Microsoft in the Zune

An ad blitz is planned for another run at the iPod.
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After a post-holiday season lull,

Microsoft

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is ready to rally its Zune digital music player.

The software giant is readying a new marketing and advertising blitz and plans to launch the device in new colors to maintain sales before it makes a hopefully bigger splash with new features -- and possibly a flash-based player like

Apple's

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rival iPod before the end of the year.

"We have a second wave of marketing and advertising coming out next month," says Jason Reindorp, Microsoft's marketing director for Zune. "We had spiked over the holiday period but naturally tapered out."

The Zune, which is currently available in white, brown and black, will soon sport prettier colors. A baby-pink version will be available in May, and another vibrant color will be introduced a few weeks later.

"It could help with reaching more of their target demographic," says Ross Rubin, an analyst with NPD Group. "Colors like pink could help increase the device's appeal with women."

The ad campaign, starting next month, will focus on key differentiators for the Zune, including screen size, its wireless music exchange capability and the ability to customize the home screen.

Microsoft didn't disclose the cost of the campaign but says it will be enough to get the Zune noticed. "It is not as much as the launch spend, but it is still a good sum," says Reindorp.

On Friday, Shares of Microsoft closed up 12 cents, or 0.4%, to $27.87. The stock has been down nearly 9% in 2007.

Microsoft has about a 10% market share in the hard-drive-based devices category, according to NPD. The company is on track for the target it had set last year of shipping one million devices by June, but it's still a very small fraction of the overall market for digital music players.

Flash memory-based players account for about 65% of the market, and Microsoft needs to have a product there soon to make a dent, analysts say.

So far, Microsoft hasn't materially affected Apple, whose iPod remains the market leader.

Zune's market share has come at the expense of smaller players in the category like

Creative Tech

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, says Rubin.

But a flash-based player would be a true rival to the iPod, says Samir Bhavnani, research director for Current Analysis. "I am predicting we will see the flash-based player by the end of the year," he says.

Reindorp couldn't confirm the company's plans, but admits Microsoft is clearly thinking about a flash-based device. "They are certainly popular amongst consumers -- and therefore, in the industry right now -- because of the cost, capacity and size benefits they bring with them, so yes, we are indeed considering if they might complement the Zune device family," he says.

But to truly race ahead, Microsoft needs to catch up in terms of features including support for games, podcasts and even possibly offering movies, suggests Rubin.

Microsoft says some of that is already in the works, according to Reindorp. "We are developing Zune as an 'entertainment' brand, which means it will include music, video and games," Reindorp says. "But will there be Xbox-like games on the device? We don't know yet. We are still thinking through our games strategy."

Reindorp hints Microsoft may have some big announcements ready in time for the holiday season. "We will add features to the device, and by the upcoming holidays we will have news around TV, video and podcasting support."

The response to the Zune Marketplace shows consumer interest in the product is strong, says Reindorp. The number of overall downloads increased 60% from January to February, he says, and overall subscriber base rose 65%.

Impressive as it may seem, it will take a lot more to get Apple worried. Despite a slight softening in sales last month, Apple is still expected to sell about 10.9 million iPods in the March quarter.

Apple's latest marketing campaign for the iPod asks customers, "Why stop at just one?"

Maybe the folks in Redmond, Wash., will eventually have an answer for that.