Microsoft’s Ballmer: Zune device not money loser, wishes Apple’s 30GB iPod was $299 instead of $249

Microsoft CEO Steve Ballmer chats with BusinessWeek editors about Web 2.0’s sky-high valuations and the new competition the company faces.

Some questions and answers involved Apple:
BW: Who are Microsoft’s top competitors?
Ballmer: Guys who can touch us in multiple places probably matter more than guys who can touch us in any one place. And actually we don’t really have our big competition from any one company. Any one company, we know how to compete with… there are cases where software gets monetized through hardware. That’s what an iPod is. iPod is a software thing. You just happen to collect the money on the hardware.

BW: Does Zune fit into the hardware piece of this?
Ballmer: Sure it does. Because the value of Zune, if we’re successful, is all in the software. It’s in community [the ability to share music and pictures with other Zune users]. I want to squirt you a picture of my kids. You want to squirt me back a video of your vacation. That’s a software experience. The truth is, though, if it makes money, it will be built into the gross margin on the hardware. We’ll figure out how to make money on the community perhaps later though advertising or other means.

BW: How much money will you lose per Zune?
Ballmer: None. Apple put the hammer down there, dropped the price down to $249. If they had been $299, it would have been nicer. They have the advantage of scale. So we’re at $249, too. We don’t make a lot of money, not to start out.

Full article here.
Chunky Zunes can squirt brown, er.. brown Zunes can squirt chunks? What’s chunky and brown and squirts, again? Each Zune should come with a free bottle of Kaopectate in the box. And, excellent business plan you have there, Balmy: “If it makes money… We don’t make a lot of money, not to start out… We’ll figure out how to make money on the community perhaps later.” What a joke.

Related articles:
Microsoft’s consumer electronics track record: long string of failures – October 11, 2006
MP3.com founder: ‘Zune will be an expensive failure for Microsoft because consumers aren’t stupid’ – October 06, 2006
Microsoft fails to secure key Zune domains – October 04, 2006
Microsoft rigs Zune with tricky pricing and proprietary money schemes – October 03, 2006
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

71 Comments

  1. Uh… The Zune can play video. It comes with videos loaded. There’s just not going to be any video service at first. (Doesn’t change the fact that trading home movies via clunky Zune players is a stupid idea.)

  2. B-Sabre-

    The biggest difference between Zune and iPod is not a couple of chipsets, it’s the fact that Apple sells between 8 and 14 MILLION of them a quarter, and they have supply channels that give them the best prices on components. MS has none of this, hence the higher cost to build.

  3. @B-Sabre: In order for the Margin to matter, you need to cover fixed costs. Also, they are using a different hard drive, and Apple has secured very large quantities of supplies, so they got the discount. Ballmer also said that they don’t make the money off the hardware. Last time I check, the iPod sales makes the money, not iTunes. He still doesn’t get it. But back to your question, you have to cover fixed costs for the units to start making money. And they probably have high fixed costs because they are entering a new market. Economic’s of scale has to work in Apple’s favor. Any company that owns 75% of a market is going to have a huge benifit for discounts on parts. Just look at how much a stock jumps when rumor says that a company will start supplying Apple with parts. The companies will give a good deal to Apple.

    p.s. is b-sabre reffering to the Buffalo Saber’s? Because if it is, I’m glad you enjoy the great sport of hockey.

  4. No-one’s picked up on his subtle put-down of Apple. He says:

    “Guys who can touch us in multiple places probably matter more than guys who can touch us in any one place.”

    …and then talks about the iPod. Implication: Apple only ‘touch’ Microsoft with the iPod, the Mac is unimportant.

  5. “Guys who can touch us in multiple places probably matter more than guys who can touch us in any one place.”

    Monkey Boy is frickin touched all right. Touched in the head.

    Note the difference in the CEO of Apple vs. the CEO of Microsoft:

    SJ: “Isn’t this cool?” when presenting a new product

    SB: “We’ll figure out how to make money on the community perhaps later though advertising or other means.” when discussing a new product

  6. Here….let me squirt you a video of me drinking tap water during Mexican vacation……ewww!

    Also available in a scratch and sniff format!

    Gotta run to the Great White Telephone to negotiate for a Buuuuick.

  7. B-Sabre:

    I believe the assumption of losing money comes from eight areas:
    1. the profit that must be paid to Toshiba as the hardware developer, which would be more than the profit to a mere Chinese fabricator
    2. the development costs MS must have paid Toshiba to develop for them, being such a risky venture
    3. the lack of economies of scale
    4. the cost of the software development in new DRM, interface and web site
    5. the fact that MS seems to need 5x the number of programmers for the same job as Apple
    6. the cost to develop ‘new’ features (WiFi, FM)
    7. the MS mass marketing yet to come
    8. MS still has to maintain all the PlaysForSure infrastructure

    Remember that Apple paid for the iTMS store (break even) even before the iPod was released.

  8. I’m an Apple fan and I think Ballmer is screwing up on big-time strategy, but I have to say that Ballmer knows how he plans to make money on it later; he just can’t say it definitively now because people won’t like it. Like ads, who wants ads on their mp3 player; but ads can evolve into something that we won’t mind if it’s helpful to us.

    The overall plan laid out by Avocado in Macaday’s post is generally reasonable. And as soon as the iPod gets wireless, I’m sure Apple will provide all of that stuff (email, calendar, iChat, iPhoto sync, etc); not just squirting.

    The problem with the Zune is that it will have wireless and yet provide none of that stuff, and it’s squirting is crippled for music. (By the way, MS said that photos don’t get wiped out by the 3 play/ 3 day rule. And Zune can play video but MS will not be selling video at the Zune Marketplace.) So strategically, MS is selling a crippled Zune, rather than wait to sell a Zune that provides all the uses that people would expect from having wireless. Dumb.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.