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Microsoft rethinks its Zune strategy

It looks as though Apple prematurely crashed Microsoft’s party when it announced that the newly improved 30GB HDD-based iPod would retail for $249. DailyTech touched on this issue in yesterday's article on Apple's plan to maximize its profits with the latest generation of iPod devices. Microsoft's Chris Stephensen seemed a little rattled by the $249 announcement:

I'm not sure what they think we're doing. It's certainly an interesting thing to do - to reduce the price of a good-selling product like that - that was selling well at $299. We'll take it as it is. It's an interesting move on their part, and it's an interesting opportunity in the market place.

BetaNews expounds upon that point with information that Microsoft was set to reveal pricing alongside the official Zune announcement this past Thursday. Apple's Tuesday announcement, however, put those plans on the back burner leaving the Redmond giant in an awkward position. From BetaNews:

Sources within Microsoft indicate that the company is taking a "we will not be undersold" approach in its pricing structure, and was likely to announce a price that was either the same or lower than that of a comparable iPod. Undercutting the iPod is a major goal of Microsoft's upcoming effort, say these sources.

The question now is will Microsoft try to undercut the 30GB iPod to gain marketshare in the portable audio arena or will Zune come out with a higher price tag and bank on its larger screen and wireless media sharing to woo customers. Microsoft is already seeing red when it comes to XBOX 360 hardware, so another money-losing venture might not sit too well with the top brass and shareholders.

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By msva124 on 9/19/2006 12:03:09 AM , Rating: 2
Who cares? It's not all about price. If people like the Zune, they'll buy it even if it's more than the iPod.

RE: subject
By tuteja1986 on 9/19/2006 12:15:56 AM , Rating: 2
Just include a non-usb recharger and i will buy the zune for $300 easy :). I would buy it anyways because of the wifi :) but not for $350.

RE: subject
By Scott66 on 9/19/2006 12:36:03 AM , Rating: 2
How much marketing will Microsoft need to spend to convince people they will like to own a zune?

RE: subject
By Ralph The Magician on 9/19/2006 4:34:03 AM , Rating: 5
No. It is about price, ESPECIALLY with the Zune. All things equal, if we assume that the products actually have a reasonable cross-price elasticity and people actually consider a Zune a decent alternative for an iPod, then having the Zune prices higher than the iPod absolutely kills it's chance of gaining market share for an estabilished market share leader. Futhermore, the Zunes main differentiating feature is it's WiFi capability, which is entirely dependent on market penetration.

That is, if the Zune costs the same as an iPod, it's unlikely that the Zune will be able to gain any substantial market-share unless it had some amazing new features. Given that, the WiFi is less attractive since few people will have Zunes.

If the Zune costs MORE than an iPod, it's main feature is essentially reduced to nothing more than a novelty, because no one has a Zune for you to connect to.

The main feature of the Zune is only a feature if enough people have them, and for enough people to purchase them their needs to be an initial reason to buy one. If that isn't price, what is it?

Say I'm an average person. I already have an iPod, maybe two. All my music is in iTunes. I can either buy another iPod and not have to change anything, but still get all the advantages of the new iPods (however modest they may or may not be) or I can buy a Zune for $50 more, start all over, see what portion of my music can transfer over to Windows Media Player and Urge, and maybe when the dust settles a year from now I'll be able to connect to other Zunes...

Yeah?!?! How about...No.

RE: subject
By Ralph The Magician on 9/19/06, Rating: 0
RE: subject
By kelmon on 9/19/2006 9:36:35 AM , Rating: 2
To be honest, it beats the heck out of me why the WiFi feature is even attractive since you can't use it to buy music or do anything useful apart from listen to tracks a couple of times from other Zune users. As noted, this feature is only attractive if enough people buy the Zune to begin with and are prepared to share - still no word on what this will do to your battery life.

Given that I have a reasonable iTS music collection and a Mac then I'm personally not about the change my life just for a WiFi-lite function. At the end of the day, the Zune is just another MP3 player without anything much to distinguish it from the others. It's entirely possible that Microsoft may have another success on their hands if Zune 2 offers real WiFi functionality or other functions not found on other players. In the meantime I'll stick to the iPod but will be glad that competition should keep Apple honest.

RE: subject
By othercents on 9/19/2006 10:39:34 AM , Rating: 1
Actually we do not know what functionality the wifi has or does not have. We have seen file sharing between devices, but we have not seen wireless updates or video streaming. Just because we haven't seen it doesn't mean that it won't be available. Basically I take the wait and see approach.

Wifi is not one of the reasons why I would buy a Zune over an iPod. The screen size, the menu (looks cooler than iPod), and the ability to customize the background. Screen size is the big thing since all I want it for is to watch videos. I have an MP3 player I use for music.


RE: subject
By Pirks on 9/19/2006 2:43:16 PM , Rating: 1
also I'd add that initial ipod model released several years ago was totally useless junk, it took apple several years to polish ipod into its current market king shape - I suppose that's the best MS could hope for. if zune is to become serious player, it'll take several iterations to mature, just like it happened with ipod and creative nomad jukebox. the first nomad jukebox was even more horrible than first ipod, but a year later creative released zen and life's a dream ever since ;-)

RE: subject
By feelingshorter on 9/20/2006 12:14:27 AM , Rating: 2
Imagine connecting your zune to your xbox 360 via wifi and listening to your music instead of game music while you play. Genius idea. Not only that, i'm sure microsoft WILL make it compatible with the ps3 also so these functions serve its purpose well.

