#comments

I guess, I’ll just keep going on my little Microsoft kick, three is the magic number, right? Yes it is. It’s the magic number.

So anyway, I’ve been reading a lot about how Microsoft saw their Zune revenue decrease by 54%, $100 million. Big bucks, that’s a lot of whammies. People, reasonably, were suggesting that perhaps it was time to shutter the Zune division. I mean, sure it’d be reasonable but I think it’d be a mistake.

I strongly believe that a portable, personal computing device is the key to the future. You can see this in the strength of both the iPhone as well as the iPod touch sales. I don’t think that small form factor netbooks are going to last, they’ll be replaced by cheap ultralight full size netbooks and smartphones/connected PDAs. I think it would be a mistake for Microsoft to simply drop their toe hold in this nascent market (sure, maybe it’s a pinky toe hold, but it’s a known brand and more than that it’s one of Microsoft’s few brands that has a positive feeling behind it).

What’s puzzling to me is the absence of information on what the Danger guys have been doing after the acquisition. While I think the Sidekick is now legacy, at the time it had a novel and well received interface and was quite popular with consumers at a time where the mainstream wasn’t really into smartphones. Those guys were obviously on to something and I’ve been hoping that Microsoft would be doing something brand new combining some Zune hardware with Danger software. That’s what they need to do to stay competitive in this day and age, at least.

With their Zune market imploding now would be the perfect time to take some big risks and potentially reap some big rewards. There’s no entrenched revenue to defend (which tends to make companies cautious and slow moving, fearing change), if they’re thinking about closing the department it’s a bunch of revenue that they can afford to lose. So instead of that, why not make a bold move and launch something big and new and distinctly un-Microsoftian.

There’s a ton of upside to this. A popular consumer product could easily help change public perception of the entire company (hey it worked for Apple!) which they are currently struggling (unsuccessfully?) to do. Obviously, if you believe that portable computing is going to be important, having a real player in that arena (and WinMob is most certainly not going to be in it’s current incarnation) is going to be key.

The downside is that they have to pump more cash into a department that isn’t currently bringing in much. It’s not clear to me if the Zune guys are actually losing money or not. But whatever, Microsoft has more money than anyone else and this is an investment in their future. They said they were going to invest in 20 companies a year of something, what the hell? Just spin off the Zune and Danger guys, give them some cash and some autonomy and see if they can make something good. For how long did they lose money on the XBox? A long time and in my opinion this is far more vital to their future well being with a significantly larger potential audience than a gaming rig for hardcore gamers.

Microsoft needs to stop screwing around and get serious about this and soon. If even little Palm can revitalize themselves Microsoft should be able to. Do you think MSFT should shutter the Zune? Stay the course? Or try something drastic?