Strategic Analysis of Microsoft’s Introduction of Zune into the Portable Media Player Market MGMT 463 November 28, 2006 C. Braden-Moore Jeremy Hartman Brannan Schell
Executive Summary The Evolution of Portable Multimedia Players Portable multimedia players (PMPs) will top many consumers’ wish lists this holiday season. It is estimated that PMPs will exceed the $497 million generated in 20051. Portable multimedia players or PMPs are broadly defined as electronic devices that can store and play files in one or more media formats using hard disk or flash memory. Digital Audio Players Digital audio players (DAPs), more commonly known as MP3 players, are the most rudimentary version of PMPs. In 1998, Eiger Labs introduced the first MP3 player, the MPMan F10, to the U.S. market. It was a 32MB portable device that retailed for $69. However, the first mass market DAP was the Rio PMP300 introduce by Diamond Multimedia during Christmas of 1998. The overwhelming success of the Rio ignited the demand for digital music beyond the innovators market segment and jumpstarted the race for smaller, lighter, and higher storage capacity audio devices. Between 1998 and 2000, the adoption of USB connections and the utilization of hard drive memory allowed new manufacturers to introduce easier to use and more robust devices which expanded the penetration of DAPs amongst early adopters. In 2001, MP3 players crossed the chasm with the introduction of Apple’s iPod.2 With the combination of the iPod and the iTunes software, Apple provided pragmatists with the solution and convenience of managing their portable audio entertainment. At a hefty price of $399, Consumers could finally catalog, manage, and play uploaded music from CDs and legally downloaded music from online anywhere, anytime, and most importantly, very easily. Based on the three million iTunes
“Digital: Digital Wrap-Up”, Antony Bruno, 18 November 2006, Billboard. “Digital Audio Player’, 27 November 2006, Wilkipedia, http://en.wikipedia.org/wiki/Digital_audio_player.
downloaded daily, a multi-million dollar iPod accessories market3, nearly 70 million iPods sold since 20014, and a $79.99 retail price for the 1GB iPod shuffle it is clear that DAPs are reaching the apex of product penetration and spilling into the conservative market segment. Portable Media Players Because of the rapid penetration of MP3 players, customers are accustomed to having their music on the go and crave to have other forms portable media, particularly video. Although, MP3 players loosely fall under the category of portable media players (PMPs), marketers define PMPs as handheld devices with the primary function of playing back video. Additionally, these devices can play music and display photos. PMPs are not new to the scene, however, their adoption has been hampered by competing operating systems and interfaces, high prices, undesirable and large designs, and lack of features and content.5 Miraculously, Apple has again been able to spark a stagnant market through the release of the photo iPod in 2004 and the video iPod in 2005. The introduction of the smaller and sleeker video iPod has forced traditional PMP manufacturers to become more competitive by providing smaller devices with better features like TV/video recording. Based on relative high prices starting at around $250 for the entry level device and no clear standard for an operating system, it is fair to say that PMPs are still in the earliest stages of adoptions amongst enthusiasts and visionaries. Despite their slow adoption, video-centric PMPs are anticipated to grow to five million units sold in 2006 compared to only 390,000 in 2004.6
“Apple: Show Time, Please”, Nath, Vidya S., 11 September 2006, Frost & Sullivan, http://www.frost.com.
“Study: iPod vido Yet to Play Big”, 20 November 2006, eWeek, http://global.factiva.com.turing.library.northwestern.edu/ha/default.spx. 5
“Portable Media Players”, PC World Staff, 27 October...
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