Zune Thoughts: Microsoft Cutting $500 Million From Budget; Is Zune on the Chopping Block?

"The latest models of Microsoft's digital music player are very nice, and the software's getting better. But the MP3 player market is fading, judging from Apple's latest earnings report. It said iPod sales fell 1 percent last quarter, and that was before the financial crisis. Meanwhile, the Zune still is fighting for a toehold. The growth now is in mobile devices that function as music players, phones and browsers. And to match the latest iPods, Zune needs costly upgrades: touch screens and a developer program. My guess is there won't be another generation of Zune hardware after the holidays; Zune software and Web services will be folded into other Microsoft offerings."

This is definitely not the first, or last, of the rampant speculation we'll see from journalists as they try to be the first to predict what Microsoft is going to cut (or cut back on) in order to trim the $400 to $500 million dollars from their budget as they said they would. Will the Zune get axed? I doubt it - Microsoft knows that there's money to be made in the MP3 player space, especially if those devices strengthen the eventual weakening of the Windows ecosystem as more and more of what we do on computers gets pushed up into the cloud. Devices matter, and the Zune is part of a larger overall ecosystem that's important to Microsoft.