Microsoft Unveils New Zune Models

Microsoft Corp (MSFT) on Tuesday introduced three new models of its Zune digital media player that wirelessly and automatically update their music, photos and videos when placed near a user's computer.

They mark the second generation of Microsoft's answer to Apple Inc's (AAPL) iPod, which has sold more than 100 million units in various shapes and sizes since its 2001 launch.

By comparison, Microsoft joined the fray last year with a single 30-gigabyte Zune model and has sold 1.2 million units.

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The new Zunes will come in 4-gigabyte, 8-gigabyte and 80-gigabyte models. All will come with a feature that allows a user to automatically sync media via a Wi-Fi network from a PC to the Zune when its battery is charging.

[The original 30-gigabyte Zune will still be produced and sold at $199. It will receive a software update in November that enables the wireless syncing feature available on the new models.

The 30-GB Zune will be available in red and pink as well as the existing black, white and brown. The flash-drive models will come in black, pink, green and red, while the 80-GB model comes only in black.

All models also sport an FM radio.]

Microsoft also aims to tap the social-networking phenomenon with Zune Social, a Web site for users to display music they like, share playlists and find friends with similar tastes.

The new devices, set to go on sale in mid-November, are equipped with a circular navigational pad that allows a user to both "flick" through options like on a touch screen or "click" through choices.

The 4-GB model will go on sale at $149, the 8-GB Zune will cost $199 and the 80-GB model will sell for $249. Those prices are the same as similar-sized iPods.

Analysts said the next-generation Zunes are necessary to keep existing users happy, though the new devices are not enough to close the gap on Apple.

"I don't see Microsoft gaining market share on Apple, but it may gain share against the other also-rans," said Van Baker, analyst at research firm Gartner, noting SanDisk Corp (SNDK) and Creative Technology Ltd (CREAF) may be vulnerable.

In the second quarter, Apple had 81.3 percent of the digital media player market by dollar volume, according to NPD Group. SanDisk was second at 5.8 percent while Microsoft had 4.4 percent.

"The market share thing is the easy thing to discuss and write about, but it's such a bad measure," said J Allard, a Microsoft corporate vice president in charge of the Zune business. "Talk to me in six or seven years about market share. Talk to me this year about the experience we are creating."

Microsoft's top brass plans to provide Zune with a three- to four-year window to gain the necessary scale and reach to become a legitimate rival to Apple. The company has also said it does not expect Zune to post a profit in the short term.

"We are very committed to this space. There is a lot we can do," Bill Gates, Microsoft's co-founder and chairman, told reporters at a briefing about the new Zune line-up.

Gates said ceding an early lead to rivals and closing the gap over time was a recurring theme in his company's history, whether it was productivity software or PC operating systems.

"We think the same kind of thing in terms of persistence and innovation can apply in this connected entertainment area," Gates said.

New Zunes will automatically import TV shows recorded to Microsoft's Windows Media Center, built into most new Windows Vista operating systems. Zune Marketplace, a digital music store, only sells music videos and offers video podcasts free.

Microsoft said it would add more than 1 million MP3 songs free of digital rights management onto Marketplace, declining to identify music labels it planned to work with on that.

The company completely redesigned software that runs on the Zune and linked PC to make it easier to navigate and search for new music. It also brought the player's design in-house, using contract manufacturer Flextronics International Ltd (FLEX) instead of Toshiba Corp (TOSBF), which made the first Zune.