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Zune Sales: ONE Per Store?

Roughlydrafted.com has looked at the NPD numbers for January 2007 and extrapolated Zune sales to be about 29,000 units ... From Microsoft's Press Release just prior to the Zune going on sale:

"On the Shelves

Retailing for $249.99, the Zune device will be available at nearly 30,000 U.S. retailers tomorrow" (bold emphasis by me)

So, in essence, Microsoft managed to sell ONE Zune for each store.

Not too shabby if you're selling Gulfstream G500's but not so much when you're selling consumer electronics.

The iPod is not available at as many outlets so you can't do a direct comparison in the same stores but the Zune is essentially selling 1,000 per day ... Apple's iPod Daily Rate?

@166,600 a Day.

BTW, NPD sales data does not include Apple.com, Apple retail stores, Walmart, Costco or Sam's Club.

Really, How Much Sales Will Licensed Fairplay Drive?

By now, you have read Steve Job's note on DRM and the music industry's response.

And of course, the RIAA bureaucrats being bureaucrats focused on one area and smugly responded they would love for Apple to license Fairplay and everything will be resolved - ignoring the rest of the letter and of course, their presumption that we're morons - nothing new for them.

But let's take them on their word for that - what if Apple licensed Fairplay - how much more money would the record labels make OR would we pretty much be selling the same amount of digital downloads?

The iPod has about 75% of the DAP (Digital Audio Player) market and about 75% of the online digital music market (#2 is eMusic with about 12%). On the hardware side, the owners of non-iPods are either bargain hunters or simply hate Apple and/or would never buy an iPod. Other than the Zune and eMusic store if Napster, Yahoo, Rhapsody, Walmart, Sony and/or others switch to Fairplay - what would that prove? How much more would the market actually expand? We already know that the average iPod owners already buys less than 25 tracks. So while the DAP market is still growing but it's pretty clear that people know how to put tracks on their DAP's without having to buying it online - what is really holding people back? A great hue and cry from ipod owners to buy EXACTLY the same tracks at the Sony or Yahoo store? We even have some evidence that it won't make a substantial difference as Rhapsody advertises all their Fairplay tracks or Apple's can be "fixed." Their market share? <2%.

If the 5 online stores changed to Fairplay, wouldn't it be the essentially the exact same pool of dollars for the online market but just switched around a little? Some Napster user might now buy an iPod and buy tracks at iTS and at Napster while another iPod user might start buying a few more tracks at Walmart.com? We already know that the average iPod owners already only buy less than 25 tracks - what is the RIAA counting on here? ... That sales will double if you can buy the EXACT same tracks at WalMart.com and save about $3 dollars?

It wouldn't really solve anything as clearly eMusic and Zune are not coming onboard so it's not like the RIAA can say - now, all online music is the "same." All it will really do is throw some turmoil into Apple's financial projection spreadsheet ... which the RIAA would applaud, why? Because they seem to take glee at the misfortune of others? But then would it really? Wouldn't Apple actually sell more iPods since people don't think they're locked into iTS?

Why doesn't Apple want to do it? Of course, Apple has its own agenda - what corporation doesn't? Or for that matter, don't most people look out for the interest of themselves and their family first? Sure, the security thing is an issue. It should be pointed that Steve Job's mentions that if their DRM isn't secure enough, the record labels can pull their tracks so again, it circles back to the RIAA. It's clear if you distribute your code to others it will less secure - perhaps not substantially less secure but less secure nevertheless so now instead of just fixing Fairplay for your store when it's broken, you are responsible for getting tracks pulled by the RIAA if security is broken at Napster ... What would Apple hope to gain? Not much for more work.The royalty versus the penny they make on each track would probably even out. And what else? People would cry unfair unless Apple designed iTunes so you could switch stores so that if you clicked in iTunes on STORE, it would auto launch whatever other store you chose? Yea, that's likely to happen.

So, wouldn't the simplest solution be to sell DRM free Mp3's?

The member record labels of the RIAA already sell DRM free CD's that can become much higher fidelity mp3's with ONE CLICK of a mouse so why are online digital mp3's so much more difficult to swallow?

