TechWeek: Who's Zuning Who, Microsoft?

But it hasn't. The Zune allows users to share songs -- something young people (and even some of us older folks) love to do -- but not very well. Sure, the Zune speaks Wi-Fi. But it can't communicate with any of the millions of Wi-Fi-enabled PCs, or iPods, or anything else at all -- except another Zune. But, wait -- there's not many Zunes out there. Reminds me of the line from Ghostbusters -- Who ya gonna call?

Even worse is the lunatic feature, undoubtedly added at the behest of the record companies, that limits a shared song from being played more than three times. And after three days, the song disappears anyway. Thanks a lot.

Microsoft, says Gartenberg, could have made up for that deficiency with some creative marketing; selling the device in two- or four-pack boxes to encourage networking, for example. But it didn't.

Having said all that, it's not smart to discount Microsoft's effect on the market. The company has said from the beginning that it expects to lose money on the Zune for some time, just like the Xbox was (and is) a money loser. And Microsoft is perfectly willing to pour money into an effort it deems strategic.

Consider the deal it struck with Universal Music this week. Microsoft will not only give Universal a royalty payment for music downloaded from its online store, it will give the entertainment company a royalty payment (reportedly $1 or more) for every single Zune it sells.

The deal is unprecedented. "Did you ever hear of a cassette company that paid a royalty because someone might record a song on their tape?" asked Gartenberg. Microsoft said it will offer similar deals to other record companies.

It won't take long for Universal and friends to lean on Apple for royalty payments. Chances are, Apple will hang tough because its share of the market gives it lots of negotiating muscle. But should the Zune become successful in the future, Apple may be forced to play ball.

And given the iPod's immense importance to Apple, investors should pay close attention as the battle unfolds.

Storage Wars

EMC(EMC Quote) isn't the only storage giant that can play the M&A game. Earlier this week, Network Appliance(NTAP Quote) agreed to purchase Topio, a privately held data replication vendor, for $160 million. The move is getting good reviews as it appears to counter EMC's May $153 million acquisition of Kashya.

Topio's strength, says Baird analyst Daniel J. Renouard, is technology that makes it easier to replicate data between storage and backup devices made by different vendors. And since many enterprises run so-called mixed environments, Renourard says Topio will allow NetApp to compete for many more deals. His company is seeking investment banking business with NetApp.

The deal is slated to close in December.

---

TechWeek Scorecard
Index	Closing	Change
Nasdaq Composite	2390	2.5%
Philadelphia Semiconductor	461	2.6%
Goldman Sachs Software	186	2.2%
TSC Internet	245	2.9%

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting