“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
DOWN WITH THE IPOD!! MOOOHAHAHAHAHA!!!!
This would also be the right strategy marketing Vista. If they would pay me (enough) I would try it for a week.
> Even Microsoft is not into losing THAT much cash.
Yes, they are–they have done it before–and the point is to make up the cash later AND make a profit in the end, which investors like. Smart or not, MS can and probably will use this tactic.
> I don’t care if you give the things away, it still has to frickin’ work.
No, it doesn’t. That’s why people fork over millions on Windows, and millions more keeping Windows running. The Microsoft name and monopoly are enough to make people blindly keep choosing products that do NOT frickin’ work.
Excerpt from Bill’s homepage:
“Software is providing power, but software has got to provide simplicity. And that’s why our investment levels are going up in the toughest problems: Security, privacy, speech recognition, video recognition – and all of those things we will fold into this platform. “
– Bill Gates, 2006.
Brilliant.
umm … has anybody heard of a $300 cell phone for $39–WITH 2-YEAR SUBSCRIPTION REQUIRED?
Microsoft’s “subscription” service business model is entirely different from Apple’s pay-per-song store: Apple makes the bulk of their money on the players, and gives consumers choice as to whether they buy songs from the iTunes store or not … Microsoft looks to make a bundle from subscription services, and what better way to lock somebody into one for several years than to entice them with a “discounted” player?
The point is that the overall business model has been PROVEN successful by the cellular service providers, it’s not illegal, and may even be successful in this case, too.
Microsoft couldn’t pay me to have a Zune.
YOU ALL ARE WRONG! There is no way this will happen. First off: the only viable plan that has worked is the Sony playstation plan and they make money off of the software titles at $50 each in the US. Apple barely makes a profit off its service. Napster is going out of business. Microsoft’s player is very uncool. For them to subsidize they would have to make money on their subscription service. To maintain the service they will have to have others on board–read content. If napster can’t do it then why would microsoft with it’s doesnt Play fer sure Zune player? It just makes no sense. Sony only made that model work by selling lots of expensive software over time. Zune will be a flop either way. There are just better alternatives that have already established themselves. Sorry microsoft but you are just too late and your player is sub-par even compared to other non-ipod players.
dj: “umm … has anybody heard of a $300 cell phone for $39–WITH 2-YEAR SUBSCRIPTION REQUIRED”
Um, yeah. Eight posts above you.
at 99 bucks… it could make a good source of 30 Gig Hard drives for some iPod carcasas I have around the shop.
then I could give the empty brown turd away as an alternate hockey puck.
Why not do the cellphone business plan? I am sure lots of people would go for it.
I LOVE competition!
Hmmm, I think dj has a plan.
Offer the Zune for $249 or such and give a free year of music. That way you pay the money out over the year and get lots of users.
If the zune would do mp3, which I think it does and also aac, then it would work with itunes, at least as a plug in download.
Either way, for $99, I might consider it as a super cheap iPod (have to be white or black though.)
” width=”19″ height=”19″ alt=”grin” style=”border:0;” /> And I think people will go for a years free music. At least a fair batch of them.
So, lets see if Microsoft has really wised up over the years or is still as clueless as ever.
” width=”19″ height=”19″ alt=”grin” style=”border:0;” /> Should make for an interesting Xmas either way.
N.
To echo “?what?”:
The idea that Microsoft would be willing to lose a bundle on players and try to make up the difference with the service is asinine. The Zune Marketplace would have to be the first music service other than iTMS to turn a profit. Not only that, it would have to turn a HUGE profit to offset losing $100+ on each player sale.
So you’re telling me that, even though EVERY music service other than iTMS can’t break even (and iTMS makes only a tiny profit), Microsoft thinks it can “clean up” selling music?
Ballmer is an idiot, but even he’s not THAT stupid.
If MS does that, they’ll have a lot of very unhappy shareholders on their hands. Remember when a company has to LOSE a lot of money on something, the shareholders will need some EXCELLENT explanation.
