My prediction is that Microsoft’s Zune mp3 player will absolutely fail to compete with the iPod. I attribute my reasoning from what I’ve learned by reading The Innovator’s Dilemma by Clayton M. Christensen as well as The Innovator’s Solution from the same author.
The crux of the matter is that while the iPod was a disruptive technology, Zune is a sustaining technology, and trying to unseat an entrenched competitor with a sustaining technology is difficult, if not impossible, even when you’re Microsoft.
Throughout the history of business, small companies have been able to take out larger companies by creating disruptive products that chip away at the larger companies’ least valuable customers. The entrenched companies are only glad to leave behind their unprofitable customers and move upstream, concentrating on their larger, more profitable customer base. But as the entrenched company moves upstream, the innovative company moves upstream behind them. Again, the entrenched company is thrilled to be getting rid of their least valuable customers and make even better profits off of the higher-end customers. By the time the entrenched company realizes they can’t go any further upstream it’s too late, the innovator catches up with them, and the entrenched company quickly goes out of business.
The benefit of being an innovator is the companies you are taking market share away from don’t care. They don’t see you as a competitive threat because you are taking away their worst customers, not their best customers. Their worst customers are a great opportunity for you, whereas they see them as a drag on their performance.
This was the case with the iPod, with a twist. The disruptive technology was not the iPod itself, but the mp3 file format. mp3 files do not have the quality of CDs, but they are so easy to use and since they were good enough they quickly because the defacto standard for a younger generation that spent a lot of time listening to music on computers instead of on stereo systems. It’s easier to copy all your CDs to the computer and organize and play them with mp3 software than it is to have a huge stack of CDs and switch them in and out.
The iPod made mp3 files portable. Suddenly you could go walking, jogging, biking, and skateboarding and take hundreds of songs with you on a small device that could fit in your pocket and didn’t skip while being jostled. The iPod instantly killed the portable CD player, which was large, bulky, and would skip at the slightest bump. Now the iPod is moving upstream, replacing large and bulky, not to mention expensive, stereo systems. Sure, some people value the high quality of sound you get from a stereo system and are willing to pay a premium for it, so the stereo system manufacturing companies are probably happily focusing on those customers who want or need the high end equipment. But many people just want to listen to music or podcasts, and buying the external speaker add on for the iPod is good enough for them.
However, the iPod will, of necessity, continue to move upstream, improving quality and adding enhanced functionality, and someday may very well replace stereo systems as we know them. The stereo system manufacturers may not even be aware of the threat because they still have plenty of high end customers, but ultimately they will, and it will probably be too late.
The iPod has disrupted and is disrupting the stereo system industry by creating innovations that sustain the growth of the iPod market. But is Zune going to disrupt the iPod?
Think about it. What is Zune? It’s an mp3 player, like the iPod. Is it better? Maybe. Is it cheaper? Maybe. But chances are it’s not that much cheaper, and it’s not all that much better. If it is better and/or cheaper, then the next iPod will simply be one step better and one step cheaper than Zune. Zune is not going to be a disruptive product because it is a sustaining innovation. It will, at best, be only slightly better than the iPod. Historically, products that compete against entrenched competitors based on sustaining technologies rarely win, even when they have billions of dollars to spend. Given how Microsoft will likely choose to market Zune this fundamental flaw in their business strategy might only be one of their problems.