Money? A wholesale CD sells for around $12.99-$13.99. A digital "album" sells for around $9.99 but no one really knows the "wholesale" cost - probably around $9.50 but let's just say $9 to cover everything. So,there's a $4-$5 difference ... But ... A CD price includes the manufacturing, copying and printing of the CD - not to mention the booklet, the jewel box, warehousing, shipping, signage at stores, advertising co-op (to stores for displays, in Sunday circulars, etc ...) and of course, returns. It's different for each CD but it costs the record label approximately $6 to get each CD to the store. (I'm not counting studio cost, advertising or royalties since a digital versionwould have to include that cost also). EMI just shipped 1.6 million copies of Norah Jones "Not Too Late" to the stores this week so they have spent about $9.6 million so far on the CD. How much do you think it costs to encode an album to sell on the iTunes Store? A couple thousand? $10,000? My guess is somewhere in between and maybe even less - encoding takes minutes and someone has to listen through it and verify it's all okay and then off to Apple via a secure T3 line ... then it goes to a jukebox that will automatically re-load itself.

So, what exactly is the problem? There are no physical returns (they also pay the postage for the return), nothing to manufacture ... while Norah Jones will probably sell all 1.6 million shipped, it's not un-heard of returns to exceed 1 million units if they guess really poorly ... What exactly is wrong with digital? They don't seem willing to embrace the digital format - why is that? If you ask software manufacturers, they would be more than happy just to sell you digital downloads and a PDF manual ... video game companies are also willing to make it an online world - saving them on the annoyances of retail ... of course, it's not going to happen overnight but they seem eager to try and move the bar forward - music & movies? What are they afarid of? What is the RIAA afraid of?

The evidence seems pretty clear. They already sell an DRM free format (CD's). People clearly know how to convert these tracks to mp3's. But their clear intent is to protect CD sales (an open format) at any cost - why? Money? If that's the case, why not say so? People would be willing to accept an increase if it was an open mp3 ... But they've never field tested that concept, have they? Or is there another hidden agenda? Is it because digital sales are transparent? That Apple can provide you sales to the minute? But CD sales figures can be easier to fudge? In transit to warehouses? Out-transit? Promotional giveaways (record club CD sales are counted as promotional in many cases)? Being returned?

These are the questions the RIAA should answer. Why do they favor an 'open' format like CD's above all else - at any cost - of all else?

iPhone: Your In-Car Touchscreen Music Jukebox ... and Just the Beginning ...

In all the cries of what's in - what's not in and who's going to be suing whom, people have sort of skirted over the fact that you no longer need to rip apart a MacBook and add a touchscreen to create an in-car jukebox.

Attach a Mac Mini somewhere in your vehicle. Create a mount for your iPhone. Plug in the iPhone USB connector to your Mac Mini. You have iTunes for music, photos, audiobooks, podcasts and videos - and instead of a cap of 8 GB, you could go up to a couple terrabytes.

You can also of course use it as a phone - how common of you though ...

With some hacking, it can probably read emails to you and to take it further - start a mini broadcast while your rollng slowly down the highway - you can create your own mini radio/podcast station - and others can wifi to access your live "I'm stuck in traffic' blog.

Think BIG!

iPhone: The Un-Answered Questions

No surprise, there's a lot of FUD and the backlash has begun already ... consider these numbers:

6,500,000,000 people on Earth (approximately). 45,000 people on Earth who have actually been in the same room as iPhone (MacWorld South Hall). 100 people who we have seen or read comments from that have actually touched the phone.

So before you go half-cocked, full-cocked or .000000001% cocked - until you even seen or touched it - keep your thoughts, opinions and comments in perspective - everyone is entitled to an opinion but keep it in perspective or post your disclaimer up front.

But to deflate some FUD trial ballons that are going up:

EXPENSIVE? Yes and no. It all depends on your needs, wants and income. At current prices, you get a $249 iPod built in - and the other $350 in cost to you for in that same device? You get an Apple cell phone with an Apple UI plus essentially a Nano Mac Mini.

