Technology;Software;Retailing;Entertainment;Consumer Electronics Zune: Equipped for Success Hoping to replicate the success of iPod accessory market, Belkin and other makers are releasing a flurry of add-ons for Microsoft's music player Technology Technology By Olga Kharif Microsoft isn't the only company working overtime in preparation for the launch of the Zune music player. A host of other makers of consumer-electronics accessories are furiously preparing for the debut of the would-be iPod rival.

On Nov. 6, Los Angeles-based accessories maker Belkin introduced four Zune products, ranging from an FM transmitter for cars, to cases whose belt clips can stand the player on a desk. The gizmos culminate weeks of work, including talks with Microsoft (MSFT), which will introduce the Zune on Nov. 14.

Belkin and its peers are taking their cues from the success of the market in accessories for Apple Computer's (AAPL) iPod, which by some estimates generates upward of $1 billion a year (see BusinessWeek.com, 7/19/06, "iPod Accessories Gone Wild").

Room for Zune No one expects the Zune to quickly overtake the iPod. Apple has sold some 68 million of the devices, generating some $14 billion in sales, in the five years since it was introduced (see BusinessWeek.com, 10/23/06, "The Apple iPod Turns Five"). The Zune is nevertheless expected to have a lot of takers.

Of about 1,700 consumers surveyed by consultants at ABI Research, 28% said they were extremely interested in buying a new MP3 player in the next year. Of those who already own iPods and other MP3 players, more than 50% said they would consider buying Zune. "Microsoft is a name everybody knows, whereas consumers might not know of [MP3 player makers such as] SanDisk (SNDK)," says ABI analyst Steve Wilson.

That could translate into hefty sales of Zune accessories. Wilson expects Microsoft to sell as many as 500,000 Zune players this holiday season. iPod buyers tend to spend 50% of the device's initial purchase price on accessories, says Richard Doherty, director of the consultancy The Envisioneering Group. If the same holds true for Zune, which will sell for $249.99, then accessories for the Microsoft device could generate some $62.5 million in sales early on.

On the Bandwagon And Microsoft isn't leaving all the add-ons to other companies. The software maker has listed more than 20 Zune-related accessories on newly created Zune.net, a Microsoft-managed site on everything Zune. About half are Microsoft's own creations, including everything from a dock to a travel pack, carrying price tags as high as $99.99. Besides Belkin, several dozen other iPod accessories makers have signed on. They include Altec Lansing and Monster Cable. Logitech (LOGI) and Klipsch Audio Technologies will be releasing their own Zune-related gadgets in the coming months. Australian speaker maker VAF Research, which before now hasn't offered MP3 player accessories, is also jumping on the Zune bandwagon. VAF has just unveiled Octavio 1, a speaker system with a Zune dock. "Until Microsoft shared their Zune philosophy with us, we weren't really interested in this market category," says VAF's founder, Philip Vafiadis.

What swayed Vafiadis? Zune's wireless capabilities. The first Zune version comes with wireless fidelity, or Wi-Fi, connectivity, letting the user beam a song to a friend's Zune device. That's just the beginning: Eventually, a Zune's Wi-Fi could allow users to download songs wirelessly at hotspots such as Starbucks (SBUX) and even make wireless calls (see BusinessWeek.com, 9/15/06, "Coming Zune: Microsoft's Music Player").

Wireless Appeal Accessories makers could use such features as an inspiration for gear that's not even available for iPods. An iPod needs a physical dock to connect to a speaker system, but gearmakers could devise a way for the Zune to tap into sound systems wirelessly. Gadget makers could even try to turn Zune into the home wireless networking hub, routing video and music around the home—to the stereo, TV, or Microsoft's Xbox gaming console. Such a hub might compete directly with products from Wi-Fi access point vendors such as Cisco (CSCO) and Netgear (NTGR), and let accessories makers tap into a new market.

Another basis for Zune-related products is the Web-related effort surrounding the device. Microsoft Zune Marketplace falls under management of J Allard, a vice-president of design and development, who oversaw the launch of the company's successful Xbox Live online gaming service. In some ways, the Zune marketplace will be similar to Apple's iTunes, letting users browse and download videos and songs.

But industry insiders speculate that Zune Marketplace could also offer some social-networking features reminiscent of Xbox Live, where gamers can play against one another, accumulate points, and chat. Just as Xbox Live promotes third-party games, the Zune site might promote third-party software and accessories. Microsoft wasn't available to comment on its plans. Smart Strategies Another draw for accessories makers is Microsoft's retail strategy. Zune and accessories should be available from 30,000 stores, including giants like Best Buy (BBY)—offering the broadest distribution of any Microsoft product. Microsoft will also install 15,000 interactive displays in partner stores.

While Microsoft hasn't announced its exact plans, industry insiders believe some retailers will create special Zune areas, akin to those established for iPods and their accessories. Online heavyweight Amazon.com (AMZN) has already posted photos of a number of Zune accessories. And dozens of sites, including ZuneScene.com and ZuneMax.com, are peddling their accessories. "Microsoft really has the power to make an impact on the market," says Andrea Lim, marketing manager at accessories maker Speck Products.

Other distinctive characteristics of Zune will give accessories makers a wide latitude in tailoring the gear. Zune features a larger 3-inch screen that can be watched in both landscape and portrait mode, so Belkin has developed special cases with stands that allows for viewing either way. Belkin's FM transmitter features a swivel not found among the company's iPod accessories. It also lets users watch video in landscape or portrait mode.

Accessory makers are also taking advantage of Zune's new color scheme: While Zune will come in already-popular black and white, a chocolate-colored version is giving rise to new color-coordinated accessories. Speck Products has come out with a brown case with the look of distressed leather. The case is designed to coordinate with brown belts, bags, and shoes.

Unpredictable Market These may only be a foretaste of unique Zune accessories to come. An artist in New Jersey has already created a pair of custom Zune-inspired sneakers. And ambitious Microsoft business development folks, one of whom blogs at Zuneguy.com, are considering selling Zune posters and T-shirts.

Of course, Zune add-ons will stand or fall depending on the success of the player itself. Accessory makers are also waiting to see which features users like and want before coming out with radically different products. "The market is very difficult to predict," says Gavin Downey, director of product management for mobility at Belkin. "The space is changing almost daily."

Still, what accessory makers have seen from Microsoft so far has been reassuring. "Apple has consciously developed an ecosystem around the iPod," says Jeff Holve, vice-president of product marketing at Logitech's audio division. "Microsoft is approaching Zune with exactly the same heart." http://www.businessweek.com/technology/content/nov2006/tc20061107_594565.htm