To put the hurt on iPod, Microsoft must deal with some serious issues, the analysts agreed. Here are five steps they said Microsoft must take to get itself into the game.
1. Forget the social
Microsoft tried differentiating Zune by stressing how its built-in Wi-Fi capabilities would allow users to exchange music with other Zune users. Zune's marketing mavens called this capability "the social." That was a bad idea and should be dropped as an emphasis in Microsoft's marketing efforts.
"You need people around you to share music and those people aren't there," said Max Freiert, marketing coordinator for Compete Inc., a market research firm.. "Plus, you can only share a song for three days or play it three times. Consumers won't put up with those limitations. It's almost a reason to not buy the Zune."
Microsoft's approach also shows that it doesn't understand how social networking works.
"The thing about social networking is that it's promoted by the people who use it," said James McQuivey, principal analyst for market research firm Forrester. "YouTube isn't successful because it had a major national ad campaign. It's successful because the guy who posted a video told his friends about it. The same is true with music sharing -- it has to be done from the bottom up."
Microsoft's Reindorp didn't disagree with that assessment, at least not very strenuously.
"We felt we were addressing the social aspect of music, and the research we've done has shown that people understand the concept that wireless enables sharing," he said. "But the tagline, while provocative, hasn't meant a lot to consumers."
The analysts said Microsoft should focus on making the built-in Wi-Fi more useful.
"There are much better things to do with Wi-Fi," Freiert said. "For instance, using it instead of having to use a USB cable for synching would be huge." Reindorp said the company is definitely looking at other ways to make Wi-Fi useful, but would not be more specific.
2. Look back and look forward
Instead of focusing on its unsatisfying music-sharing scheme, Microsoft should focus both on the leading and bleeding edges of the marketplace, McQuivey said. In particular, Microsoft must do a better job of telling relative newcomers what Zune can do.
"Only 20 million homes in the U.S. have an MP3 player, so you still have to tell people what it's all about," he said. "It's not like trying to sell somebody a car -- everybody already knows what a car is. This is still a type of device that the majority of people need to be told what it's for."
Reindorp said a new marketing campaign will begin this spring that will, indeed, get more specific about what the device can do.
However, McQuivey also stressed that Microsoft also should try to expand the market by adding advanced features.
"They've made it clear they're competing with the video iPod, but [Zune]is a me-too product," McQuivey said. "They have to decide if they want to follow the market or drive it." He added that, without advanced features, Zune could lose market share to new products from both Apple and other competitors.
"We'll be seeing the Sansa Connect [from SanDisk] which has Wi-Fi, and this summer we'll see the Slacker, which will be Wi-Fi enabled with some of the functions of satellite-based delivery so you can get music no matter where you are. [Microsoft has] to jump on the next wave of devices."
Reindorp said that new devices will likely be available for the next holiday season, and one of those devices could be a Zune phone. Apple has made a huge splash by introducing its iPod phone.
"Regarding a phone, of course we're looking at it," Reindorp said. "Whether we do it depends on whether our consumer research shows there's genuine interest, but the idea of having all this stuff on a phone is interesting. We just need to validate the hypothesis before we charge into that space."