Microsoft introduced its second-generation Zune family this week, but its not Apple that needs to worry, analysts believe.
Analysts from Ovum and American Technology Research both believe the new Microsoft players are more likely to diminish market share among second-tier competitors in the digital media player market.
Microsoft has also failed to introduce much innovation into the sector, the analysts say, introducing players with limited facilities at prices that can't match Apple's iPods.
Jonathan Arber, senior analyst at Ovum, observes: “While Microsoft has done the right thing in expanding the device range into the high and low end of the market, there’s nothing particularly new or innovative here. Apple has beaten it to the punch with the iPod touch and new super-slim iPod nano, which we think are far more likely to find their way onto Christmas lists this year."
The analyst also states Microsoft to be missing a trick by refusing to ship Zunes into Europe.
"Comparisons with the iPod may seem unfair, and Microsoft would no doubt argue that we should consider the Zune on the basis of its own merits. However, the reality is that Apple seems to have the US and European digital music player market sewn up at present. We would welcome some strong competition to shake things up a bit, we’re just not sure that Zune is the player to do it," Arber said.
"It’s fair to say that the Zune’s performance to date has been underwhelming," he added.
American Technology Research analyst Shaw Wu is more critical, saying: "Microsoft is unable to undercut Apple due to Apple's world-class supply chain which gives it access to the lowest cost components, manufacturing, and distribution."
Rather than being a significant threat to Apple and the iPod, Wu warns that the Zune family offers more of a competitive threat to its own Windows Media partners, including SanDisk, Sony, Samsung, LG, Verizon, Toshiba, and Philips.
"To us, the personal media player space is divided into two camps-iPod and iTunes (the de facto industry standard) and everyone else," Wu wrote. "Microsoft still does not have answers to iPhone, iPod touch, and most importantly, the top-selling new "fat boy" iPod nano," he added.
He noted that while Zunes are available at similar prices to Apple's iPod range, Microsoft will need to sell its products at much lower prices "in order to stand a chance against Apple."
Wu rates Apple stock a "buy" with a $185 target price.