It's been a tough year for Redmond: bricking Zunes, class-action suits, and the people-hate-Vista debacle. You'd think those three catapstrophes would be enough to make the PC giant shape up. You'd be wrong.
Microsoft [MSFT], it seems, has started 2009 by going about business with what has become its defining mediocrity.
Earlier this week, it rolled out a music store for wireless phones in the UK that is burdened by one of the most restrictive digital rights management, or DRM, software the music business has ever seen. That's after Amazon [AMZN], Real, and most recently Apple [AAPL] have all freed their MP3 downloads from DRM software, making their songs more widely playable and transferrable. Apparently, Microsoft didn't hear about any of that.
The new service, called MSN Mobile Music, gives mobile phone users about one million songs and 10,000 videos to choose from. And although MSN Mobile Music will be compatible with over 100 handsets, the music customers buy won't be transferrable from that handset. That means you can't even put a song you bought on your phone onto your PC. Oh, and then there's the price structure: about $2.07 USD per song, about $4.00 USD for a ringtone, and roughly $2.77 USD for a video. Apple and Amazon offer their MP3s for half that: between $0.69 and $0.99 each, with no transfer restrictions and no DRM. This dubious service is available for Brits at Microsoft's mobile site, msn.co.uk.
No, MSN Mobile Music isn't the only mobile MP3 service to still use DRM; Nokia's [NOK] Comes With Music service does also, and Microsoft's Zune Store still sells music with DRM too. But both of those services are subscription-based, meaning you can get access to millions of songs for a low flat rate of a few bucks a month. Microsoft's Zune Store even lets you permanently keep 10 of your favorite songs every month as part of a deal called Zune Pass.
I've always said that the Zune is a great platform, a great player, and one of the most economical music-buying options out there. But the Zune has suffered greatly from the deadly PR surrounding its "bricking" problems last month, and holiday sales were abysmal. Redmond reported a staggering 54% drop in Zune sales last quarter, blaming the economy. Apple's iPod sales slumped only 16% last quarter, but to be fair, Apple sells in international markets and the Zune is a North American product only.
Even so, Microsoft has been slow to execute any long-term vision for the platform to get it back on its feet. By comparison, Apple has been hard at work making its iPod Touch a polyglot device for months now; it was born doing music and video, but can now run a litany of cool apps from Apple's App Store. All the Zune has gotten lately is the occasional new color and capacity increase. That's no way to build a dynasty. Microsoft says its building towards progress this calendar year, but how long will the company wait before being totally crowded out by more innovative competitors?
Then there's the issue of Internet Explorer, which has been steadily bleeding marketshare over the last few years. It's still got the lion's share, hovering around 70%, but every year that number slips a few points, with users jumping ship for Safari, FireFox and Chrome. The fact that IE is a great deal slower than any of those three browsers isn't helping Microsoft to stem the tide, and even though IE8 boasts many improvements over IE7, it still looks like the same ho-hum browser. Users only want two things out of a browser: faster speed and an improved interface. Redmond isn't giving them either.
Windows 7 has promised to be a bright spot for Microsoft in 2009, but while Apple was busy charging ahead with breakthrough improvements in OS X, Windows developers were busy crafting a mulligan. They've ended up with the OS that Vista should have been years ago, which is an improvement, but only enough to pacify irate Vista users. (Check out this detailed article at InfoWorld, recounting one user's saga of switching from Vista to OS X, and then trying Windows 7 with a new perspective.)
Windows, like IE, still has monster marketshare over Apple, but every year the lead dwindles by a few percentage points. Apple's OS X is at anywhere between 8%-10% marketshare as of today, depending on who you ask; it was hovering around 5%-6% just a few years ago. Is there going to be a Mac uprising that destroys Microsoft's 90-point bulwark? Of course not. Empires aren't built in a day, and they aren't dismantled quickly either. But that doesn't mean there's no cause for alarm.
No one's saying Microsoft will be wiped from the map because of this collection of indiscretions; it's still a brilliant company that is simply in need of a little guidance. But its situation bears more urgency than the company has shown to date, and if it doesn't make a major correction soon, it stands to make its future a lot harder than it needs to be. Microsoft doesn't need to do that; the EU has happily filled that role for them, bilking the company out of $1.4 billion in fines last year for anti-competition behavior, and as of this month, looking for more.