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.