Microsoft's cuts Zune's price again - and shudders?

September 30th, 2006, 11:52 Posted By: wraggster

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.

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