Microsoft to subsidize Zune $150-200 per unit?  30GB Zune for $99?

“Mike Evangelist, writer of the excellent blog Writer’s Block Live, had an interesting comment on my weekend article on Microsoft’s marketing strategy for its Zune music player,” Carl Howe, principal analyst, writes for Blackfriars’ Marketing.

…it occurs to me that there may be another answer that explains Microsoft’s odd behavior regarding the price and compatibility of the Zune. I think they are going to subsidize it…sell them for $99, or something like that. Buy their way into the market, then milk users for the rest of their lives as they buy/rent media.

Howe writes, “I think Mike may have hit on Microsoft’s plan.”

“With music subscriptions offering up visions of consumers playing $120 to $240 a year to Microsoft, subsidizing a Zune player by $150 or $200 might make a lot of sense to grab market share. While it would cost Microsoft something around $300-$400 million this year in subsidies and more next, such a strategy would have a chance of breaking Apple’s dominant position. However, history doesn’t favor a Microsoft win here, though; there are no examples of a company successfully building a sustained profitable business from such a subsidization strategy with one exception: the Sony Playstation 2,” Howe writes.

Howe writes, “So keep your eyes peeled for the possibility of $99 30-GByte Zunes. If Microsoft does that, Christmas music player sales could get very interesting.”

Full article including an online poll “What price do you think Zune will debut at?” here.
Paying people to buy Zunes is about the only chance for Microsoft, however slim it would be. And, still, Apple holds all the cards: at any time, if Zune gains meaningful traction, just license FairPlay to other device makers and/or online services to apply an instant death sentence to Zune.

Related articles:
Wal-Mart leaks Microsoft Zune price – September 18, 2006
Microsoft’s underwhelming Zune a ‘viral DRM’ device – September 18, 2006
SanDisk teams with RealNetworks against new common foe: Microsoft Zune – September 18, 2006
Creative does Apple’s dirty work by immediately attacking Microsoft’s Zune – September 17, 2006
Motley Fool’s Jayson: Microsoft’s ‘just plain ugly’ Zune a meager offering, not an iPod killer – September 15, 2006
What’s in a name? ‘Zune’ a French-Canadian euphemism for penis or vagina – September 15, 2006
Crave at CNET: ‘Microsoft Zune, all the excitement that brown can bring’ – September 15, 2006
Microsoft’s Zune underwhelms – September 15, 2006
Enderle: Microsoft Zune ‘a design mistake’ – September 15, 2006
Microsoft hypocrisy exposed with Zune: What ever happened to ‘choice?’ – September 14, 2006
Analyst: Microsoft Zune with fake scroll wheel ‘hardly an Apple iPod killer’ – September 14, 2006
Analyst: Microsoft Zune won’t spoil Apple’s biggest iPod Christmas ever – September 14, 2006
Microsoft unveils Zune 30GB player, Zune Marketplace; declines to disclose prices – September 14, 2006
Analyst: Microsoft’s Zune an ‘underwhelming’ repackaged Toshiba Gigabeat; no threat to Apple iPod – August 30, 2006
Microsoft confirms brick-like Zune to be made by Toshiba – August 25, 2006
Microsoft Zune is chunky brick made by Toshiba – August 25, 2006
Microsoft to spend hundreds of millions, several years on Zune trying to catch Apple iPod+iTunes – July 27, 2006
Zune: Apple cannot lose. Microsoft cannot win. – July 26, 2006

81 Comments

  1. Sadly, he is probably right. That is the only strategy that has ever worked for Microsoft. Arguably they ddid that even with windows by ignoring mass piracy to gain market dominance before requiring people to actually own the software.

    How else do you get people to chose an inferior product over a good one? I wonder if it will have a “blue screen”?

  2. My only comment is that poll didn’t have a choice for – “I don’t give a fetid pair of dingo’s kidneys how much the besotted Zune will sell for- I have no intention of even bothering to look at one.”

  3. I thought this was totally illegal.

    Did’nt Microshaft get sued years ago for do this very same business practice?

    Tbh – If Microsoft do this I wont be at all suprised, it’s the sort of tactic they will pull along with falsifying evidence in a High Court and insider trading.

    Microsoft are scum of the earth and one day their customers will wake up and realise this…

  4. If Microsoft does something that irresponsible, I’d go buy one for $99 just to make Microsoft lose $200 on me. Then I’d keep it in my closet for about 20 years and sell it (still sealed) on eBay as a “rare” novelty item and probably get my $99 back, with interest.

  5. Isn’t this illegal? Selling product at prices below cost is the same as “dumping” and I’m sure there’s a law against that. It would be terrible PR for Microsoft to prove that it can’t compete fairly and have to resort to this tactic. They have enough problems with the whole “monopoly” thing to jump into selling Zoonies for less than it costs to make them.

    Besides, who would want to have shares in a company that must resort to giving their product away? I imagine the stockholders would not be happy at the prospect of subsidizing an ugly MP3 player.

  6. Oh, come on. This is pure speculation pulled straight out of this guy’s ass. It is obvious that Microsoft were planning to match the iPod’s $299 price tag, then had to change their plans when Apple announced the $249 iPod.

  7. MS can afford to. And it would help them. And they always do the best thing for their pockets. So they WILL.

    And it WILL hurt the iPod, badly.

    Bit it won’t kill the iPod, iPod will still be number 2 and very successful. iPod will still be better, easier, cooler, and everyone will know it. They just won’t all be able to turn away from Microsoft’s cheap prices. For $99 many people will be OK with second best, bulky, and a pain to use.

    And it won’t hurt the Mac either, or the Halo effect: all those cheap people who buy the junk player will still KNOW the iPod is better, and they’ll still have Apple very much in their minds.

    And when MS finally backs out, the iPod is instantly #1 again.

    And MS has no allies in this. Don’t forget that however much studios and labels and services fear Apple’s power, they fear MS more. And MS’s hardware partners are already their enemies thanks to Zune.

    MS stands alone with one friend: a pile of cash. That will make a LOT of people choose a Zune that will be useless when MS cancels their service in 3 years. The rest of us will still enjoy many generations of new iPods.

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