Credit: Microsoft

One of Microsoft's big bets when it decided to challenge Apple's iPod in 2006 was a feature known as Zune-to-Zune wireless sharing -- or "squirting," as Microsoft CEO Steve Ballmer dubbed it. People could use the built-in Wi-Fi to send a full song to another Zune device nearby, for as many as three playbacks.

It sounded interesting, in theory, but given the sales of Microsoft's music player, the big catch has always been that part about finding another Zune device nearby. With the launch of the new Zune HD on Tuesday, Microsoft finally is giving up on the Zune-to-Zune "proximity" sharing feature. Don't try to send a song to that attractive Zune HD user on the other side of the coffee shop, it ain't gonna work.

At the same time, Microsoft is promising to come out with Facebook and Twitter applications for the Zune HD by the end of the year, in addition to new games for the device. The company is not, however, launching a full, open third-party application marketplace for the Zune, contrary to speculation. That leaves the rival iPod touch with an advantage on that front.

Microsoft will create a limited number of apps itself or work closely with selected companies to bring apps to the device, said Zune marketing manager Brian Seitz. The move builds on a limited selection of games previously introduced for Zune.

Why no open application marketplace for the Zune? Seitz noted that the Windows Mobile group is already working on a mobile application marketplace. Even though Zune isn't currently taking advantage of that fact, he said, the company wants to avoid an overlap between the two development teams.

"We're trying to get out of the business of building similar things in the company that don't work together, and the Windows Mobile team is tackling the challenge of a mobile apps marketplace right now," Seitz said. "We don't necessarily line up perfectly with that, to take advantage of whatever ends up coming out of that from the Zune HD standpoint, but down the line if there's a way that we can plug into what they're doing, I'm sure we'll look into whether that makes sense for the business."

Until they reach that point, the Zune team "didn't want to basically just say, 'We got nothin' " in terms of apps, Seitz explained. That's why it's planning to offer the limited selection of apps, which will be available for free. Games will include versions of "Project Gotham Racing," "Audiosurf Tilt," and others.

The “squirting” feature has been replaced by the ability to email a link to a song or song clip from one Zune to another over the Internet, using the built-in Wi-Fi on the device. The link shows up in the "Social Inbox" on the other Zune, letting the recipient listen to the full song if they have a Zune Pass subscription, or directing them to the Zune Marketplace to hear a 30-second clip if they don’t (with the option to buy the song).

The previous "Zune-to-Zune" concept of sharing a song over the air with someone across the room probably won't be missed, at least not as it was implemented by Zune, said Matt Rosoff, an analyst at the Directions on Microsoft research firm.

"The original squirting feature was rendered almost useless by restrictions that were imposed at the behest of content owners, and were one of the main reasons the Zune got such a bad initial reception," Rosoff said via email. "As time went on, there were never enough Zunes in the wild to make this a strong selling point."

At the same time, Rosoff pointed to other Zune HD song-sharing scenarios that should prove more appealing to users, including the ability for Zune Pass subscribers to get full access to the libraries of their contacts who also subscribe to the $14.99-a-month music subscription service. Rosoff, who also blogs for CNet, offers more impressions in this post there.

New features in the Zune HD and the new Zune desktop software include a "Smart DJ" feature that builds intelligent playlists. Seitz described Smart DJ as "the best of Pandora and Genius combined," for its ability to build intelligent playlists of songs using and incorporating not only the user's personal library of songs but also tracks from the Zune Marketplace.

Zune will also be the movie and video provider for Microsoft's Xbox Live service coming this fall, reflecting the Zune team's expanding role as a digital media content provider across the company. Microsoft has said the Zune-branded service and software will span a number of its products.

Microsoft is pricing the Zune HD 16GB at $219.99 and 32GB at $289.99. Features of the device include a built-in HD radio, an OLED screen, and HD video output.

[Previously on TechFlash: Grand Tour of the Zune HD, with glimpses of Bing and browser.]