Microsoft's cuts Zune's price again - and shudders?
First it was $399. Then it was $299. Now, Microsoft is once more cutting the price tag on its upcoming Zune music player, to $249. That matches the recently discount for a similar 30GB-capacity Apple iPod. At that price, writes JupiterResearch analyst David Gartenberg, there's no way Microsoft is making money, since it won't have the same volume discounts on hard drives and other components Apple enjoys, not to mention the added cost of the Zune's Wi-Fi connection.
Is Microsoft taking a page from the Xbox strategy with Zune? On the surface, yes. But in the videogame business, Sony, Microsoft, and Nintendo take losses on game consoles but make money by charging software developers licensing fees. The more ubiquitous the hardware is, the more money they make from games. In digital media, that business model doesn't work. Apple breaks even or makes a modest profit, at best, on the iTunes Music Store in order to drive profitable iPod sales. Microsoft could easily find itself losing money on Zune hardware and losing money on music sales. All of which should leave shareholders howling for the head of whoever's crunching the numbers in Redmond. Nintendo doesn't take losses on consoles. That's why they make more money (profit) than the ENTIRE Sony Corp. Do your research next time please.
Actually, you do your research...
Nintendo has taken a loss with each of the previous generation hardware consoles. The WII is the only console this time around to actually make a profit for the company, whereas the PS3 and XBOX360 are losers as far as hardware profits are concerned. It is not about profit at all. It is about market share. If they can capture a good market share, profits will follow.
How do you know Microsoft is not getting a volume discount on parts?
This has to be about market share, which Microsoft currently has none. This is a classic example of being "late to the game." How can a new product compete and lure customers away from a successful, well received brand that has been out for several years. This will be an uphill battle to say the least.
Manufacturing is contracted to Toshiba. Toshiba has volume from it's gigabeat line. Additionally Toshiba may be fairly vertically integrated given their history in electronics. Not knowing the revenue sharing agreement between MS and Toshiba it's probably not safe to assume they are taking huge losses on each unit.
microsoft shareholders should beware.... outside of their operating system and office products, they have not hit a home run in any other business venture that succeeded in marketshare and profits. i fear that they are instilling a business culture of subsidization instead of innovation due to their huge cashflow.
the zune - ipod battle will be an interesting one to watch - although my thoughts are, if you buy an ipod, you have access to pay content (music, games, tv and movies)- what is zune's content choice going to be for the zune owners? It's clear Microsoft can only make money in markets it has a monopoly. The company should be split into an operating system division and an applications divition. Then maybe we could purchase computers with instant on/off, and basic OS functions that are evolved from the basic OD move and copy commands of 20 years ago.
Zune? Who's the loon who thought that up? Sounds like a cartoon. Zune. What a goon.
If making money was the goal, then the Xbox360 would never have been made. The gaming division of Microsoft has NEVER made any money over the lifespan of the Xbox. Only in one quarter when Halo2 was released did the division make money. Even then they were quick to downplay it, saying this was an anomaly and that profitability in the future was not planned.
Microsoft's plan is indeed similar to their Xbox plan. Which is to throw as much money at the problem as possible until your compeditors make a mistake. They CANNOT afford to make mistakes, but Microsoft can botch it up as much as they want since their Office and OS divisions drive all of their profitability. the late to the game is fairly typical of Microsoft - Xbox slowly gained on Playstation. I can appreciate the model being different, but whats being missed here is under the hood at Redmond. Corporate and Cultural apathy is so threaded within this company that it will effect its future product revenue and any (secondary) product to market it brings..
as someone with close ties to many very influencial and key decision makers...this company is slipping, and will become one of the great companies that slipped into oblivion.. (enter titanic music) -thanks Microsoft for the memories, and cheers to Bill for his charity work Everything Microsoft does other than Windows and Office loses money -- but they make so much from those cash-cows that they're easily able to enter strategic new markets and tolerate losses indefinitely, to say nothing of being able to put out lousy products nobody wants in those markets.
With the amount of profits MSFT makes every year, even losing a bit of money on the zune will not make much a dent. When the Xbox first came out, MS was losing $50 per console. The zune is no-where near as complicated as the Xbox, and its also made by toshiba, that makes hard drives itself. So the idea that its not getting volume discounts on hardware does not hold any water. Do no count MS out, it has shown many times in the past how it can come from behind and become a leader in the blink of an eye.
Agreed, market share. Big dogs that can absorb a loss can chance entering an existing market. Price below market or production price, and take the loss to gain market share. Does the VHS - Beta wars ring a bell... The superior product lost
You guys are all wrong...What we have here is purely economical... not based on any sort of console or what ever... Using Porters' Five Forces Model this is a natural movement for the company since the market is at maturity competiting business are jockying for position not so much for market share but bottom line content. You can have all the market share you want but if your not turning profit on the content you supply than you are not profitable. As the media devices themself have a one time sale value. Its the content that will drive whether the Zune is a hit or a miss.
Walter Samora, you have failed to realize the bigger and broader picture. Microsoft has market share already... if you have seen clearly enough through the hype you will realize that many of the mp3 manufactures out there use Microsoft Media Playing technology and software already. Microsoft is entering the market with thier own exclusive player because of lack luster sales that the other competitors are providing using Microsoft technology. This is why Microsoft is entering the market, they believe that they can do a better job then ther lisenced partners.
I fully support Microsoft....I hope the Zune can finally take noticeable amounts of market share away from Apple...It'd be about time
Unlike videogames where you can only buy 'authorized' content (every disc nets the console maker $10-$20 dollars) - on the music side, you could fill an entire ipod or zune with content from CD's, Dvd's, TV or otherwise ... for portable players - the money is in the hardware NOT in the selling of content ... since MS has admited the Zune is a rebranded Toshiba and the Toshiba sells for a bit more - we pretty know that MS players is cost+
Sony was late to the console game and took their Market share from Sega. And it looks like Microsoft will initially poach its sales from Apple's other rivals.
In my opinion, Wi-Fi is the differentiator.
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