Sure, you paid anywhere from zero to $250 for your phone now. I think it's safe to say that with a billion sold EVERY year, very few people think it's the greatest consumer electronics gadget they have ever seen or even in the top 10 of things they've ever bought. You would think that after selling tens of billions of something, things would be vastly better but my Moto phone today is only marginally better than my Moto phone of the 1990's. There are so many things wrong with it, it's hard to decide what to note first ... from the speaker at the back of the phone so I can never really hear what the other person on a conf call is really saying to the fact my phone cannot figure out that there is daylight savings and I have to manually change my phone time or that Moto's sync means if my contact has 7 phone numbers, it automatically gets 7 listings. These are just some of the 100 things not quite right and frankly - stupid about all cell phones. If it's not the three things listed, it's another 97 things. These are not difficult things - they are just careless droppings from telco bureaucrats so whether you intent to buy an iPhone or not, hopefully Apple entering will shake people up. Ignoring the status factor factor of having the phone in the first few months, it's whether having a world class UI and a world class phone with a world class screen is worth $350 to you? Presuming you're the type who love music also and/or wants 4-8GB of HD space for $249? If not, there are free phones and you do NOT have to buy the iPhone. For some people $599 is rent money, for others, it's their monthly sushi budget so it's for and not for everyone.

CINGULAR/AT&T - Yes, I have no love for the telco twits at AT&T and sure, it would've been great to have an unlocked phone to drop in my SIM card but here's the reasoning. Apple is all about plug 'n play. Let's say they do sell an unlocked phone - while 10-25% of people would clearly know how to drop in a SIM card, what about the other 75-90% people? Does Apple let them wander randomly into stores, booths and guys on the street corners promising to hook them up with cell service? There would be a mass of peope at the Genius Bar asking them why their iPhone doesn't work with Fred's Cell Phone service. So, yea, this is a decision that annoys the 10% of us online, at phone forums and who love to fiddle with every setting but for the VAST MAJORITY of people, they just want to make a phone call - having it at Cingular/AT&T is a choice "average" people understand - and also as important - every cell phone company has their own "advanced" services - in this case, the visual voicemail & the internet surfing features of the iPhone. Every phone company has a slightly different protocol, I'm not saying it's a good thing as the reason they make it different is so you can't readily switch but that's the way it is now so again, if you buy a $599 cell phone, the LAST THING the average person wants to hear is, "Oh, you can't access T-Mobile's voicemail or our internet access with that thing." Or conversely - does Apple want to bother making sure the most advanced services work with each service? What would that entail? And sure in some sense, Apple loses some leverage that way - by only allowing one company to sell it, Apple can probably get some guarantee of advertising and/or actual paymebnt - perhaps tied into a % of the revenue per customer, etc ... it's not the best solution for 100% of the customers but it is the simplest solution for the vast majority of customers and easiest for Apple. And after two years? Almost anything is possible from an Apple branded service to wifi max in metro areas or simply unlocked phones in other colors ... but who knows what will be happening in 2 years?

Do I doubt there will be an unlocking utility in 6 hours? Let's bet, does an iPhone get bought and smashed on the sidewalk and the video posted to YouTube first? Or an unlock hack? But again, how many people outside of DIYers and hackers want to spend $600 on a phone only to be missing 2-5 important features? (We also keep hearing speculation on .Mac sychronization so who knows what else we might have to live with using an iPhone on T-Mobile?) for the vast majority of users, they just want to buy a phone, activate it and start using it (of course, shooting the first UNPACKING video if possible).

It should be also noted that ANY choice that Apple made would've been followed with "grief": Verizon, incompatible CDMA! T-Mobile, smaller than the two biggest choices. why oh why? Sprint, financially in trouble - how could they compete with the big two? Why not go with a better choice? Or going it alone as their own branded service? ESPN Mobile anyone? So, you see - any choice would've only met with different FUD - because you can find a problem with every choice including if Apple had not announced a cell phone ;-)

NOT THE ONLY iPHONE - Sure, are there features other people want? Of course. Some people seem to think Apple is going to release one phone and that it will only feature these things announced forever ... first, Apple could decide to add almost anything in 6 months - once FCC approval is completed and it's a minor add-on that doesn't require them going back for more approval - anything could be added - and sure - down the line, GPS or 3G could be added - if you decide that is the most critical thing to you - then wait. You have to keep in mind that of over 150 million cell phone users in the US, there are barely over a million people using 3G or the EVDO services - and of course, they all seem to be bloggers :-) but keep calm people - you make it seem as if Apple is only releasing a DVORAK keyboard version ... (and no, I do not know if you can change QWERTY to DVORAK on the iPhone :-)

