Zune Price Cuts: The Economy or Nanos?

Microsoft announced the price cuts late Nov. 18 on the Zune Insider blog. But what do they mean?

• Is Microsoft feeling the pinch of a slowing economy?
• Is the iPod Nano so popular the Zune simply isn't selling as well?
• Is Microsoft wooing value buyers who can't afford Nanos?

Answer: All of the above—and more. Unless Apple cuts prices or offers other incentives, I expect Microsoft to do well at the low end and OK at the high end; forget the middle. The 4GB Zune, now priced at $99.99 down from $129.99, is a steal—until Microsoft exhausts inventory. Zune 4 is at its end of life.

The new pricing puts $50 between the lowest-price Zune and the colorful iPod Nano. Granted, the iPod has twice the storage capacity, but the Zune 4 has Wi-Fi and FM radio and what Microsoft calls "buy from FM" capability for identifying songs over the radio and purchasing them. Seriously, it's a great value for 100 bucks compared with the 8GB iPod Nano. Both devices play the same formats—although unprotected AAC on Zune rather Apple's DRM-protected version—and that means video, too.

Microsoft cut the 8GB Zune to $139.99, or $9.01 less than the 8GB iPod Nano. Microsoft won't gain many sales on price, methinks. The new Nanos are more colorful, but extra features favor Zune 8. The 16GB Zune now sells for $179.99 or nearly $20 less than its nearest Nano competitor. Apple is going to lose some sales to Zune 16, but nowhere near as much as with Zune 4.

The choice between Nano and Zune comes down to marketing. Apple has got plenty of it, Zune pretty much none. Those Nano TV commercials are everywhere; tweens and teens will be asking for Nanos as result. Have you seen a commercial for Zune? I sure haven't. Apparently, Microsoft aired a Zune commercial during this week's "Heroes" episode. Damn, I didn't see it. But I'm one of those pesky DVR fast-forwarders.

Apple owns the MP3 player market. Zune price cuts won't change that. But many more teens may get a Zune this year because of the under-$100 entry price. In the long term, those buyers will get more from Microsoft than from Apple. Microsoft has chosen to make new capabilities available to all Zune customers, even those with the oldest music players. Apple innovates and leaves past buyers behind.

Something else: I think the Zune 3.1 software makes for a much better media player than iTunes 8.01. It's cleaner and faster and offers more intuitive discovery through its Mixview feature than iTunes' Genius playlist feature. I've been waiting for Microsoft to take the music battle to Apple. A huge Zune differentiator is the $14.95 per month, all-you-can-download subscription service. Apple has nothing like it. Subscriptions could be available to Mac users through, say, a Silverlight version of the Zune software. What are you waiting for, Microsoft?

[Please send your tips or rumors to watchtips at gmail.com]

Posted by Joe Wilcox on November 19, 2008 3:05 PM