Microsoft rigs Zune with tricky pricing and proprietary money schemes

“Largely unnoticed in the [Microsoft 30GB Zune for US$249.99, 99-cents more than a 30GB Apple iPod] pricing announcement last week was this little tidbit about how consumers might pay for Zune music. CNET had a pretty decent description in their article, where they accurately noted that Microsoft’s real play is to get people to buy subscriptions for $14.99 a month. But if pressed, they’ll generously allow people to buy individual songs,” Carl Howe writes for Blackfriars’ Marketing. “But you can forget one-click buying; Microsoft has a cuter idea:”

There will also be the option of purchasing individual songs through a system called Microsoft Points. The new Microsoft cash system will work by adding money to an account, as with a prepaid phone card. Points will then be deducted from the account with each purchase. A single song will cost 79 points, “the equivalent of 99 cents,” according to Microsoft spokeswoman Kyrsa Dixon.

The point system is already used in the Xbox Live Marketplace, and Microsoft plans to host other online stores where Microsoft points can be redeemed, according to Katy Gentes, product marketing manager for Zune. In the United States, points are available in denominations of $5 for 400 points, $15 for 1,200, $25 for 2,000 and $50 for 4,000. That makes $1 worth about 80 points.

Howe writes, “Now from a marketing point of view, there are two marketing tricks going on here. First, is the concept of not having 100 points equal a dollar. That would be too simple and easy to understand. Instead, Microsoft sets the song price to 79 points, which most people will perceive as being inexpensive because it is less than 99. Yet, if you do the math, it’s actually slightly more than $0.99. Cute, very cute.”

Howe writes, “The second marketing trick is the use of a new form of currency; yes, Microsoft money has finally arrived, and it has all the charm of an end user licensing agreement — and just as many tricky parts. Note the denominations offered above and think about this common transaction: buying your average, garden-variety album for $9.99. You’ll need probably 799 points to buy that. But notice that there’s no 800 point denomination. Microsoft is betting that most consumers won’t buy two 400 point packs, but will instead opt for purchasing 1,200 points for $15, and will leave the extra 400 points on account with Microsoft. So consumers end up either 1) doing extra work to pay exactly the right amount (i.e., going to the store, purchasing two 400 point packs, returning to the music purchase and then buying their album), or 2) provide an interest free loan to a company that has $40 billion in the bank. Cute, too cute by half.”

Howe writes, “If the company spent half as much effort investing in, say, making a truly elegant hardware device (instead of just re-badging someone else’s) and making the user experience simple and hassle-free with one-click credit card payment (it worked for Amazon, didn’t it?), they’d probably make more money in the end than pinching pennies with tricky pricing and proprietary money schemes.”

Full article here.

MacDailyNews Take: This Zune thing is so bad, and keeps getting worse, it’s almost as if Microsoft wants it to fail. Is there any benefit at all to Microsoft if Zune fails? Some tax benefit or something? Or are they just really that incompetent? The world “chose” Microsoft’s Windows because they didn’t know any better, they thought a computer was a computer, people that had no idea what they were talking about told all their friends to buy a Wintel PC, and people wanted a computer for as cheap as possible. Windows is a mistake that snowballed. We’ll be correcting that mistake for a long, long time.

But, people are more technically savvy today. Note that iPod dominates and it isn’t the least expensive, it just works the best and people know it. Ditto for the Mac slowly beginning to take market share from Windows again. People aren’t as easily fooled with tech nowadays. Either Microsoft wants Zune to flop for some reason or they actually believe their own press clippings and think they can fool the world again, which just isn’t going to happen.

Related articles:
Why Microsoft’s Zune won’t kill Apple’s iPod – October 03, 2006
10 Apple iPod vs. Microsoft Zune myths – October 02, 2006
Analyst: Zune could lead to ‘civil war’ between Microsoft and Windows Media partners – September 29, 2006
Thurrott on Microsoft’s Zune: ‘The makings of a disaster, what the heck are these people thinking?’ – September 29, 2006
Analyst: Microsoft Zune’s as good as dead on arrival – September 28, 2006
Microsoft sets 30GB Zune price at $249.99 – September 28, 2006
How Microsoft’s Zune can kill Apple’s iPod – September 21, 2006
Microsoft’s Zune insanity – September 21, 2006
The Microsoft Zune 1.0 dud – September 20, 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

Computerworld review: ‘Apple’s new iPods are better than ever’ – September 27, 2006
PC Magazine’s 19th Annual Readers’ Choice Awards for MP3 players: Apple iPod line – September 25, 2006
USA Today reviews new Apple iPod nanos, updated iPods, iTunes 7 (each earns 4 stars out of 4) – September 21, 2006
Time Magazine’s Gadget of the Week: Apple iPod 80GB – September 21, 2006
CNET Editor’s Choice: Apple fifth-gen updated iPod – ‘best, most attractive iPod to date’ – September 20, 2006
Disney’s remarkable 1st week iTunes movies sales should have studios clambering aboard Apple train – September 20, 2006
Disney sells 125,000 movie downloads via Apple’s iTunes Store in first week – September 19, 2006
PC Magazine review: iTunes 7 ‘Apple’s best effort yet’ (4 stars out of 5) – September 15, 2006
CNET Editor’s Pick: Apple’s new 2G iPod nano – ‘sure to be top choice among wide range of users’ – September 14, 2006
Apple debuts new iPod in 30GB and 80GB with Hollywood movies, games and new lower price – September 12, 2006
Apple intros new iPod nano with new aluminum design in five colors and 24-hour battery life – September 12, 2006
Apple unveils new iPod shuffle: world’s smallest digital music player – September 12, 2006
Apple debuts iTunes 7 – September 12, 2006


  1. There probably isn’t an easy way to redeem your points for cash either. Because of that, MSFT can articially overstate music sales because they’ve received payment, just haven’t delivered as yet. MSFT used to do something similar with sales of Windows and Office. They would sometimes show the revenue when the order was taken, although not shipped. They would bounce back and forth in their practice of accounting for revenue, that resulted in flattening wild swings in earnings, showing steady growth from quarter to quarter.

  2. My favorite part is where they explain$5 for 400 points, $15 for 1,200, $25 for 2,000… as though there was some sort of discount as you got higher. Why not just say that it’s 5 bucks for 400 points and let those 3 guys that decide to buy in to the program do the math to determine that they could get 2k points for $25?!?!?!

  3. And as for subscriptions, I can listen to my Sirius satellite radio in my car (I can also listen to my iPod there) and on my computer for $2/month less than what Microsoft is offering (without the news Howard Stern, and NFL), and thanks to Audio Hijack I can save any of the songs I hear DRM-free.

  4. Microsoft is banking on getting users who like subscriptions, and then those users will also purchase songs, thus spending more than iTunes users. Plus, no one will understand the points per dollar pricing structure, and will spend more money, some of which will never get used due to the pricing schemes (yes, scheme), and thus MS will bank a lot of moolah.

  5. With a point system Microsoft benefits several ways… plenty of people will confuse points with cents, thinking they’re paying 79 cents for a song, instead of 99 cents.

    And later, it will be much easier for Microsoft to do the music industry’s bidding and raise the price to 89 points and then 99 points for a song. People won’t realise they’re paying closer to $1.25 per song.

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