3RD PARTY APPLICATIONS - Sure, I would like that feature and while Steve was probably over-simplifying what the situation would be but the facts are that out of the 150 million users in the US, only about 3% of people have a "smartphone/PDA phone," so clearly there are not a vast amount of people clamoring to load apps onto a phone right now - again, I think what Apple is simply trying to say is that for the vast majority of users, they want a phone, they do not want to deal with an installer or the worst case scenario - having to buy Symantec software to keep your phone clean. Again, would it stun me if hackers devised a way to load apps? No, not really but like the iPod, I'm sure at some point, there will be a "sanctioned" way to load apps but also keep in mind if you need to read text, spreadsheets or whatever - you can read them off the internet - and people seem to think that iWork will be closely tied into it. I'm also positive at some point, you will be able to load 3rd party apps.

LAWSUIT - Some people seem stunned that anyone would sue Apple or vice versa - I would bet money all 1,000 top Fortune 1,000 companies have some lawsuit or legal action pending at some point or another - we live in a society that likes to sue people and companies for good, bad or whatever. It's just another day for legal. Clearly if Apple calls a lawsuit "silly," they feel confident - whether it's misplaced or not is hard to say at this point. It isn't so clear and dry, it's not like Apple wants to use RAZR or TREO so big whoop. At worst, it might be called iPHON or iMobile or whatever - the name hardly matters - the iPod could've been called anything else but not from Apple with Apple design and UI - it would just be another Mp3 DAP.

COMPETITION - Oh no, there will be competition and it's not a cakewalk ... (keep in mind, even in a cakewalk, you're not guranteed a cake or the one you want :-)

Okay, now name a product class in today's global economy where there is no competition? THERE IS COMPETITION for anything and everything - even the free food giveaway at Costco has competition. Apple is literally a big boy company that can play and compete with other grown up companies. NO ONE is guaranteed anything anymore and EVERY company on Earth older than a year had has its failures ... okay, coincidentially, maybe only Pixar is exempt :-) though you could claim they were not very/barely successful as a software company ... okay, I feel better now :-) so oh yeah, it's scary out there and yea, beyond the million they will definitely sell in the first two weeks in June, it's hard to say how many they will really sell but that's true of any company and like the iPod in its early days, many people are skeptical of people oohing over it and as cynics - dismissive but once it's out and they've seen it close up or touched it - like the iPod, it will help turn the tide ... and in late April (I'm guessing) when the pre-ordering starts and in May, when the hype starts back up or Apple casually announces 3G (it could happen ;-0), the craziness will start back up again - along with $100 million in advertising and signage AT&T will throw at this thing.

AT&T's cell phone network will go down the day it arrives in hand as it's like the 1990's - people calling up everyone and shouting, "Dude, you know what i'm calling you on?" :-)

And if you still have any un-answered questions? Don't forget to check David Pogue's Great Summations of All Questions Smart & Not So Smart - Part I & Part II.

Poll: When Will You Be Buying the iPhone?

And yea, if you're not interested, this poll is not for you ...

Microsoft, Zune & Universal: The 1992 Game Plan

Microsoft is the guy who peaked in high school as the big man in the little pond but now in the real world, ill-equipped to function and compete when people are not impressed by the things they were in high school.

It was all so simple then for Microsoft. Like DOS, all they had to re-package what was out there and call it Microsoft - and everybody would bow before them. After all, they controlled the desktop. If your app competed directly with Microsoft - strange - it would run slower or not at all with the OS upgrade. Or if you built a company based on your flagship software selling for $300? Microsoft would simply create a look-alike and bundle it with 3 other apps also for $300 and of course, it would run faster, cleaner and without bugs - who would turn down such an offer? Or if you did ... Microsoft would cut a few % points off your Windows licensing package/maintenance contract - as an enterprise buyer, how could you argue against the most compatible software, the cheapest application bundle and a good deal on the OS & OS maintenance licensing?

You have to give Microsoft credit for leaving no stone unturned - they created lots of cheap and/or free tools for developers to create Windows apps. They also didn't forget retailers - of course, this was the introduction phase of the PC and it wasn't cheap (about $3-$4,000 in today's dollars) to buy a typical personal computer so retailers were more than happy to do whatever it took to stock and sell PC's. And to complete the circle, since Microsoft was freely licensing the OS, new PC companies were springing up everywhere.

