It is possible that Microsoft is trying to get the profits down from one of Apple's main income streams. This would essentially slow the growth and market share of Apple and it's products, such as the OS, the phone market, software, etc. This may be why they don't care if they lose money, as they will lose even more as Apple gains market share and accelerated growth.
Microsoft has the cash to throw around. They are trying to buy mind share. They understand that it is unbelievably hard to compete with the iPod - just as they realized that XBox had a tough road up against the PS2. However, in a few short years, the line of people waiting to get an XBox 360 was unreal...and Nintendo isn't the #2 player in the home console market anymore (in the US). People would clearly say that the leaders now are Sony and Microsoft (although look for a strong comeback from Nintendo with the Wii).
Microsoft isn't dumb. They know that their first cut of the Zune will not take over the iPod, but if they can supplant the #2 player in this iteration, then they've accomplished a lot. From the #2 spot, they can start to exert a lot more pressure on Apple.
It seems that people here are thinking too short term.
It is possible that Microsoft is trying to get the profits down from one of Apple's main income streams. This would essentially slow the growth and market share of Apple and it's products, such as the OS, the phone market, software, etc. This may be why they don't care if they lose money, as they will lose even more as Apple gains market share and accelerated growth.
I don't know how much it will erode profits and market share when you consider the high elasticity of demand for ipods which are essentially luxury items. If Apple lowers the price again, say to $199 for the 30 Gig iPod, they should still make profit on it (however at a lower margin) but they will also pick up a lot more sales. An increase in sales of iPods will only further strengthen the iTunes store which will give them better negotiating power with content providers, and will also lower their component costs because of increased volume. If Microsoft lowers the price of the Zune to $199, then they will lose even more money, and if they keep their price at $249, they will lose sales to the point of irrelevance.
Microsoft has the cash to throw around. They are trying to buy mind share. They understand that it is unbelievably hard to compete with the iPod - just as they realized that XBox had a tough road up against the PS2. However, in a few short years, the line of people waiting to get an XBox 360 was unreal...and Nintendo isn't the #2 player in the home console market anymore (in the US). People would clearly say that the leaders now are Sony and Microsoft (although look for a strong comeback from Nintendo with the Wii).
Microsoft isn't dumb. They know that their first cut of the Zune will not take over the iPod, but if they can supplant the #2 player in this iteration, then they've accomplished a lot. From the #2 spot, they can start to exert a lot more pressure on Apple.
It seems that people here are thinking too short term.
8)
--DotComCTO
This is probably one of the most level-headed comments thus far posted on this thread. Intelligent and foward thinking and not reeking of emotions and 'fan-boy' rants.
...when Apple release the updated, real video iPod - that does everything the zune chunk does and more, sells for less and is waaaaaay cooler to own?
I think you got a little carried away. Competition should never be casually dismissed. Consider:
--note your operative word: "WHEN" apple releases a better iPod. We'd all like that, but we've been waiting a long time. I was hoping it would be announced at LAST year's MWSF. Does it bother anyone that MS got to market first with a bigger screen, or an fm tuner? The warm fuzzies apple generates make me expect IT to bring me the newest MP3 player features, not rest on its laurels. Improved battery life is great; new colors are...meh. Neither constitute cutting edge advances.
--note there's no reason to believe that future model, whatever its feature set, will cost less than the 249 zune: the current "non-improved" vid iPods cost 249 and 349, respectively. It's great to hope apple will produce a touch-screen, bigger-screen, smart video iPod; it's quite another thing to think it'll cost less than 249.
I'm no fan of microsoft. But comparing apple's current offerings and MS's, the zune is more feature-rich and has a bigger screen. The iPod has momentum, and a reputation for quality and ease of use. If anything, as mac fanboys, we should hope zune prompts apple to get on with it, and get those next gen iPods to market.
When apple's big show iPod announcements seemed flat, I hypothesized that perhaps the company had held off its big announcement, to let MS position its zune first. Maybe the pricing decision by MS will be the trigger apple was waiting for, and maybe now we'll get that better (though not cheaper) new iPod. Wouldn't that be great?!
