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Microsoft unveils revamped Zunes

Changes include a complete overhaul of the device's software and a redesign of Marketplace, which will offer 1 million unprotected songs. Photos: Round two for Zune

Microsoft has unveiled the second generation of Zune digital music players and will offer consumers 1 million unprotected songs on its online music store.

Microsoft announced on Tuesday that it will offer three new models of the Zune in November, including two equipped with flash memory. The 4GB and 8GB versions are iPod Nano look-alikes that will sell for a suggested retail price of $149 and $199 respectively. An 80GB player equipped with a hard drive will sell for $249. The pricing scheme for the devices exactly mirrors that of Apple's iPods.

Some of the other changes include a complete overhaul of the device's software and a redesign of Marketplace, Zune's music store. Other interesting features include wireless syncing and the new Zune Pad, a touch-sensitive technology that enables users to slide their finger across the main navigation button instead of always having to click.

The 4GB and 8GB models represent Zune's first foray into flash-based players and they will be offered in a palette of red, pink, black and green. The 80GB features a 3.2-inch screen and will be smaller and thinner than the original Zune 30GB player. The software upgrades will also replace the software in the 30GB models.

Zune devices will automatically sync when connected over home wireless networks. The feature is designed to ensure that owners always leave home with the latest content, such as podcasts.

The move to provide unprotected MP3 music on the Zune music store is unprecedented for Microsoft but does not come as a surprise. Not only is the company one of the major providers of digital rights management software, but executives there slammed Apple and its CEO Steve Jobs last February when he called on the music industry to abandon DRM.

Microsoft then reversed itself in April, saying it would eventually sell unprotected songs on Marketplace.

While 1 million songs may sound like a lot, Microsoft isn't saying just how much of that music is coming from the four major music labels. Already, eMusic offers more than 2 million unprotected tracks from mostly independent labels. In May, Apple announced it had partnered with record company EMI to sell DRM-free music on iTunes. Apple hasn't said how many unprotected tracks on iTunes are available.

Susan Kevorkian, an analyst with IDC, said that Microsoft is more interested in selling music players than it is with providing DRM software. She said that Microsoft began scaling back its DRM efforts last year in order to throw more resources at improving the Zune.

But are the new products enough to reel in Apple? The newest Zunes are a step up, but Microsoft watchers don't think they offer anything better than the iPod.

"I would say they are holding their own," Van Baker, a research vice president with Gartner, said of Microsoft's venture into the music category. "Within that group (vying for the approximate 30 percent market share that Apple doesn't own), I'd say they are a contender. Are they gaining on Apple or making up ground? I don't think so."

What's new with Zune?
The problem is that the newest Zune models don't offer anything demonstrably better than the iPod, the analysts said.

More than a year has passed since Microsoft began developing the music player and the company is still without a comparable video store to iTunes. Zune's Marketplace will begin offering music videos, but it is still without TV shows. While Microsoft crowed about its new touch-sensitive navigation button, the new iPods come equipped with touch-sensitive screens.

And the new iPods now offer Wi-Fi--a feature that was supposed to set the Zune apart.

Kevorkian said her company last year had anticipated "a quicker refresh" to the Zune. She said that some of the reasons that may have slowed Zune efforts may have been some key departures in the unit's management and that it was forced to rush the launch of its debut models.

"What we are seeing now are important incremental changes," Kevorkian said. "What we're waiting to see is more revolutionary changes, such as the ability to access the Zune music service via Wi-Fi. We think Microsoft will be a strong player in the portable flash player category. They have diversified their player platform and undertaken a major overhaul of their software, which is important way to development. There are people looking for an alternative to Apple, and Microsoft is likely going to win market share from other Windows-based media players. They are just behind right now."

Microsoft has always said that the Zune was a long-term project, predicting in 2006 that it could take years and hundreds of millions of dollars to go toe-to-toe with Apple. The company surpassed its initial sales goal by selling more than 1 million Zunes by June.

"What we've done in the past year is establish the Zune brand," said Jason Reindorp, marketing director for Zune. "It's starting to mean something to people. That isn't easy to do. Microsoft had a very realistic view of what it would take to get into the marketplace and differentiate itself and be successful. We look at these things in terms of years, not months."

Interestingly, Microsoft usually likes to compare its efforts with Zune to that of the company's foray into the video game sector. With the Xbox, Microsoft seized market share from Sony and Nintendo very early. Are there any similarities between Xbox's early efforts and Zune's?

"No, absolutely not," Baker said. "Xbox had Halo. If it wasn't for Halo, Xbox probably wouldn't exist. But that's the game industry, where one incredible franchise can drive an entire platform. Against Apple, Microsoft is up against a dominate service worldwide and it's going to be tough to knock them down if Microsoft doesn't bring something uniquely different to market. If Microsoft can't do that, they can only compete on price and that only buys so much time."