Margins, pricing pressures lead iPod vendors to Microsoft Zune?

“If you’ve been following news reports for the past two months, you’ve most certainly heard about Microsoft’s Zune – the company’s first self-badged portable media player and most recent “iPod killer.” And you probably also know that pundits have already declared Zune dead in the water, months before its official release. Besides chiding it as a weird-looking iPod wannabe, writers have questioned whether its wireless and video functionality will even work properly, then pointed to its lack of iPod-beating features, plus Microsoft’s apparent inability to match Apple’s online media store, marketing, or cool factor,” Jeremy Horwitz writes for iLounge.

Horwitz writes, “But there are two factors the pundits have ignored: iPod retailers and developers. Strained by pricing and other pressures from Apple, these two key partners in the iPod’s growth are offering Microsoft greater support than anyone might have imagined two or three years ago. And for that reason, Zune may have a better-than-expected chance at grabbing market share in the 2006 holiday season.”

“Why would a store try to push Sandisk players on people at a time when iPods are ultra-hot? Profits. Since Sandisk aggressively controls its costs by owning and licensing out the flash memory technology it uses, there’s a significant profit margin on Sansa players, which the company passes along to retailers. These stores would rather sell more units of high-margin players than more iPods, which despite their incredible popularity carry amazingly low retailer profit margins,” Horwitz writes.

Horowitz writes, “Microsoft has already approached retailers with promises of the marketing support, profit margins and accessories the stores have been hoping for. While we have heard rumblings that Apple may be attempting to mend strained relations with these retailers, it’s unclear which products – iPods or their competitors – will receive the lion’s share of attention from these stores by the end of the year. “

Much more in the full article here.
Interesting. Will Apple make one of the same mistakes that it made with the Mac in the not-so-distant past? (Ever wonder why retailers pushed WIndows boxes over Macs back in the late 90’s: the spiff was a major factor.)

33 Comments

  1. Yeah, margin on Apple products suck. BUT… sell an iPod, and you’ll likely more than make up for it in accessories. Speakers? Car adapter? iGuy? The margin on those is *incredible* and nobody – not even Zune – will have the variety of accessores the iPod has (not for a whiles anyway).

  2. This will be interesting to see how it plays out. But the iPod has so much of the public’s mind share that I find it hard that the Zune will make that much of an immediate impact. People want what they want and right now it’s an iPod regardless of what retailers are pushing. Furthermore, I don’t see how developers really fit into the equation, it’s a portable music device for crying out loud not an operating system.

  3. I heard Microsoft was going to make the Zune really cool.

    In spite of the rumours that the video feature wouldn’t be working in the first release, MS is going to ship each Zune pre-loaded with the Monkey Boy video to show everyone how cool Steve Ballmer can be!

    <embed style=”width:400px; height:326px;” id=”VideoPlayback” type=”application/x-shockwave-flash” src=”http://video.google.com/googleplayer.swf?docId=1274983729713522403&hl=en”> </embed>

  4. Okay, I’ll play this little game..

    Lets say retailers pick up the ZUNE and try to sell it to consumers knowing they have a higher profit margin. Say a store has 200 iPods and 100 Zune.

    Lets say they sell 160 of the iPods and 20 of the Zune.

    Now they have 40 iPods they may later have to mark down, but 80 of the Zune. They sell accessories for the iPods and such, so they make profit on the iPods through the accessories but eat their shirt with the Zune because it doesn’t sell.

    The store makes money from Apple, while losing money from Microsoft. If a product takes up space on the shelf, and doesn’t move off it, it costs the store money. Dead weight is bad for retail business.

    Moral: Profit margins aren’t everything. Selling the product is.

  5. When articles come out asking “Will Apple make that same mistake . . . “, doesn’t MDN usually blast the authors and point out that this is not like the computer industry? Now MDN is asking the same thing. WUWT??

  6. As someone who hs been in the electronics (both retail consumer and pro side) since the early 90’s: unlike then, when the dominant “big box” retailer of PC products, “Worst Buy” had commisioned (i.e. spiffed) salespeople, that is NOT the case today.

    Even in a commisioned sales enviroment, the LAST thing you want is a lousy product, or one with an “instant me-too” kind of feel. And as someone who sells hundreds of digital cameras and camcorders (one at at a time, usually) per year, you DEFINITELY do NOT want “software/hardware” conflicts that suck up your time (while other people go unassisted or worse).

  7. If margins are so low for the 3rd party vendors then why are automakers like Ford, Chrysler, and a like all joining in on the iPod craze. I don’t think Apple is taking that much and there seems to be a new product from somewhere just about everyday. Just more FUD to make us believe that Microsoft’s zune has a chance when it really won’t because it will be the same old thing like all the rest of them.

  8. “These stores would rather sell more units of high-margin players than more iPods”

    Duh… This is one of the dumbest things I’ve ever heard. Hmmm… here’s my business plan: I’ll sell Cheap Crap at a high price and the public will buy it because that’s what I really want them to do. Good Luck with that.

    If you want to stay in business, you have to sell what people want to buy. Right now (and for the forseeable future) they want iPods. Deal with it. If I see an “MP3 players” section of a store with no iPod gear, I move along (usually to the adjoining “iPod accessories” section hehe).

    I fall more and more in love with my video iPod every day. I can’t wait until my next car purchase when I can get a video system and just click in my video iPod and let the kids have their own mobile theater with dozens of movies at their fingertips. no messing with dvds, etc.

    Would I ever buy a Zune? Never in a million years. I’m a picky son @f a b!tch and would never buy ANYTHING with a name like Zune. it just sounds so stupid.

  9. I have to say that I’m with “WindozeKiller” on this one. If stores add Zune to their portable player lineup it will be interesting for them and us [consumers], but if they replace iPods with Zunes retailers are going to be eating Zunes for CMas dinner, as well as the rest of the holidays for 2007.

    No retailer is going to do anything that stupid.

  10. I’m going to make a radical suggestion here, but why don’t we wait till Zune is released and we know for real what its shortcomings are instead of writing a load of comments based on a fscking press release.

    Zune will sell if it’s easy to use in the hand and the desktop software is up to scratch. If it isn’t, it won’t. And before anyone mentions the success of Windows, this isn’t the PC industry, it’s the CE industry and nobody ever made a fortune by building CE products that weren’t easy to use.

    I know we have prejudices and – in this case – they may be well founded, but I’d like to see the shipping product before I start opening up a can of whoop-ass.

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