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No Zing for the Zune

Katie Dean

Already the butt of jokes on late-night TV and online, Microsoft's (MSFT - Cramer's Take - Stockpickr) Zune apparently is not getting much help from retailers who sell the product.

"I've never heard of the Zune."

"I don't suggest the Zune, because it is really heavy."

"Who makes that?"

That's a sample of comments compiled by Piper Jaffray analyst Gene Munster, who recently quizzed salespeople at 40 big-box consumer electronics stores to gauge what MP3 players they suggested to customers, at the more-than $200 price-point.

Only 8% recommended the Zune, compared with 75% who endorsed Apple's (AAPL - Cramer's Take - Stockpickr) iPod.

"Some MP3 player salespeople had not even heard of the Zune, despite the fact that they sold it in their store," Munster wrote in a Tuesday note. He has an outperform rating on Apple. His firm makes a market in the stock, and does and seeks to do business with the companies covered in its research reports.

The awareness problem is not limited to the shops, it seems. Gartner analyst Mike McGuire says he hasn't seen much mainstream advertising pushing the Zune, either.

"It's a little odd from my perspective," he says. "We're going into this big buying season. I would have expected a little more noise on the advertising promo front."

"With the iPod, it was saturation, it was everywhere," McGuire says. "Aside from the product itself, that's a big part of the reason Apple has been as successful as it has."

Part of the problem luring music fans to the Zune is that people seem pretty happy with their iPods, says Michael Gartenberg, an analyst with Jupiter Research. "That's probably the single biggest challenge (Microsoft) has out there."

In addition to Apple's smaller, sleeker product and its cachet, Gartenberg says, the song-sharing feature Microsoft has touted comes with restrictions that consumers don't like. Songs can be beamed wirelessly between Zunes, but expire after three days or three plays.

Not to mention, "until there are more people with Zunes, there's no one to share that music with," he says.

The lack of multiple players and prices is also likely hurting the Zune, McGuire says. The smaller configurations and price points are attractive to commuters or for working out at the gym, for instance, and that's something the Zune doesn't offer yet.

Apple only launched with one model, too, but the market was very different back then, with no clear entrenched player, he says. "Microsoft is going to have to move quickly with ... filling out the product line."

In addition to the lack of awareness in brick-and-mortar stores, the Zune has not been selling well online at popular sites like Amazon.com (AMZN - Cramer's Take - Stockpickr).

Apple iPods hold four of the top five spots on the list of bestselling consumer electronics, which includes MP3 players, digital cameras, headphones, GPS devices and digital pictures frames, among other items. Meanwhile, the black Zune is at No. 92. The cardboard brown model doesn't even crack the top 100.

Several SanDisk (SNDK - Cramer's Take - Stockpickr) and Creative (CREAF - Cramer's Take - Stockpickr) players also are selling faster than the Zune on Amazon.

"This is one online retailer's perspective, but I think it's reflective of the marketplace as a whole," Gartner's McGuire says. "iPods are clearly dominating."

"That's not terribly surprising. Given Apple's dominant market position, it was unlikely that Microsoft was going to come in and make a significant dent," Gartenberg says.

Yet don't expect Microsoft to throw up its hands if Zunes sell poorly over the holidays, Gartenberg says.

The iPod has become a gateway into the digital home for Apple, Gartenberg says, which threatens to encroach on Microsoft's efforts there. Early next year, Apple is planning to launch a device, code-named iTV, that will allow people to stream movies, music and photos from their computers to their home-entertainment systems. In addition, it's been growing its computer sales at a rapid clip and has made moves to reach more mainstream customers.

Meanwhile, "Over time, (Microsoft) needs to look for new sources of revenue that aren't based on the PC," says Chris Crotty, a senior analyst with iSuppli. "They need to find ways to tap into the consumer electronics market."

While Zune is one of those steps into the nascent digital music market, it seems the Redmond behemoth still has a long way to go to impress music fans and critics.

"If any feature on the Zune becomes successful, it would be easy for Apple to replicate," Crotty says. "But it's harder for Microsoft to replicate Apple's success in the market."

Apple shares recently tacked on $1.52 to $91.06, while Microsoft dipped by 14 cents to $29.34.