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What's up in Zune-land?

Joe Belfiore's move to VP of the Zune group might indicate that the company is thinking about adding more video content to the Zune Marketplace.

"Integrated innovation" was a Bill Gates mantra, and may leave the building when he retires. But even without Bill's blessing, outsiders often imagine Microsoft quickly stitching different products together into a more coherent whole. For example, why can't Microsoft operate a single download marketplace offering music, video, and games, and make that marketplace accessible from the Media Center interface, Xbox Live, Zune PC software, and its Mediaroom IPTV system? And come to think of it, Netflix CEO Reed Hastingsjoined Microsoft's board of directors last year--why not offer movie rentals as well?

Lots of cooks in the Zune kitchen these days. Microsoft

The trouble with such scenarios is that they're easy to draw on a whiteboard but complicated to execute. Say you combine the Xbox Live Marketplace and the Zune Marketplace--how do you cut the 10 million current Xbox Live customers over to the new service without interruptions? How do you tailor the interface and featured content to the device accessing it? How do you convince owners of movies and downloadable video games, who thought they were licensing content to a relatively closed system (Xbox Live) to offer that content to millions of Internet-connected PCs, where the risk of piracy is higher? Worse yet, if you decide to take the tough road of integration, by the time you've coordinated development between all the different product teams, alerted partners and the sales channel to the new strategy, and finished the long march, the market may already have moved on to the next big thing.

Two fellow Microsoft-watchers, Todd Bishop of the Seattle P-I and Mary Jo Foley of ZDNet, have both commented on the move of former Media Center leader Joe Belfiore to the Zune team, which Directions on Microsoft noticed in our latest tracking of the Microsoft organizational structure. (Todd called me for comment and quotes me in his blog posting, but I haven't talked to Mary Jo about this, and am not the anonymous source she cites--I have no knowledge of the initiative she's blogging about.) Belfiore oversaw Microsoft's eHome initiative, which created the Media Center PC, and his background in video could indeed mean that Microsoft is considering building a video marketplace for Zune.

Then again...Rick Thompson, who at one time worked in the same broad business group as Belfiore (looking at "advanced scenarios" for Windows PCs) and has a background in the Microsoft Hardware division, is also a vice president in the Zune group, having moved there last October. Does that mean that Microsoft wants more hardware expertise on the team? Xbox guru J Allard continues to be involved as well, and we know that Microsoft's looking at developing games for the Zune. Then there's the whole Danger acquisition and rumored Zune phone.

Meanwhile, we haven't seen Microsoft trumpet any NPD figures for the holiday season, which leads me to believe that Zune 2.0 didn't sell very well, and is probably not in the No. 2 spot that Microsoft was aiming for.

In other words: Zune as a music-focused player is not competitive, and Microsoft has a lot of cooks in the kitchen trying to make something new out of it. We could see a bunch of Zune-branded devices with slightly different feature sets--the "traditional" Zune might add video content and simple games, but we could also see Zune-branded devices focused on portable gaming (competing with the Sony PSP and Nintendo DS) and with telephony functions (competing with the iPhone), but all featuring music playback and using the Zune software. Or, the brand might disappear entirely and be replaced by the next greatest thing ever. Whatever the precise brands and products look like, Microsoft isn't giving up on the portable entertainment space, and music will continue to be a part of that initiative.