Q&A: How's The Zune Doing?

Now that the Zune has been out for a few weeks, we've heard all sorts of things about how the MP3 player is doing. Market-research company NPD Group first reported the Zune debuting as the number-two MP3 player on the market, but recently updated that by saying it has dropped to number five. Given the anticipation leading up to this product's release, we wanted to see how Microsoft feels about the Zune's early performance. We caught up with Zune marketing director Jason Reindorp and asked him how things are going with its iPod competitor thus far.

Q: Is the Zune selling as well as or worse than you expected?

JR: For us, the sales are right on track. They're exactly where we wanted them to be. This is week three, so it's kind of early for us to be thinking about share. The main thing for us is--and right from the beginning we were saying this--that this is a three-year plan. We're really thinking in terms of years and not weeks. From our retail partners we're hearing--and this is completely anecdotal--that they're seeing Zune drive what they think is incremental sales to the category right now.

Q: Who is buying the device?

JR: The core, target audience for us (is 18- to 28-year-olds). That said, what typically happens with this kind of a device-and certainly if it's a Microsoft device-is the initial wave of people who respond to it include the target market and tech-centric people.

Q: How many Zunes are you forecasting to sell by the end of this fiscal year?

JR: At the end of June 2007, we are predicting over one million units, which is pretty much what we were saying in the beginning.

Q: Any surprises you've encountered so far with the way people are using or reacting to the Zune?

JR: What we're hearing from retailers is that if there's one (Zune) that's kind of hard to keep on the shelf, it's brown. We were hopeful that that would be the case because we were excited about that color treatment, but it wasn't until it hit retail that we knew for sure.

Another is in relation to the Zune Pass. What we're seeing is the downloading behavior of people who sign up for the Zune Pass is pretty different than an a la carte download-type of behavior. What I mean is people are signing up for their Zune Pass and they're downloading up a storm. When you remove the "risk" of downloading a song or an album you may not like, people go crazy.

Also, anecdotally, we're hearing people really like having a radio on the device-and this is again anecdotal-but we're hearing some people who haven't necessarily bought the device because it has a radio have been surprised by how much they use it.

Q: We haven't really heard much about people using the send feature to share music. What have you heard?

JR: With the send feature, we're hearing anecdotally that people are experimenting with it. It's a whole new idea. We've always been pretty realistic-because it's new and it's different, it's going to take people a while to understand what it is, experiment with it, and decide if they're going to keep using it. We wanted to include this feature because Zune is really focused on building community, in this case a music community, and helping people promote songs they really like with their friends and stuff.

Q: How many Zune users are actually using it, and how many are buying Zune Pass subscriptions versus the number that are buying the device?

JR: Similar to the send feature, it's a relatively new concept, a new idea, so we're encouraged to see people are signing up for it. The numbers are still relatively small because we've only been in the market for about three weeks, but it looks good.

Q: We read that people are buying Zunes but not using them, which you should be able to tell by whether or not a unit's account has been activated. Any truth to that?

JR: It's a theory we have that people are buying them as Christmas presents.

Q: What about the pink and orange Zunes that have been floating around-any plans to officially add those colors to the line?

JR: There were pink and orange ones. What we did was give the entire internal team involved in the launch of Zune, pink and orange devices as their ship gift. On top of that we opened a number of product boxes and sprinkled in an equal number of pink and orange Zunes so they would just appear in retail, like the gold wrapper in Charlie and The Chocolate Factory. Essentially, if somebody opens one of the boxes and sees a pink or orange one, they're numbered, it's a limited edition. They get a certificate that says congratulations, if you would like to have the original color you wanted to buy, give us a shout.

Q: We've seen them popping up on eBay and various blogs, so people are obviously paying attention to them. But has anyone called and asked you to replace a pink one with, say, a brown one?

JR: Actually, we haven't seen anyone call in and ask for the original color. They seem to be responding to them.

Q: We were wondering if Microsoft sees this first Zune as a sort of test device upon which to improve, based on consumers' reactions. Any truth in that?

JR: Not at all. We thought through several different approaches to what type of device, what size of device, etcetera, etcetera, we would put out as our first step into the market. We put a lot of thought into that and decided on this form factor and this hard drive intentionally because we thought it was a solid first step or first offering.

Q: Will there be any changes to the Zune lineup soon?

JR: All the predictable variables in terms of eventually bringing new devices, new features, going into new geographic markets (will happen, but nothing now).

Q: Any chance of a 100GB Zune in the near future? We know Toshiba is going to start producing 1.8-inch 100GB hard drive disks that might go nicely with your player.

JR: We're looking at all the same things and talking to the various suppliers that are out there, and looking at what the consumer really wants. All of that is being factored into our future strategy.

Q: How well will the current Zune work with Vista?

JR: It is compatible; it's just not currently optimized. Our plan has always been to make sure Zune is completely optimized for Vista when Vista is available to consumers, because Zune is a consumer device, obviously.

Q: Initially, there was a lot of negative buzz surrounding the Zune. Some of the analysts we spoke to at launch time expressed doubts about how it would fare against the iPod. How do you feel about that now?

JR: Michael Gartenberg at Jupiter is a great example. He is somebody that in the very early days was not quite sure, a tiny bit negative. He turned around completely and wrote another report where he expressed his opinion and felt very positive about the device. What we're seeing across the board is people see the idea of the Zune and react in one way, and when they can see the device and touch it, feel it, have it in their hands, then their tune changes.