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Zune pricing may worry MS partners

updated 01:10 pm EDT, Fri September 29, 2006

Zune pricing, MS partners

Microsoft's recent announcement that it would price it's Zune portable media player at $250 to compete with Apple's video iPod will likely place increased competitive pressure on Microsoft's Windows Media partners, according to American Technology Research. The research firm believes Microsoft was caught off guard by Apple's aggressive video iPod pricing, and was forced to match the Cupertino-based company's pricing to remain competitive. "We believe Microsoft not pricing lower demonstrates Apple's under-appreciated supply chain strength where Microsoft will lose money," said American Technology Research senior analyst Shaw Wu. The analyst estimates Microsoft will take a loss of around $50 per Zune player vs. Apple's industry-leading iPod profitability.

"To us, the key question is whether Zune priced in-line with a video Pod will take share with its bulkier form factor, same Windows software currently available from 15-20 vendors, and inferior battery life," Wu said.

Zune will still likely see modest success due to Microsoft's vast resources, but will do so at the expense of its Windows "partners" such as Sony, Creative, iRiver, and others, according to the analyst.




by MacNN Staff

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Comments

  1. Ashari

    Joined: Dec 1969

    0

    Cool.

    Microsoft competes with its own partners, which then makes partners mad and they pull away from Microsoft. "PlaysForSure" becomes "PlaysSomewhereElse".

    Microsoft loses money on every sale of a Zune player. The more people that buy Zune players, the more money Microsoft loses. People rip their CDs and place them on Zune players, and Microsoft just sits there losing money.

    Sounds like a good time to be selling your MSFT shares.

  1. climacs

    Joined: Dec 1969

    0

    at the risk of stating

    the blatantly obvious...

    Zune is a turkey. People just don't like Microsoft products but they are forced to use Windows, they are forced to use Word.

    No one is forced to buy a Zune. It's a discretionary purchase. Plus iPod has that elusive 'cool' factor, the conspicuous consumption factor.

    Zune would have to look a lot better than an iPod, be less expensive, and do more in order to be worth buying.

    The wireless feature is crippled and really, even if it wasn't... so what?

    Microsoft is starting several laps back. The only way they could catch up is if Apple stood still and you can be sure they won't.

    By the way... those who posted in a previous Zune-related thread that M$ was going to bankrupt itself by selling Zune and XBox at a loss... get a grip. Microsoft has, what, $40 billion cash? More? Besides I would think that they probably have thought of that already.

  1. jpellino

    Joined: Dec 1969

    0

    they must be new here...

    ... working with microsoft. hard to imagine they can be studied partners with ms and now see the history of lie-in-wait-then-leap-into-a-nearly-mature-market.

  1. Zang

    Joined: Dec 1969

    0

    MS loss-leader bankruptcy

    The problem with MS losing money on the Zune and the Xbox, is that the more money they pump into these items, the more they lose.

    The XBox is almost 5 years old now, and it's done nothing but lose money for Microsoft. From an investor's standpoint, that's not very good. Market share is worthless if your product is unable to make a profit. The longer it goes on not-making-money, the harder it becomes for it to do so, and the less investor and developer confidence the product will have.

    Now, MS has decided to sink even more money into a new product that's doing the exact same: losing money. The problem is, unless the Zune becomes a huge success, it's unlikely MS will get the bulk discounts and distribution channels needed to actually produce a product on par with the iPod for the same price as the iPod.

    Profitability that depends entirely on obtaining a huge market share is like buying stuff on credit in hopes that you'll get a raise and a big bonus at christmas time. It's not guaranteed, and stupid to boot.

    Over the years, Microsoft has become far too obsessed with dominating markets where it has no foothold to begin with. If it doesn't stop losing money, its cash assets will dwindle away and it will need to start cannibalizing itself or die.

    MS needs to step back and say "we need to focus on our core" or be happy with a modest market share, rather than "Oh look, someone's making huge profits in this area, we must create a new division to crush them." There's a difference between hoping to gain market share like Apple does, and hoping to own a market as Microsoft does.

  1. bfalchuk

    Joined: Dec 1969

    0

    Yes and No

    Well, yes, MS needs to focus on its core, but no, losing money for a long time doesn't necessarily mean it's harder and harder to make it. You have no idea what MS's plan was for losing on the XBOX. It may be that they planned to lose through the third version of it while they establish themselves. And I'd be surprised if they're not ahead of recent projections given Sony's continued incompetence on PS3. XBOX 360 is doing pretty damn well considering the behemoth it went up against.

    I don't know what will come of Zune, but it certainly won't kill MS, even if it's a total flop. If they lose $50/unit, $1 BN on marketing, and $1 BN on development, which is most likely WAY more than they really spent on it since it was already developed by Toshiba as the Gigabeat, then they'd have to sell about 760 MM units to run out of cash. That still doesn't mean they'd go bankrupt since they have such amazing cash flow from their existing businesses like Office and Windows.

    I think the unit will sell, but won't really make a dent in Apple's sales, and, of course, Apple will continue to push the iPod envelope, and leverage their amazing supply chain. Let's not forget how no one could come close to Apple with the 1G nano since Apple paid like 50% of what others paid for 8 GB NAND flash memory.

  1. testudo

    Joined: Dec 1969

    0

    See

    This is why Apple doesn't want to license FairPlay. They then don't want to be accused of then being anti-competitive.

    Of course, Wu doesn't mention any benefits the Zune has, like the Wifi. (Why mention any plus). Sure, it might be pointless, but lots of iPod-heads have been calling for an ipod with wifi...

  1. t6hawk

    Joined: Dec 1969

    0

    re: see

    I don't consider wifi a plus. It is nothing but a drain on the battery. Personally I have no use for wireless on my ipod.

  1. jpellino

    Joined: Dec 1969

    0

    ipod quirks, + and -

    I've got an original 5GB iPod and an original 1GB shuffle, and there's a significant advantage to one of their legacy features - the iPod needs nothing more than a firewire cable, which you likely have if you have any FW accessories. The Shuffle plugs into any available USB port, with no cable. Honestly, with the amount of music I listen to they're both perfectly serviceable, and no more cables to haul around. Now, BT for syncing would be a big plus.

  1. ppayne

    Joined: Dec 1969

    0

    Gosh

    Glad I read this. They'll lose $50 per unit sold? That's ridiculous -- I'm selling my MSFT!

  1. aristotles

    Joined: Dec 1969

    0

    Battery life > Wifi

    Battery life is much more useful to the majority of users than crippled Wifi sharing that only works for three days at a time.

    WiFi and FM radio highlight the different approach Apple and its competitors take in this market. Apple offers feature that are feasible and have the widest appeal. The competitors however, focus on niche features which ultimately reduce usability and increase manufacturing costs for diminishing returns.

    Apple offered Video support once legal content was available online whereas the competitors relied on the ingenuity of the users to find content online and to encode it with third party software.

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