Microsoft unvieled
Zune yesterday. As pointed out in a recent
knowledge@wharton piece, this is looking like vertical product integration. Microsoft gets the device made by Toshiba and provides operating system software, digital rights management and content. With this kind of control over the ecosystem, Microsoft can guarantee that all the components would work and "play for sure." While most of this looks like Apply envy, the Wi-Fi capability may be a differentiator. Assuming that they are able to match Apple's content, the fact that users can legally share music with friends might help them build on the direct network effects concept -- the value of a product or service increases with the number of customers using it . This is akin to individual websites being changed to social networking sites like MySpace and FaceBook.