Q&A | Microsoft's Bach confident Zune will grow into big hit

Robbie Bach is an anomaly. He's a straitlaced former analyst in charge of Microsoft's grooviest new products, including the Xbox and the Zune.

Hipsters on the Zune team customize their Zunescreens with photos of concerts or snowboarding. Bach has a photo of his family dog, Charlie.

But as president of Microsoft's Entertainment and Devices Division, Bach has an inside perspective the business churning away beneath the gadgets and games.

During an interview Monday, he talked about the Zune and the business that supports it. Here's an edited transcript.

Q: There are a lot of skeptics about the Zune. Are they wrong?

A: If you go back to read the early days on Xbox, there were a lot of skeptics about that, too. Anytime you enter a new market like this and Microsoft does it, you're going to have some people who think, "Hey, this is going to be successful," and you have some people who are skeptical. That just kind of goes with the territory.

We think we've got a great concept and we've got a great product. Like the Xbox, we'll make progress over time and I think win a lot of people.

Q: Do you have to overcome the anti-Microsoft bias of the crowd that has iPods?

A: We certainly want to win those folks and others, but I don't think it's so much an anti-Microsoft thing. I think it is, "Hey, there's a new device." I've got to make sure it's something I'm going to be excited about. People are going to look at it and say, "Hmm, that's cool. I like this, I wonder about that," and then we continue to progress from there. Part of the idea of Zune is that it's a Zune device, it's not the Microsoft device.

Q: Similar to Xbox?

A: Very similar to Xbox

Q: It's almost like you're following the Xbox template.

A: Some methodologies are the same. There are a lot of differences. We have a lot of people with these questions: Why didn't you call it the X-something, X-music or something like that, stay in sync with the Xbox? The reality is the target demographic for this is very different – it's half women. Xbox is maybe 10, 15 percent of women, this is 50, 55 percent women. So we can follow some of the same methodologies, if you will, but the game plan isn't exactly the same.

Q: Tell me more about the demographic.

A: Well, when you think about music it's a much broader demographic out of the gate than videogames. Certainly our demographic for this age-wise is still the same – it'll skew a little bit younger rather than older, 18 to 35, 15 to 35. That's kind of the sweet spot for this, as it is for Xbox, but again more women.

It will get broader and more casual more quickly than videogames will, just because music is more broad. Music is universal in every langauge, every culture and every age and so the demographic ultimately is a big part of the population.

That's part of the reason why my view is we're getting into this early – Apple sold 40 million devices, but 40 million, when you look at the population, is actually a relatively small percentage.

Q: It seems like every major retailer is selling the Zune. How did you get that distribution?

A: We've got a lot of support at retail. This will be, in terms of storefront, the largest distributed product Microsoft's ever had, which is awesome. Part of that is because people think, "Hey this is a growing market, it's a place to get started."

Part of it is because we think we can have a better relationship with retailers than Apple can. Apple competes with the retail channel – roughly plus or minus half the iPods in the world are sold through an Apple store.

Q: It took them a while to sell through other retailers.

A: It did take them awhile. They would still, I'd say, probably bias their distribution toward their stores – new products, new allocations, all those kinds of things. So retailers look and say we'd like Microsoft to be successful, then we've got two guys in the marketplace competing, that's always better for the retailers.

Q: The same with the music industry?

A: Same with the music industry. They love having another company of our scale and scope committed to the space [to] come in and compete with Apple. We're going to get good traction with people because they want to help us be successful.

Q: You just reached a creative music licensing deal with Universal.

A: When you innovate in these spaces ,you want to innovate not just in one space but you want to innovate across the business model – so there's innovation in technology, there's innovation in content and we want innovation in the business model as well.

Q: Will you sell 5 million Zunes in the first year?

A: We're not actually talking about the amounts we're going to sell. The real thing I want to accomplish the next 12 months is I want people to look at the marketplace and say, "Wow, Apple and Microsoft are the guys that for the next three or four years are going to be battling it out in that space."

If we can get that kind of relevance and credibility – and certainly we're getting that from the early reviews and comments from people in the business community – we can build that relevance over time. We'll be in great shape over time.

Q: Similar to the way you became a contender with Sony in consoles?

A: It's not dissimilar. There are parallels. The general idea is get in the market with a really nice product, build credibility with the ecosystem and then grow from there.

Q: So what do you think of Sony's PlayStation3?

A: I think they're going to face some challenges. In the short term they're going to sell every unit they can produce and they're not going to produce a whole lot, but they're going to sell everything they're going to produce.

I think the challenge for them comes when you get into the spring, when a $600 price point in March doesn't feel so attractive. At Christmas time when there's not enough supply and you have to get a holiday gift, maybe you'll buy a PS3, maybe you'll by an Xbox, maybe you'll buy a Nintendo. In March, $600 is going to feel like an awful lot of money.

So they'll get out of the gate fine in terms of selling what they can produce and then I think they're going to have some interesting challenges.

Q: What about Sony's bet on Blu-ray [high-definition DVD] technology?

A: I think it's going to take some time for the market to shake out; it will probably be 2008 before we know. The other dynamic you see going on is the idea of being able to do this electronically.

You're going to see the content guys, I think, pursue all of those [distribution formats]. They're going to pursue today's DVD, they're going to produce some form of high-def DVD and they're going to pursue electronic distribution.

Five years from now I don't know what the ration between those will be, but it's going to take that period of time for this to really settle out.

Q: What about Xbox Live? The Live service seems like the glue between the Zune, Xbox and PC gaming.

A: That's right. You're going to have Xboxes, Zunes and some other things. How does that fit together from a branding perspective?

For me Live is the glue that ties this together at the brand, it's the glue that ties it together at the experience, and it's the glue that's going to tie it together with the customer. That's a tremendous asset for us, plays for our strangths, something we're going to continue to build on.

Q: What else will happen with Zune online?

A: We will be able over time to add new concepts to Zune online, particularly around community. That's where you'll see a lot of that happen. This form of entertainment should be as social or more social than any other form of entertainment. People are going to want to share their ideas. They're going to want to comment on music, they're going to want to blog about it so there a lot of opportunity — a lot of richness for us to expand there."

Q: So are you going to start a social networking service like MyZune.com?

A: People should be focused on this as a music player for the foreseeable future.

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com