What should Ballmer do with Zune?

After spending the last few years focusing on building a credible search engine and fixing Windows, Microsoft CEO Steve Ballmer is now turning his eye, Sauron-like, toward Microsoft's consumer products.

On Tuesday, Microsoft announced that two longtime leaders in its Entertainment and Devices Division, President Robbie Bach and Chief Technical Officer J Allard, are stepping down. Although both executives are best known as the public faces of the Xbox, they also bear some responsibility for the Zune, Microsoft's portable media player and associated software and services. Bach was assigned to fix Microsoft's digital-media strategy in the mid-2000s, and he helped launch Microsoft into the MP3 player business and spike the partner-driven PlaysForSure program. Allard's team helped design and launch the original device.

Ballmer's first priority will be reversing Microsoft's market-share slide in mobile-phone platforms and coming up with an answer to the iPad and other portable computers that run a competitor's mobile OS. But he's also got an opportunity to clean up after another missed opportunity in digital media. Here are some suggestions that can help turn Zune from a punch line into an asset.

Focus on phones. After almost four years, the standalone Zune player has something like 2 percent of the MP3 player market. Ballmer should face it: the iPod is unstoppable. But Microsoft already has a mobile-phone business--even if Windows Mobile is the Atari 2600 of mobile platforms, it still shipped on more than 15 million phones in 2008 and 2009, and the vastly improved Windows Phone 7 could help Microsoft double that number in 2011.

Every Windows Phone 7 will have the full Zune HD interface built into it. Microsoft should market the heck out of this feature: the Zune HD is a better MP3 player than the iPod in many ways--wireless sync, the "now playing" queue and Quickplay feature, the Zune Pass all-you-can-eat subscription service, cool rolling displays of album and artist art, and better PC software. I'm willing to bet that phones running Windows Phone 7 will be better MP3 players than the iPhone, too.

Bundle Zune Pass with phones. Subscription-based music is addictive, but you have to get users hooked. It's hard to stomach paying $10 or $15 a month when there's so much music available for free. But a good subscription service isn't just about playing music that you already know--it's about music discovery. This is particularly true with the Zune's Smart DJ feature, which builds playlists around particular songs; those playlists can include both songs that you own and (if you have a Zune Pass) songs from the Zune Marketplace that you may never have heard before. Once you start consuming music in this way, it's hard to go back to the hunt-and-peck method.

To make Zune Pass succeed where all other subscription services have failed, Microsoft needs to negotiate with carriers like Verizon to offer the Zune Pass as an optional add-on when users buy their phone, then bundle the charge as part of the phone bill--$15 a month doesn't stick out as much in a $100 phone bill. Better yet, Microsoft could pick up the first year's subscription as a marketing cost. Imagine the advertising: "Sure, you could download every Neil Young song onto your iPhone--for about $600. With Windows Phone 7, it's free."

Get Zune into other products. When discussing its consumer strategy, Microsoft often uses the tagline "three screens and a cloud." The idea is that users will be able to have similar experiences on their personal computer, TV, and portable device, with cloud-based services providing content, backup, and other services.

Great vision. Lousy execution. The Zune PC software would look great running on a big screen TV--certainly much better than those radio stations you get with digital cable. So how come the Zune music playback feature isn't built into the Windows Media Center interface? How come there's no Zune interface in Mediaroom, Microsoft's IPTV platform? Where's the Zune Marketplace and Zune music playback experience in Xbox? How come music listeners can't store their library on Windows Live SkyDrive--which offers 25GB of storage--and then access it from any or all of these devices? It's frustrating to watch a company with all the parts fail to stitch them together.

Stop Zune brand creep. Microsoft does this all the time: Somebody comes up with a brand, like .NET or Live. Other business groups leap to add that brand to their own products, until the brand gradually loses meaning. Last year, it started happening with Zune. Microsoft introduced a new service for Xbox Live that lets users stream HD video without a long download time. Apparently, the Zune team came up with some of the underlying technology, so Microsoft decided to call it Zune on Xbox Live. It's a cool service, but it has absolutely nothing to do with music, the original (and still main) focus of the Zune player and Zune PC software. You can't buy or play songs through it. If it has nothing to do with music, don't call it Zune.

End the fight with Windows Media Player. The Zune PC client faces a tough competitor: the Windows Media Player, which ships with every copy of Windows. (Except in Europe, if users request not to have it--part of a 2004 antitrust ruling.) With Windows 7, Microsoft stripped a lot of consumer applications that had formerly shipped with Windows, including Mail (previously Outlook Express), Photo Gallery, and Movie Maker. Why can't Microsoft do this with the Windows Media Player, and make users download the Zune client if they want digital media playback?

OK, there may be a corporate case for the Media Player--businesses need to have audio and video playback on their employees' computers, and don't want the hassle of downloading a client. In that case, Microsoft should make the Media Player a bare-bones corporate-focused application, and let the Zune client lead with consumer features. One example would be Remote Media Streaming, a feature in Windows 7 and Windows Media Player 12 that lets users stream audio and video from their home PC, over the Internet, to any other Windows 7 PC they're logged into. Great feature. But it should have been an update to the Zune client, not the Windows Media Player.

No more Microsoft Points. My bank account and credit card statement are denominated in a globally accepted currency known as the United States dollar. I'd like to be able to buy songs from the Zune Marketplace in the same currency, rather than having to translate Microsoft Points to dollars in my head.