Why the next Zune must be a phone

The Zune has been a disaster for Microsoft. Has it challenged Apple's iPod? No. Is it a worldwide success? Again, no. Unless by 'worldwide' you mean the US and Canada. But even then, no.

In fact, the latest numbers from Redmond show that Zune actually lost money last quarter. Microsoft clawed in $16.6billion overall, but Zune revenue crashed 54 per cent, nose-diving from $185million to $85million.

We're not quite into Gizmondo territory – Zune is still alive and twitching. Microsoft has blamed the state of the economy and a lack of new Zune hardware for the $100million loss. New models are apparently planned for later this year.

But even Steve Ballmer can sense that the Zune's number is almost up. He "all but admitted that the Zune was history," said the FT last month. "As [Ballmer] pointed out, stand-alone media players are no longer a growth market. They're being superseded by mobiles with music, and by all-singing, all-dancing smartphones. And Microsoft, he insisted, was not about to come out with a Zune Phone."

What? No Zune phone?

But the next Zune must be a phone. Surely a Zune phone would tick all of a gadgeteer's lust-boxes? Imagine a (good) 3G mobile phone, music/video player, Wi-Fi Internet tablet, gaming platform and social networking tool with Windows compatibility, Xbox 360 integration and a drastically revamped UI.

And it would also need to beat Apple to the punch with some new technology – flexible OLED (well, in an ideal world), pico projection, dual-core mobile processors, Xbox 360 integration, voice recognition (that works) – and a Zune phone could easily be Microsoft's iPhone-killer.

But maybe we're looking at this the wrong way...

Instead of a Zune-branded smartphone, what about a mobile phone with some hastily transplanted Zune functionality? This looks far more likely and leaked shots of what looks like Windows Mobile 6.5 seem to show a media playback app with some definite Zuneyness to it.

If Microsoft does roll the Zune software into Windows Mobile, it will enable its partner manufacturers to create their own Zune phones in all but name. Problem solved.

Propping up Windows Mobile

Of course, Windows Mobile 6.5 is a halfway-house product. It hopes to improve the flow of the OS, which is often as usable and practical as a porcelain crash helmet - especially when you dig down into the deeper menus.

HTC has already had some success in hiding many of the ugly Windows menus behind its pretty TouchFLO 3D facade, while Sony Ericsson's Xperia X1 also pushes the Windows Mobile UI into the background in favour of a more intuitive 'panel interface'.

Expect to see a spotlight shone onto Windows Mobile 6.5 at the imminent Mobile World Congress (February 15-19). Its launch should mark the beginning of a 'Windows Mobile wave'. Not so much a dismissive hand gesture, but a series of mobile announcements that will culminate in the arrival of Windows Mobile 7 next year.

One of these announcements is likely to be SkyMarket, Microsoft's own version of Apple's App Store. A new Mobile Internet Explorer is also long overdue, especially as Mac OS X on the iPhone, Android and Palm's webOS can already provide a desktop-like browsing experience. Another service, dubbed SkyBox, will enable over-the-air data syncing on WinMo handsets.

Remember: there's 'Danger' ahead

However, there's also a good chance that Microsoft has abandoned the idea of Zune phone hardware to concentrate on developing a suite of connected services instead. There's the 2008 acquisition of Danger to consider too. Microsoft obviously bought the company for its software expertise, so are these the guys who are helping to build Windows Mobile 7?

Microsoft remains tight-lipped about what the Danger team is up to. We only have the old press release to go on: "combining Danger and Microsoft talents together in the Premium Mobile Experiences team is how we're going to deliver cool, new, fun mobile experiences to consumers. We want people to smile every time they look at their phone."

So here's a thought. Microsoft won't kill off the Zune. Its skilled tech-surgeons will mesh the Zune software and the Zune Marketplace into Windows Mobile to reinvigorate the Zune community.

Then Microsoft will throw Live Anywhere into the mix, unifying Xbox 360, Windows and Zune ID's and ushering in clever cross platform applications. It might even pursue a Smart Interface System, which will let WinMo phones tap into printers, networked storage devices and other peripherals.

The key to challenging Apple in the mobile space is building an ecosystem that people can tap into. As for the Zune... We should probably thank Microsoft for restricting its availability to the US and Canada. Otherwise we might have wasted our money on one.