Microsoft Issues Significant Zune Software Update

With no warning whatsoever, Microsoft on Tuesday released a major update to its Zune 2 platform, providing new versions of its PC-based software, device-based firmware, online music and video store, and social networking service. The update addresses a few of the major issues with the digital media platform and adds a feature iPod and iTunes users have enjoyed for years: The ability to purchase TV shows.

The addition of a very limited selection of TV shows to the Zune--less than 40 series, compared to several hundred on iTunes--is somewhat a coup for Microsoft, as one of the networks involved, NBC, is boycotting Apple's service over pricing issues. That said, NBC is offering only three series on the Zune---"30 Rock," "Heroes," and "The Office"--and the pricing is identical to what Apple was offering on iTunes, about $1.99 per episode. (Microsoft also promised a "different model" for TV show offerings when it announced the Zune platform last October, but the company is simply duplicating the standard pay-per-episode format used by other services.)

On the functional side, Zune's PC software has been updated to support smart playlists, a feature that was notably missing when Zune 2 launched last year. (The original Zune software supported smart playlists.) All added are new sorting options, device sync improvements, and integrating with Windows Live Messenger. On the social networking side, the Zune Social service and its "Zune Card" functionality has finally been integrated into the Zune PC software and device software. Previously, you could access this functionality only from the Web.

Given that this is the first time Microsoft has updated its Zune 2 software in any meaningful way, it's unclear when we'll see another update. Too, the Zune team is notoriously quiet about its plans and doesn't appear to be interested in pre-briefing the press. However, given that this update is internally referred to as the Spring 2008 Update, one might expect that the Zune team will once again descend into silence for another six months. By that time, of course, Microsoft might simply launch Zune 3.

To date, the Zune has sold poorly. After selling one million units between November 2006 and June 2007, Microsoft announced this week that it has now sold "just north of" two million units overal. So the company's latest generation of devices managed to sell barely above the rate as the previous generation, despite numerous improvements. That's enough to give Microsoft third place tie in the MP3 market with Creative, with about 3 percent share. But it's far below market leader Apple, which sold almost 11 million iPods in just the first quarter of 2008. SanDisk is the number two player in this market overall.