Microsoft isn't dumb. They know that their first cut of the Zune will not take over the iPod, but if they can supplant the #2 player in this iteration, then they've accomplished a lot. From the #2 spot, they can start to exert a lot more pressure on Apple.
It seems that people here are thinking too short term.
Their financial results and stock price over the last half decade say otherwise. MSFT had one good idea, which was licensing MS-DOS to other companies besides IBM. But beyond that, they are financial idiots. If they just concentrated on Windows and Office and ditched all the other crap, they could probably double their overall profit. Even if XBox 360 is substantially more successful than it has been to date, it still will not be able to make up for the losses on XBox...and the XBox franchise is one of their more "successful" spinoffs. On average, each of their new initiatives is a money-loser over the long term, and at some point someone high up (e.g., Ballmer) is going to get kicked out because of this. I say this as someone who has a stake in thousands of MSFT shares, and has seen firsthand how underwhelming their financial performance has been. From a financial perspective they are really quite pathetic...give me a monopoly over the OS market and office software market, and I guarantee you I will make at least 50% more profit over the next decade than MSFT will. Seriously.
Apple will have to move fast with the real video iPod here and now that the ball is on Apple's part, they should lower prices for the rest of the models.
It seems to me that the primary new feature of the zune is this wireless sharing function. But the problem with it (aside from its likely impact on battery life), is that you need to know other people with a zune, and right now no one has one. It's the kind of feature that needs a critical mass of people who have them, like the iPod achieved after several years on the market. How do you get people to buy this, when they can't use the killer feature because they don't know anyone else who has one?
Any bets on how soon iTunes will suddenly stop working with Windows? After the next security patch maybe?
right that would be one of the stupidist things that apple could do. the vast majority of ipod users are running windows. i have to admit that i didnt have a clue about itunes or what an ipod was untill it started on windows. that was the reason for the amazing success apple have had with the ipod/itunes thing.
As far as the "how can they sell this as a loss leader" question: I think it's pretty clear that MS intends the Zune to be the opening wedge in a multi-year, multi-device ecosystem build-out.
The real power and durability of the iPod empire is in the ecosystem lock-in, from car and accessory ports all the way to the ITunes Store and the Fair Play DRM.
Bringing out a new MP3 player, no matter how many bells and whistles it has, doesn't really address the iPod ecosystem, and MS knows this. It's also why they know they have to move against Apple in this arena, because it gives Apple a way of credibly attacking other areas, just like Windows has allowed MS to control the browser market. Just look at iTV and think about what it means for extending the "reach" of the iPod/iTunes Store phenomena into the living room.
MS hasn't really been very good at this kind of thing- integration across consumer devices that creates synergy-- although they've been able to kinda pretend they are because of Windows, which allows them to execute fairly poorly and still be the only game in town. They have done a pretty good job in extending OS functionality vertically for corporate markets, but that's quite a different kettle of fish.
Clearly they hope to make Zune the cornerstone of a WiFi enabled MS world of Media Center, Xbox, Phone, tablet, etc.
I don't think they can pull it off, because MS doesn't have the cohesion across development teams and overall strategic vision of what an easy to use digital world looks like that Apple has. They think they do, but their one and only solution to competing is "more features", which actually works against smooth integration of multiple devices.
I think Apple has a real opportunity here to show what they can do when they aren't completely hobbled by the Windows monopoly . It's what the last 5 years have been pointing at: easy to use, easy to integrate digital lifestyle building blocks with pervasive metaphors and UI elements.
I think Microsoft can easily break even on the Zune. I think what they think will tip the balance is money that comes in through licencing compatible products. Apple takes $4 a unit license fee for every "Made For iPod" product. Every dock connector device you buy, be it an FM transmitter, boom box, dock, voice recorder, etc. puts $4 into Apple's treasury.
--note your operative word: "WHEN" apple releases a better iPod. We'd all like that, but we've been waiting a long time. I was hoping it would be announced at LAST year's MWSF. Does it bother anyone that MS got to market first with a bigger screen, or an fm tuner?
Sorry, but I don't see anyone walking around with a Zune yet. Microsoft may have been the first to ANNOUNCE their new product, but the launch date is...??? Some time this year? Early next year? We all know that MS is known to be late with everything. Apple is known to have their products available for purchase on the day it is announced.