RE: subject
By One43637 on 9/25/2006 5:22:43 PM , Rating: 2

by feelingshorter on September 20, 2006 at 12:14 AM

Imagine connecting your zune to your xbox 360 via wifi and listening to your music instead of game music while you play. Genius idea. Not only that, i'm sure microsoft WILL make it compatible with the ps3 also so these functions serve its purpose well.

actually that's one of the reasons i'm looking to get a Zune. hopefully you can use the wifi in that way.

there's an iPod untilty for the 360, but there's a usage restriction to go along with it.

RE: subject
By AlexWade on 9/19/2006 8:47:03 AM , Rating: 3
It is not about price for me. But I am in a vast minority.

I care about 2 things: whose DRM poison pill would I rather swollow and will you keep music at $0.99. I am scared that if Microsoft or a WMA player starts winning the portable audio wars that restrictions will get tighter and prices will go up, because Microsoft and big media are in cahoots. I will support Apple to the bitter end just have to have better, but still terriable, DRM restrictions and $0.99 downloads.

Remember, Apple vehemently resisted increasing the price of downloads. Microsoft will not resist any such efforts, guaranteed.

RE: subject
By psychobriggsy on 9/19/2006 10:39:37 AM , Rating: 2 (Charlie's one of the reasonably accurate and trustable authors on the inquirer).

That's how much Microsoft care about the content you purchase after you've paid for it, namely dumping the DRM format they created.

RE: subject
By JeffDM on 9/19/2006 2:59:00 PM , Rating: 2
Frankly, I'd just support the local used CD store. I've even bought several $0.99 full CDs from them that had tracks that I wanted. I don't necessarily get to pick which tracks to buy, but the CDs are usually cheap enough to make it worth buying the whole thing.

RE: subject
By MrDiSante on 9/20/06, Rating: 0
By cciesquare on 9/19/2006 12:36:24 AM , Rating: 4
this is some good news so far, Apple has reduced its price, which it rarely does in the face of competition. Microsoft in turn MIGHT reduce (more like force to) reduce its price.

This can lead to a nice price war and very very cheap mp3 players.

By Ringold on 9/19/2006 12:39:27 AM , Rating: 2
Beat me to it!

By Scabies on 9/19/2006 12:42:19 AM , Rating: 2
yeah! price wars!
But feature wars... I notice that they weren't like "we have more stuff to justify the $50 premium."
Maybe that's why they havent chewed wal-mart out for offering it at around $20 cheaper than MSRP

By Pirks on 9/19/06, Rating: -1
The Zune could compete
By ajfink on 9/19/2006 10:46:24 AM , Rating: 2
Anyone who thinks Zune has nothing to offer out of the gate isn't really thinking about the big picture. Most people DON'T have large collections of music from the iTunes Music Store, thus restricting them. I buy my music, but I do it in the fashion that is most unrestrictive of my rights to use the music as I want; DRM sucks in general. I could play my entire music collection on a Zune or an iPod, but if I were shopping between the two, I would go with a Zune. More features.

That, and iPods have become almost annoyingly ubiquitous on college campuses. Would be nice to add a little variety.

By jamelt on 9/19/2006 1:13:10 PM , Rating: 2
Looking at the Zune for me is a disappointment. I bought the Toshiba Gigabeat at 260.00. It holds 30GB of data and it comes with Portable Media Center, so I can watch all my TV shows, watch videos and view pictures. While also having music and a radio on it. Its has an extremely familiar interface like the Zune. It's basically a Zune with video, without WiFi, and come on who needs wifi on a portable music player if they're not surfing the net.

By Trisped on 9/19/2006 2:05:47 PM , Rating: 2
Microsoft is already seeing red when it comes to XBOX 360 hardware, so another money-losing venture might not sit too well with the top brass and shareholders.
Every console maker except Nintendo sees red when selling consoles. They figure that if they can sell one console then they will also be able to sell 2-3 games, which will make up for it. Then after that, any additional games are profit. Plus, prices on componets will drop. I wouldn't be supprised it they are now in the black on each console.

Zune already For sale here
By dunnybuoy on 9/22/2006 7:07:30 AM , Rating: 2
This site offers the new Zune player for sale already !

shut up ringold
By gco2101 on 9/25/2006 3:41:33 AM , Rating: 2
Ringold, I am so sick of you spouting your libertarianism and confusing your enthusiasm for it for an actual understanding of economic systems. What are you, 19 years old?

what hes really saying
By tacorly on 9/19/06, Rating: -1
RE: what hes really saying
By Ringold on 9/19/2006 12:38:41 AM , Rating: 1
I don't get why people would be upset with apple for living the capitalist ideal and optimizing profit. People should be PRAISING Apple for understanding that it and everyone else in the industry will benefit from competition down the road, versus what Microsoft would love, a monopoly or duopoly.

Anyway, I wont be buying either. I'll get me an ultra-cheap 1gb obscure brand (anything but Apple or MS), and take that saved money and.. well.. if I were noble, donate it to charity.. but that wouldn't be very capitalist of me..

By GhandiInstinct on 9/19/06, Rating: -1
RE: hehe
By RubberJohnny on 9/19/2006 2:48:13 AM , Rating: 2
What do you call the recent 50% drop in most of the AthlonX2 line? I'd say thats a price war with core2duo ;)

"The Space Elevator will be built about 50 years after everyone stops laughing" -- Sir Arthur C. Clarke
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