Bloomberg is reporting that Microsoft will cease development of its family of Zune-branded music players due to weak demand and a desire to focus on its smartphone platform.

Zune will live on as a software and services platform, according to Bloomberg's source. Windows Phone 7 embeds the Zune player for media playback on the phone, uses the Zune Marketplace for online music sales, and the Zune PC software for media syncing and firmware updates. These uses will be unhindered by the cancellation of the standalone Zune hardware.

Since their introduction in 2006, the Zune players always played second fiddle—if that—to Apple's iPod line. The 2009 Zune HD model was a well-received, well-designed, and supremely elegant device, but it was a case of too little, too late. It was competing against Apple's iPod touch, with its enormous App Store advantage. Microsoft also did little to promote the Zune brand beyond US borders; the original models were also available in Canada, but until recently, the Zune HD was US-only. As a result, Microsoft failed to threaten Apple's dominance, leaving Cupertino to take 77 percent of the digital music player market last year.

Over the past couple of months, rumors have been swirling around that Zune would either be killed off or rebranded, and Microsoft has yet to officially confirm the hardware's demise. The apparent decision to cancel the standalone hardware may be the fact behind the rumors, or this could be the first step in a complete overhaul and rebranding of the platform, possibly codenamed "Ventura." The decision to end Zune hardware production also means that it's unlikely that Microsoft will ever mimic Apple and produce an iPod touch equivalent for Windows Phone 7—the phone platform without the phone part.