Microsoft's (MSFT) Zune: A Threat To The iPod

Apple (AAPL) has the high ground in multimedia players. With over 110 million iPods in the market and another 10 million sold each quarter, no one else can get close. But, Microsoft (MSFT) is releasing a new version of its Zune multimedia player anyway.

The new Zune is smaller. It has a better screen. According to The Wall Street Journal  the latest Zune is based on "flash" memory, a shock-resistant storage technology that is the basis for the most-popular digital-music players.

For Redmond, the numbers are grim. Since the Zune came out, the WSJ says it has sold 1.2 million units. Apple sold over 41 million iPods in that period. That may not mean as much as it appears to at first glance

Apple does not want to forget the history of the Sony (SNE) Playstation. The market leader in game consoles, its advantage seemed insurmountable. Microsoft entered the field with the Xbox in 2001. At this point the Xbox 360 outsells the Sony PS3 in most markets.

And, Microsoft’s device division lost $1.9 billion last fiscal year on revenue of $6.1 billion. It will probably lose that much again this year. With its huge cash reserves and income from its core software business, it can afford to play the game for the long haul.

Apple does not want to forget that about Microsoft. Gates & Company are willing to act in ways that appear irrational. To some extent that is because they can afford to

But, they also think they can win.

Douglas A. McIntyre