At first, Microsoft was just smart & aggressive - but then of course, they started to veer into being overly aggressive and eventually to illegal methods. Some people think any monopoly is illegal. A monopoly is NOT illegal if it's achieved through natural consumer & buyer decisions and/or that position is not leveraged into other areas - which was the case with Microsoft as many courts and countries have ruled.

And when people tried to step out of line such as Netscape licensing to place their browser icon on Compaq machines, Microsoft threatened not to allow Compaq license to load Windows on their PC's (if carried out, you'd get a blank machine and the Windows discs to install yourself - a good time not promised).

This is the culture, company and ingrained attitudes of the people they've hired since the early 1990's as THE MICROSOFT WAY. We will surround you and start walking slowly towards you - you can join us, meld with us or perish.

Everybody knew eventually PC's would be linked with TV's, entertainment and or interactivity. No one was quite sure exactly what it might look like but everyone was sure it was going to happen. So, of course, Microsoft put their only game plan into place. I'm sure they scoffed at Apple's Quicktime. It's just a playback app for consumers - what moron starts there? No, we start at the other end no one ever thinks of. We design a DRM and codec’s. That way we get a % in royalties with every unit that sells. We also make and sell encoding and streaming machines. We show these to the studios and record labels. Okay with them? Great - sign here ... reluctant to? I see your corporate OS & maintenance contracts are up for renewal - sign today and I'm sure those boys will cut you a .5% discount - pals? So while sales of online video and online music were pretty slow, MS wasn't worried, they had the whole turnkey system in place. They had the suppliers locked up in the equipment and the final file format - who was their competition - Apple? bwahahaha. Unix? bwahahaha.

And then there was the internet.

Some of you might not remember but Microsoft actually thought they could bottle it up. They saw it as a CompuServe/AOL like service and they could beat it back with MSN, the portal - and while they easily defeated Netscape - kind of hard to compete with 'free,' but larger forces started that MS still doesn't quite grasp.

Even in the internet infancy, most people were just going to use the browser that came with the machine - not only did people not know how to download a browser, it was a flakey proposition to have to wait 20-60 minutes of downloading time over dialup and of course, since IE worked fine, why bother downloading another browser that actually ran slower or the most amazing thing - when IE reached www.netscape.com, it would literally take MINUTES to begin to draw the page - yea, must be Netscape's gray background page that's taking up all the bandwidth. It would be hilarious if it wasn't so obvious. And on the other end, MS offered corporations money or massive discounts on contracts if IE was selected as the corporate desktop browser - people seem to think that Netscape lost solely on merits. Netscape could not compete since IE was free (Netscape used to charge corporations) and how do you compete when Ms is willing to shave millions off a maintenance or licensing contract?

MS thought the war was over forever. They have 95% of the internet browsers - even Mac users got an IE. They had 95% of the desktop. Done & done.

But as the internet picked up users and cohesion, people were being connected all over the world and it was and is the dawn of a new age. It started in small ways - the people who had abandoned home PC's as dull letter writing & budget machines were starting up the computer again to connect to the internet & their friends. The things they were interested in were "universal," JPEG photos, text email, HTML web browser for viewing (mostly) text then - they weren't creating Painter files or Word docs or a Photo database only available on that machine - nobody really cared what kind of machine you used or if you had the same software because the most important files were 'universal' formats. And as connection speeds increased - collaborative efforts were now possible because people could contribute worldwide. Never mind a massive project like Mozilla/Firefox but look at all the amazing shareware apps out there. What was shareware distribution before? A user group could put it on a diskette and sell it - no real way to test it - you had to buy it to try it and what if you were really good at code writing but bad at UI? Your max audience is probably 1,000 users - now, a teenager in Norway can post a shareware app & source code, a guy in Ecuador can add a nice pull down menu and a bunch of other people in Arizona and India can trouble shoot and bug fix BEFORE the guy who started it all wakes up back up in Norway. How is this important?

Napster & Mp3. During the 10-month absolute heyday of Napster, everyday, there was probably more global communications going on everyday than in the history of mankind up to that point. Sure, it was illegal and copyright infringement but it was the power of the people. People were writing apps to convert audio CD's to Mp3's, people were downloading those, converting their CD's and then letting the reduced file be zapped all over the globe. And yes, MS tried to contain it with a new version of WMA - forgot which one - that was "way better" than Mp3 - sounded "better" and the file size was smaller. Clueless analysts and journalists said Mp3's reign was over, everyone would be switching to WMA.

