Microsoft fixed the problems but then cut the marketing budget as if to cover up the mistakes that were initially made and it never really had a chance while Apple moved to the iPhone, or where Microsoft should have gone in the first place.  

Surface Tablets

The Surface Tablets are being driven out of the Windows organization which does understand PCs so they are better informed on the market and needs than the Zune group was. The Surface Tablets anticipate, to a degree, where Apple eventually intends to go which is towards PC lines as the products grow to become more capable. It is also believed Apple will eventually merge the iOS and MacOS and Microsoft is doing this first. So, on two vectors Microsoft is anticipating where Apple is going and trying to get their first. However, Apple is also expected to move to 7” tablets and as far as we know this form factor will not be part of the Surface line and even Apple is late with the Google Nexus 7 currently sold out before Apple is in market. There is a caution but both Apple and Microsoft currently share this problem. 

Unlike the MP-3 player market where Apple was predominant there are two credible players in the tablet market Apple and Google. This makes the market far less insular and Google was able to rapidly close on Apple with Smartphones to eventually pass them first in aggregate and then with Samsung, with a single licensee. Tablets have been more resistant but Samsung has moved into credible number two position suggesting this segment is far more vulnerable to competitive attack than the iPod segment was.  I should add that if Microsoft does use the Surface PixelSense panels on the tablets they could also do things that no other tablet can currently do (PixelSense panels can see as well as display information).  

Finally, unlike the iPod, Microsoft is dominant in PCs and tablets are becoming PCs which suggests this is still more Microsoft’s battlefield than Apple’s. They are hitting hard with a productivity edge and have imbedded a light for of Office in their ARM (Windows RT) version of the product which, coupled with security and manageability enhancements, give it a positional advantage over the iPad for productivity work.   

Unlike the Zune which was overmatched and under executed in virtually every significant area, the Surface Tablets have a number of clear and demonstrable advantages which should prevent the product from being another Zune. One advantage is that Microsoft recently made the Zune mistake and is unlikely, this soon after, to repeat it. 

Wrapping Up: Opportunity Cost

There is one aspect of the Surface Tablets that does need to be address however and that is opportunity cost. Microsoft uses the leveraged model of outsourced software.   Effectively they sell to hardware OEMs who then sell the product to us. Over the years this has become corrupted with updates coming directly from Microsoft and now with Microsoft selling the product directly. The Surface Tablets could convince the OEMs to either abandon the PC market or become more vertically integrated themselves (with Google going to the Nexus 7, Android is no longer a good alternative).   

The cost for this effort could eventually be the collapse of the PC eco-system that created Microsoft, however out of the ashes could emerge a new Microsoft that is far more Apple like and where the solution can be better focused on the consumers that buy it.   You see, right now, for Windows hardware, no one really owns the solution, power is balanced near equally on the hardware and software side, and this effort may fix that but, I expect, the transition will be painful. 

The Surface Tablets won’t be a Zune, but they could result in a PC revolution that could transform the industry.