Zune…$99 might work.
Problem #1: Unlike cell phones, the subscription model currently is not required. However, Microsoft could offer a $150 rebate with a 2-year subscription or something like that.
Problem #2: What are the margins on a subscription service and the Zune? At some point a profit needs to be made a 2-years may not be enough time to become profitable. This would be the key.
Problem #3: How long would it take to “break” the Window DRM and avoid the subscription altogether.
Problem #4: I can see the shareholders screaming at this plan. Losing money on XBox, losing money on Zune, nobody’s buying Vista…could be an ugly 2007.
MOMMY: Junior wants an iPod for Xmas.
DADDY: Every store is sold out but I’ll keep looking.
MOMMY: How much is it?
DADDY: About $300
MOMMY: This Wal-Mart ad has a Zune for $99. Isn’t it the same thing?
DADDY: I’m not sure but for $99 it’s close enough. Plus, I bet they have them on hand.
MOMMY: At that price I want one too.
+++++++++
MANY gift purchasers aren’t educated and there’s no reason to expect they would or should be. Look-alikes make money.
Don’t assume the monthly cost will stop this. Lots of parents will decide that “done is good”
“Ballmer is an idiot, but even he’s not THAT stupid.”
So, Ballmer’s no slouch?
Judge Smails: You know, you should play with Dr. Beeper and myself. I mean, he’s been club champion for three years running and I’m no slouch myself.
Ty Webb: Don’t sell yourself short Judge, you’re a tremendous slouch.
Buy now Zune for $245
http://www.bidonusa.com/cgi-bin/auction/view?cmd=view&listingID=19970
There is an example of such a business model being very successful, but not so much to the original manufacturer as the distributors. That is the mobile phone market. The amortized total cost of production of a mobile phone from R&D through its short life to product retirement is higher than the price paid during the marketing period. The subscription model used by the Mobile Telcos locks in the users for a period that reimburses for the subsidy offered on sale.
It could work for M$, but only if they succeeded in getting some major distribution chains.
Of course that is all without factoring in the deserved success of Apples product range and dominance and the fact that M$ has NEVER BEEN COOL TO JOE AND MARY PUBLIC, only selected geeks and then only about specific features.
Cheers
“Look-alikes make money.”
Yeah, like the Olsen twins. (j/k)
Oooohh…. I REALLY like cfxJosh’s ideas… Unless, that is, MS locks you in with a subscription ala cell phone companies.
I don’t understand why so many of you are equating cellular carriers to music subscriptions. The cellular carriers owns the whole caboodle. They don’t have to pay royalties to “cellular publishers”. The music subscription companies have to pay royalties to the music labels. They themselves own nothing but the delivery system. If the subscription model is such a moneymaker, how come none of them are profitable? How come Napster is on the verge of shutting down?
MW=fire. I’m all fired up by the ignorance I read here.
I think it will come at 2 different price points like cellphones.
$299 for the player outright, with no contracts
or $99 for a player that requires a 1 year subscription or somthing like that.
after the 99 one goes on clearance for 75% off, since no one wants it, I might consider buying one, I can always use a spare mini-hard drive. 😀
I chuckle over these concepts…
As has been pointed out over and over and over again, most of the music on iPods, etc. comes from CDs–not online music stores. So the idea of giving away music players to sell music is a bit of a non-starter because people already have music.
In the case of the PlayStation, remember that people are buying games–they aren’t renting them from Sony. In the case of cell-phone companies, you are buying the service. A cell-phone without a service is kind of useless and a service without a cell-phone is kind of useless.
About the only way you could get away with a cell-phone type of deal is to sell the Zune, require the subscription, and don’t allow customers to place their own music on the Zune.
When you have deep pockets this is exactly what you come up with. Buying your way into a market is what Microsoft is good at. And you know what, it won’t work for me but for alot of people it will.
I knew this was coming from Micro$oft, I just knew it.