Although there are many other topics I have plans to blog about, I can’t resist responding to the noise in the system about Microsoft.  And there has been a lot of recent noise about the future of Zune.  First rumors start that there will never be a follow-on to the Zune HD and then Microsoft issues a sort-of but actually very ambiguous denial.  So let’s do a little analysis here and see what I think the real answer is. 

With Apple’s iPod Touch, essentially an iPhone without a phone, taking over the high-end of the Personal Media Player (PMP) space that Microsoft has been competing in with the Zune HD, the speculation has been that a Zune HD replacement would look a lot like Windows Phone 7 without the phone.  I agree that makes a lot of sense.  After all, Microsoft has a great user experience with WP7, a large developer community, a rapidly growing application marketplace, and of course the Zune app already running on it.   And I actually believe Microsoft is going to do exactly this, have a Zune HD successor that is essentially a phoneless WP7 device.  They just won’t call it a Zune.  And it will be far more than a PMP.

Microsoft has essentially three consumer brands, Windows, Xbox, and Zune.  “Windows” is the brand for general purpose platforms that are targeted at running just about any application.  There are sub-brands to indicate optimizations of the platform for specific environments, but keep in mind that “Windows = General Purpose Platform”.  Zune is Microsoft’s brand name for media experiences.  XBox is Microsoft’s brand name for entertainment.  Now some will point out that XBox is really the brand name for a gaming console, or perhaps for anything TV-centric (aka, when Microsoft says 3 screens they generally mean to deliver the TV experiences via the XBox).  But lets dissect this a little further.

Despite being arguably the most successful gaming console, there is more watching of Netflix on XBox than there is playing games.  Meanwhile the most unique and successful aspect of Windows Phone 7 is the XBox Live gaming platform.  And Kinnect, currently only available as a peripheral for the XBox, has instantly become the iconic representative of the next generation of Natural User Interface (NUI).  XBox can even play Zune Media.  With XBox Microsoft has a brand name that is well-recognized, well-regarded, and associated with innovation and the best in home entertainment.  As you think through where XBox is and where it could be going there is a very visible gap.  Where is Microsoft’s portable gaming device?  And if they offer one, then how would it differ from the PSP and NDS?

So if you were Microsoft and you looked at your assets, your branding, and your competitive gaps what would you do?  I could go through the full argument (including that most iPod Touch owners seem to play games on them) but lets cut to the chase.  Microsoft doesn’t need to create a “Zune Touch”, it needs to create an “Xbox Portable”.  And it has all the assets to do so.  At its simplest this could just be a phoneless WP7 device, or Microsoft could enhance things with Kinnect-like capabilities and higher end processor and graphics.   Microsoft could build this device itself, or it could create a new WP7-style chassis definition and let anyone (Samsung, Dell, Nokia, HTC, etc.) make them.  In fact, one reason we might not have seen this device yet is that Microsoft is waiting on the so-called Mango release of WP7 to enable an “Xbox Portable Chassis” and perhaps other capabilities (e.g., native as opposed to just Managed Code apps, something game developers have been asking for).

Of course an XBox Portable would have a Zune client and play all the media (music, video) that WP7 can play.  So it would meet the needs for a Zune HD successor.  But whereas the Zune HD has no competitive advantage over the iPod, an XBox Portable would bring together everything needed to become the premier portable entertainment device.  Including the more respected XBox name.  Yes, names matter.  As a Zune the market will ignore it, as an XBox it could instantly be the top consumer product introduction of the year (whichever year they introduce it).  Even though it would be the identical product.

When you combine the fact that all Microsoft consumer products now offer the ability to consume media with the failure of the Zune PMPs to catch on it is unclear what the value of the Zune brand is.  It certainly is not something that makes sense to be a peer of Windows, XBox, or Office (Microsoft’s other big broad brand).  Zune is more of a service name than a top-level brand, and I think that’s what we’ll see the term relegated to.  It would be wise for Microsoft’s Interactive Entertainment Business (IEB) to adopt XBox as the top-level brand for all its direct consumer offerings.  And I predict they’ll do just that.