Apple launched the iPod. A few people got it - and admittedly, it was overpriced due to component availability then at $399 but most people did not - least of all MS. They dismissed it as a portable hard drive - big whoop, they had 10-15 companies selling WMA tracks online and they had dozens of companies selling WMA DAP WORLDWIDE. Apple? What a joke.

But the world was different. Want to test out iTunes - just download it. For most people - particularly the early adopters, that's 2-3 minutes. Even included a free CD burning aspect that MS charged for - and later made theirs free. And in the internet age, locking up retailers is irrelevant. How many hits do you get if you type in "Buy iPod." Doesn't matter if you live in Tiny Junction, Wyoming or Santa Monica, CA - you are the exact same distance to your doorway to buy ANYTHING. In the internet age, there are no access points to lock up. While Wal-Mart might put a small retailer out of business in the real world, on the internet, walmart.com is no more or less easy to get to than Joe'sstuff.com. But MS is confused when 99% of online music stores sold WMA tracks, yet, nearly 90% of the business went to itunes. MS is confused that there are dozens of companies selling DAP's that play WMA yet nearly 80% choose Apple's iPod. MS lined up the record labels, they created encoding machines, servers, helped launched stores and provided guidance on making the hardware but yet, Apple & consumers just ignored all that - how could that be? So MS focuses on the one thing that they believe drives the success of the iPod because that's the ONLY ASPECT of its success they understand ... that it's "locked" but if anything, the evidence is CLEARLY THE OPPOSITE.

All evidence points to the fact that the bulk of music on iPods is NOT purchased at the iTunes store so clearly that is NOT the main reason people are buying iPods - clearly people know how to load "other" music on this thing.

Sure, the store is a must have component but clearly not the overwhelming factor - this is the reason the head of Universal Music calls anyone with an iPod a thief because we're not buying enough tracks online.

So, after careful analysis on Microsoft's part, the conclusion they draw is that "control/nuts-to-bolts" is the key to success so that’s how they arrived at Zune and why they're applying the ONLY game plan they know. And while they have a hidden agenda in trying to roil the waters for Apple's negotiations down the line with the labels - part of it is the only game plan they know. If we lock up the suppliers, we'll corral this thing - notice how they proudly proclaim the Zune is being sold in 30,000 stores versus 10,000 for the iPod - show of hands, who does not know how to find an iPod online or offline? How many online places sell iPods and really, you have to count every eBay auction as another seller - 2 million places to buy an ipod? Microsoft, it's 2006 NOT 1992 anymore.

What effect does the Universal Music deal mean for Apple? Very little.

Why? When the next negotiation rolls around, if Universal makes a noise, Apple will raise the following questions:

So, your response to "low" online sales is to try and raise prices and/or not sign a deal with our 80-million ipod users and us? That you'd rather withdraw potential sales to 80 million potential customers?

Who will win this PR battle? Apple, Steve Jobs and 80 million iPod users or a record label?

And if the fight escalates to consumers, Apple can also point out, do car manufacturers charge you every time you put gas in the car? Fridge makers when you load food?

Once again, in the consumer marketplace, MS is clearly in over their heads because they design everything backwards. Instead of trying to figure out what consumers want, they sit down and figure out how can they sign exclusive deals, try to make life more difficult for their competitors, sell more servers and how to extract micro payments from royalties or patent licensing - just look at their Zune "store." Who in this day and age makes buying MORE difficult and not easier. Songs are 79 credits but a penny is not a point ... songs are really $.99 so you have to buy in at a $5 minimum in which you get 395 credits that is NOT returnable or refundable but because they think consumers are morons who see 79 credits and think, man I'm saving way more than at iTunes where they believe in the wacky thing of you pay for only what you buy. Why would they price this way except to confuse us because they think we're morons and are easily fooled?

It should also be noted that consumers have clearly rejected every version of WMA - from plain WMA, the portable media center WMA and last year's plays4sure - but tech writers seem to have short memories.

This is yet another reason every consumer venture is a failure since 1995 (including the $12 billion spent on Xbox so far). What works for enterprise sales is one thing but clearly, they are ill equipped to function in a consumer world.