What I think is behind this is the various Windows Media formats, and the associated DRM.
My theory is that Microsoft is going after a monopoly position on all media -- software, video, music, games, electronic documents -- all electronic media of all kinds. They want anything that anyone does anywhere with any form of electronic media to be ultimately dependent on a Microsoft-owned operating system, Microsoft-controlled licensing, Microsoft-designed formats, and Microsoft-held DRM keys.
If Microsoft could pull this off, it would be hugely profitable, and it would guarantee solid, steady income for many, many years to come, without any need to shake off their growing corporate lethargy and inefficiency.
Microsoft can't get there with Apple in the way. If this kind of media monopolization is what they're after, they've got to throw something like Zune out into the market now, ready or not, short-term profitable or not. I don't think Zune, short term or foreseeable long term, will have what it takes to displace Apple's position. Zune is probably hitting the scene too late in the game as it is. But if Microsoft doesn't at least try to counter Apple and the iPod now, if they make no attempt at all, then the media-monopoly strategy I believe they want to pursue would be totally and complete lost, as opposed to merely unlikely to succeed.
The potential pay-off of a successful media monopolization strategy is so high that it's easy to imagine why Microsoft would risk eating a lot of near-term loss on Zune if they believe they have a chance at that possible huge pay-off in the future.
As to all the fanboy comments, just think about this:
Apple dominated the market for PCs with a Graphical UI for years.
MS came out with a 2nd rate, obviously plagiarized competitor years after Apple did.
Who dominates now?
I know things don't exactly compare. But Apple would be stupid to dismiss any threat from Microsoft, even for a product that is inferior (and the Zune is roughly feature-equivalent to the iPod).
(Trust me, I'm not rooting for MS. In fact, I think this kind of selling at a loss should be illegal (rather, I think it is illegal, but isn't enforced except in a few industries, like airlines) and smacks of monopolistic practices. But asking our current crop of spineless do-nothing politicians of either party to stand up to a wealthy corporation is like asking Johnny Knoxville to have some self-respect. It's just not what they do.)
Comments
What I don't understand is how does Apple make so much money on this but Microsoft can't?
It's not only volume, but also clever design that keeps the cost low.
Microsoft isn't dumb. They know that their first cut of the Zune will not take over the iPod, but if they can supplant the #2 player in this iteration, then they've accomplished a lot. From the #2 spot, they can start to exert a lot more pressure on Apple.
It seems that people here are thinking too short term.
8)
--DotComCTO
It is possible that Microsoft is trying to get the profits down from one of Apple's main income streams. This would essentially slow the growth and market share of Apple and it's products, such as the OS, the phone market, software, etc. This may be why they don't care if they lose money, as they will lose even more as Apple gains market share and accelerated growth.
I don't know how much it will erode profits and market share when you consider the high elasticity of demand for ipods which are essentially luxury items. If Apple lowers the price again, say to $199 for the 30 Gig iPod, they should still make profit on it (however at a lower margin) but they will also pick up a lot more sales. An increase in sales of iPods will only further strengthen the iTunes store which will give them better negotiating power with content providers, and will also lower their component costs because of increased volume. If Microsoft lowers the price of the Zune to $199, then they will lose even more money, and if they keep their price at $249, they will lose sales to the point of irrelevance.
Microsoft has the cash to throw around. They are trying to buy mind share. They understand that it is unbelievably hard to compete with the iPod - just as they realized that XBox had a tough road up against the PS2. However, in a few short years, the line of people waiting to get an XBox 360 was unreal...and Nintendo isn't the #2 player in the home console market anymore (in the US). People would clearly say that the leaders now are Sony and Microsoft (although look for a strong comeback from Nintendo with the Wii).
Microsoft isn't dumb. They know that their first cut of the Zune will not take over the iPod, but if they can supplant the #2 player in this iteration, then they've accomplished a lot. From the #2 spot, they can start to exert a lot more pressure on Apple.
It seems that people here are thinking too short term.
