Microsoft Questionably Entering Digital Music Biz

Microsoft (MSFT) bulls hoping that Windows Vista and a splash into the digital music industry with “Zune” branded mp3 players and music downloads will boost the company’s fortunes are set up for disappointment. Does anyone really think consumer electronic buffs are going to get excited to replace their iPod with a Zune player? Having a closed system architecture will make it even harder for Microsoft to take meaningful market share. And why are Ballmer and Co. targeting the overcrowded, low-margin digital download business?

The bigger potential boon to Microsoft’s financial results in 2007 relates to an upgrade cycle centered around Windows Vista. I can’t get too excited about the prospects for Vista either. I don’t know anyone who is running Windows XP today thinking “Man, I sure wish Microsoft would upgrade their operating system.” There just is no reason for most people to go out and buy a new system or even upgrade an existing one to Vista. All of our favorite computer tasks (email, web surfing, document management, digital music and photos, etc) work just fine on XP.

Microsoft stock is not expensive, and you will get some dividend payments here and there, but significant capital appreciation is pretty much unlikely. The company reminds me a lot of IBM, a tech giant that has been dead money for a long time, with no resurgence on the horizon.

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One Thought on “Microsoft Questionably Entering Digital Music Biz

  1. eROCK on July 26, 2006 at 8:32 AM said:

    Excellent point Chad. Even if Microsoft is ‘semi-successful’ in their Zune quest, it will have a relatively minor effect on Apples market dominance in that respect.

    In addition to that, how much could the Zune really change MSFT’s revenue and profits? Probably not much at all.

    Although, in the meantime, the stock might be pushed up and overvalued in anticipation for the Zune and Vista.

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