Microsoft's Zune finally shipped, and everyone agrees: it's nice but definitely no 'iPod killer'. But it could be. And should be. I'll tell you how in a minute.

In my column 'Why Microsoft's Zune scares Apple to the core', I argued that, unlike Apple's overconfident iPod fans, Apple itself is taking Zune very seriously. In that column, I listed Zune attributes and Microsoft capabilities that could hit Apple where it counts - profit margin and market share. I never argued that Zune would be better than the iPod, or even that Zune would succeed. My sole point was that Apple is taking the Zune seriously as a threat to its profitable and dominant iPod line and has good reason to do so.

Now that the Zune is out, the reviews are in. And they're not pretty. Here's what's wrong with Zune:

- Hardware issues. Users and reviewers are discovering that the Zune is a little too bulky and heavy. As Palm discovered long ago, a large device can feel smaller if the designers round off the edges. Microsoft ignores this lesson of gadget history, with its boxy, blocky design.

- Zune's fake click wheel is really just a cheap plastic rocker switch and serves only to remind users of how cool the iPod click wheel is.

- WiFi is nice, but you can't connect to anything but another Zune.

- Compatibility issues. Zune will not work even with the vast majority of Microsoft's own operating systems - forget about Mac, Linux, Unix or any other operating system. At the moment, Zune works only with Windows XP. Microsoft promises full support of Vista by January.

- Zune doesn't support PlaysForSure, Microsoft's own certification standard for music files, and it is incompatible with common media formats such as DivX, OGG, protected WMV and WMA-DRM9. It plays movies, but you can't buy them from the Zune Marketplace yet. And Zune isn't ready for podcasting. You can't, for example, use Marketplace to subscribe to podcasts via RSS and have them automatically show up and sync. Marketplace at deadline had no podcasting section.

- Usability issues. The Zune software installation process needs a lot of work. Like Xbox Live and many other Microsoft consumer media products, the out-of-box experience is ruined by endless screens demanding personal information and Windows Live ID membership. And the whole Microsoft Points thing represents more needless harassment. Why can't I buy a music player without being dragged into a Windows Live membership and forced to use Microsoft's weird Monopoly money?

- Software installation is problematic for some. Others report crashes of the Marketplace application.

- Some features are too hard to find and not well designed. While playing music, for example, it's too hard to get to the equaliser to adjust sound quality.

- Zune stops playing current music during WiFi, peer-to-peer music transfer, so you sit there in silence while waiting for the download.

This hefty list of problems shouldn't motivate anyone to write off Zune as a loser. All these problems can be corrected, and it's reasonable to expect that Microsoft will quickly fix many of them. Also, remember that Zune is a 1.0 release. Microsoft is in it for the long haul. It's only a question of which flaws Microsoft will choose to fix, and how long it will take to fix them.

But correcting every single issue on this list wouldn't turn the Zune into an 'iPod killer'. To do that, Microsoft needs a fundamental change of direction.

How to kill the iPod

The iPod is beautiful, sleek and simple. Microsoft will never sell a media player that is more elegant than the iPod. That's just not going to happen, given the DNA of each company. What isn't inconceivable, however, is that Microsoft could create a Zune that's more desirable than the iPod. After all, the Mac is more elegant than Windows, but most people prefer Windows. And that's how Microsoft can kill the iPod: make the Zune more like a Windows PC.

Let me say that in another way: the Zune can succeed not by copying the iPod, but by becoming the 'anti-iPod'.

The iPod's warm-and-fuzzy qualities are well known. But all that simplicity comes at a price: Apple's closed, our-way-or-the-highway approach to locking everything down stifles innovation and customisation.

Some of the biggest iPod fans go to great lengths to overcome Apple's controls and modify their iPods. Look at iPod Hacks, a site devoted to voiding iPod's warranty and bypassing Apple's strict gadget lockdown. Many of the hacks involve the installation of Linux with a special iPod interface called Podzilla. Once installed, people can write or download software for playing unsupported media files, customising the interface and installing special applications that do all kinds of things the iPod was never intended to do. You can play iDoom, an iPod-specific version of the first-person shooter classic, Doom; turn the iPod into a universal TV remote control; add a word processor; and even use the iPod as a security "key" for locking and unlocking Macs.

This is what people do, even when Apple bans it. Imagine what would be possible if Microsoft encouraged modification of the Zune.

Let people transform the Zune into an Xbox game controller, a TV remote control, a portable presentation device, a wireless PC hard drive or a Vista gadget emulator. Give me a wireless keyboard and a Zune version of Pocket Outlook, and I'll never buy another iPod. Build ClearType into Zune and make it the ultimate eBook reader (and sell eBooks on Zune Marketplace).

Microsoft CEO Steve Ballmer told Bloomberg earlier this month that a Zune phone is in the works. Assuming this FUD turns to fact, competition between Microsoft and Apple in the mobile phone business changes the dynamics of the Zune-iPod battle entirely. Microsoft has long experience in this market, and has had some success. For example, there are four times as many Windows-based phones in the world as there are BlackBerries.

I'll reserve judgment on any Zune phone. But I do urge Microsoft to compete with the coming iPhone (the iPod-like phone coming soon from Apple) with a real killer application: VoIP software that uses Zune's Wi-Fi option to make free or cheap phone calls over the internet. Imagine downloading free software that transforms your future Zune (complete with microphone) into a phone that does not require signing up with - or ever paying - a network operator.

Microsoft can do all this by creating a free development environment and other tools that facilitate the creation of new Zune options. (The right way to do this would be to go open source, but that's probably asking too much.)

This approach would leverage all Microsoft's strengths:

- Operating system expertise
- Development tools and programmer outreach
- Experience with fostering the broadest possible ecosystem for software development
- Extensible embedded operating system and mobile phone operating system support and development
- Peripheral hardware and third-party software partnerships
- Strong channel relationships

History shows that the functionality of stand-alone gadgets always gets folded into multipurpose devices. Apple's instinct to maximise elegance at the expense of extensibility made them number one in the media player market, but the future belongs to customisable, multifunction players.

Apple's instinct is Microsoft's opportunity - to leapfrog Apple and usher in the next-generation media player that anyone can upgrade, customise and extend.

Microsoft will never beat Apple at its own game. But the reverse is also true: Apple can't win at the Microsoft game. If Microsoft turns Zune into a media-optimised, extensible mini-PC that really works, the iPod is as good as dead.

Mike Elgan is a technology writer and former editor of Windows Magazine. He can be reached at [email protected] or his blog: