Microsoft is going to kill off the Zune. More specifically, the company is no longer going to sell Zune hardware (remaining devices will be sold but new ones will not be produced) and will instead focus on the software side of things, according to Bloomberg:

Microsoft Corp. (MSFT) will stop introducing new versions of the Zune music and video player because of tepid demand, letting the company shift its focus to other devices, according to a person familiar with the decision. Microsoft will concentrate on putting Zune software onto mobile phones, such as those running its Windows operating system, said the person, who declined to be identified because the decision hasn't been announced. Zune software lets customers buy songs and movies, as well as pay a monthly fee to stream unlimited music.

The Zune service already has a foothold on the Xbox 360 and on Windows Phone devices, and it's doing quite well there. It's not clear if the name "Zune" will be changed or not, but hopefully Microsoft doesn't have yet another rebrand under its sleeves.

The Zune software is quite good, and most users are quite happy with their Zune devices, but alas the sales are just not there: Microsoft entered the market way too late, at a time when Apple already had a monopoly with its iPod. If I may make the comparison, the Zune is to the iPod like the Macintosh is to the Windows PC.

This is one of those rumors that we're not too surprised about, but then again we've heard similar whispers before. Microsoft is a software company that has only has some success in selling hardware (PC peripherals and the Xbox franchise). Because Redmond has yet to announce anything along the lines of Zune hardware going out the door, however, we're going to keep this one neatly in the rumor box, for now.