Microsoft Zune Killing May Have Been Result of Corporate Shakeup

Microsoft may have killed its Zune portable media player, according to reports. However, the company seems reluctant to share details about its future plans for the Zune franchise, whose hardware includes the touch-screen Zune HD and first- and second-generation Zune.  

“We have nothing to announce about another Zune device,” a Microsoft spokesperson e-mailed to eWEEK late March 14. “Our long-term strategy focuses on the strength of the entire Zune ecosystem across Microsoft platforms.”

In a March 14 report, Bloomberg reporter Dina Bass suggested that Microsoft would stop “introducing new versions of the Zune music and video player because of tepid demand.” However, she added, Zune software would maintain a presence on Microsoft platforms such as Windows Phone 7.

Although the Zune HD earned strong reviews in the wake of its September 2009 release, the device failed to break the Apple iPod’s tight grip on the portable-media market. That market is also undergoing its own seismic shift at the moment, as smartphones and tablets increasingly become the center of peoples’ mobile digital lives: even Apple has seen sales of its traditional iPod fall over the past several quarters, a phenomenon the company partially attributes to the rise of the iPhone.

But the Zune hardware may also have found itself something of an orphan after Microsoft’s massive corporate upheaval in 2010, which saw the departure of the executives who had brought the project to life, and a reorientation of the company’s approach to consumer products. 

In May 2010, a major shakeup gripped Microsoft’s now-extinct Entertainment and Devices Division, with rumors that underperforming products and killed projects had led to the departures of its two top executives: Robbie Bach, the division’s president, and J Allard, its senior vice president of design and development. Allard and Bach had each logged about two decades’ worth of service with Microsoft.

During the first quarter of 2010, the division’s revenues had contributed about 11 percent to Microsoft’s $14.5 billion bottom line. But the high-profile failure of Microsoft’s Kin social-networking phones, coupled with continuing problems in its smartphone line and the Zune HD’s anemic reception, led analysts to question the division’s ultimate viability.

“This has been a vampire division since its inception. A vampire division is one that lives off the value created by the rest of the company and, from a corporate perspective, does more damage than good,” Rob Enderle, principal analyst of the Enderle Group, told eWEEK in May 2010. “Its profit, which wasn’t much, was massively offset by the economic cost it caused to the corporation and it needed to be rethought.”

Ballmer later reorganized Microsoft’s divisions and presidents, breaking the Entertainment & Devices Division into a Mobile Communications Business overseen by Andy Lees and an Interactive Entertainment Business headed by Don Mattrick. By splitting responsibilities for mobile and entertainment to Lees and Mattrick, Ballmer seemed intent on giving those product lines new focus. Part of that focus may have involved killing the Zune hardware, while keeping the software component—and associated media store—as a part of the Windows Phone 7 ecosystem.