A GameStop spokesperson told news media that the company decided to "exit the Zune category" because it did not have the anticipated appeal and "did not fit with our product mix."

Not 'A Natural Fit'

GameStop primarily sells video games, which is why David Card, an analyst with JupiterResearch, said he wasn't sure "it was a natural fit" anyway. But the chain has several hundred stores in the U.S. and many of its customers are fans of Microsoft's Xbox 360 video-game console, so the Zune could potentially have benefited from cross-marketing.

GameStop had been selling the device since October 2006, when it began taking preorders a month before Zune was launched. The retailer said it would sell its remaining Zune inventory online.

Forrester's James McQuivey agrees with Card. Since Zune is not a gaming platform, he said, "it's not a surprise that this attempt to distribute the Zune to its target audience would struggle."

He added that this doesn't necessarily sign the death certificate for the Zune. As long as it continues to hit its "conservative sales goals," he noted, "Microsoft will continue to look at the long-term benefits of having a competitor to the iPod in the market, even if that competitor only has single-digit market share."

About Two Million Sold

Microsoft didn't express much concern. On Friday, it released a statement noting it has a "strong presence" with such major retailers as Best Buy, Target, Wal-Mart and others. Adam Sohn, Zune's director of marketing, added that the Redmond, Wash.-based Microsoft will "continue to invest in retail partnerships" and online stores.

Since its release in November 2006, Microsoft has reported selling about two million of the devices, giving it an estimated four percent of the market for portable media players. By contrast, Apple's iPod sold 10.6 million in the last quarter alone. At this point, Card noted, it's still "iPod and everybody else."

In an effort to strength its market position, Microsoft has been trying to position Zune as not only a portable media entertainment device, but with social-networking features as well.

The company recently commissioned a study which found that more than half of consumers said they didn't have enough time or didn't know where to look to find new music. At the same time, nearly 90 percent said they would trust a recommendation by a friend or family member.

To take advantage of this need, and to distinguish it from the iPod, Microsoft added more functionality to the Zune online music community. For example, new updates allow Zune Cards, which have brief listings of users' favorite songs, to get updates on what their friends are listening to.