8)
--DotComCTO
This is probably one of the most level-headed comments thus far posted on this thread. Intelligent and foward thinking and not reeking of emotions and 'fan-boy' rants.
Good comments.
...when Apple release the updated, real video iPod - that does everything the zune chunk does and more, sells for less and is waaaaaay cooler to own?
I think you got a little carried away. Competition should never be casually dismissed. Consider:
--note your operative word: "WHEN" apple releases a better iPod. We'd all like that, but we've been waiting a long time. I was hoping it would be announced at LAST year's MWSF. Does it bother anyone that MS got to market first with a bigger screen, or an fm tuner? The warm fuzzies apple generates make me expect IT to bring me the newest MP3 player features, not rest on its laurels. Improved battery life is great; new colors are...meh. Neither constitute cutting edge advances.
--note there's no reason to believe that future model, whatever its feature set, will cost less than the 249 zune: the current "non-improved" vid iPods cost 249 and 349, respectively. It's great to hope apple will produce a touch-screen, bigger-screen, smart video iPod; it's quite another thing to think it'll cost less than 249.
I'm no fan of microsoft. But comparing apple's current offerings and MS's, the zune is more feature-rich and has a bigger screen. The iPod has momentum, and a reputation for quality and ease of use. If anything, as mac fanboys, we should hope zune prompts apple to get on with it, and get those next gen iPods to market.
When apple's big show iPod announcements seemed flat, I hypothesized that perhaps the company had held off its big announcement, to let MS position its zune first. Maybe the pricing decision by MS will be the trigger apple was waiting for, and maybe now we'll get that better (though not cheaper) new iPod. Wouldn't that be great?!
Last I heard, Apple was barely breaking even with music sold through iTMS.
That is misinformation that Steve Jobs was putting out to...
1) discourage competition.
2) discourage investors from investing in the competition.
3) keep the record companies from getting greedy and wanting more of the profits.
It may have been true to some degree when Apple first launched the store.
But trust me when I say that Apple has optimized the heck out of the iTMS.
As they continue to sell in higher volumes their costs will not increase that much.
Selling music for .99 will only continue to become more and more profitable.
Any bets on how soon iTunes will suddenly stop working with Windows? After the next security patch maybe?
They won't stop allowing iPODs to work on Microsoft. It wouldn't be positive for apple or microsoft.
Anyway... it barely works on Windows as it is.
Microsoft isn't dumb. They know that their first cut of the Zune will not take over the iPod, but if they can supplant the #2 player in this iteration, then they've accomplished a lot. From the #2 spot, they can start to exert a lot more pressure on Apple.
It seems that people here are thinking too short term.
Their financial results and stock price over the last half decade say otherwise. MSFT had one good idea, which was licensing MS-DOS to other companies besides IBM. But beyond that, they are financial idiots. If they just concentrated on Windows and Office and ditched all the other crap, they could probably double their overall profit. Even if XBox 360 is substantially more successful than it has been to date, it still will not be able to make up for the losses on XBox...and the XBox franchise is one of their more "successful" spinoffs. On average, each of their new initiatives is a money-loser over the long term, and at some point someone high up (e.g., Ballmer) is going to get kicked out because of this. I say this as someone who has a stake in thousands of MSFT shares, and has seen firsthand how underwhelming their financial performance has been. From a financial perspective they are really quite pathetic...give me a monopoly over the OS market and office software market, and I guarantee you I will make at least 50% more profit over the next decade than MSFT will. Seriously.
My $0.02
Any bets on how soon iTunes will suddenly stop working with Windows? After the next security patch maybe?
right that would be one of the stupidist things that apple could do. the vast majority of ipod users are running windows. i have to admit that i didnt have a clue about itunes or what an ipod was untill it started on windows. that was the reason for the amazing success apple have had with the ipod/itunes thing.
The real power and durability of the iPod empire is in the ecosystem lock-in, from car and accessory ports all the way to the ITunes Store and the Fair Play DRM.
Bringing out a new MP3 player, no matter how many bells and whistles it has, doesn't really address the iPod ecosystem, and MS knows this. It's also why they know they have to move against Apple in this arena, because it gives Apple a way of credibly attacking other areas, just like Windows has allowed MS to control the browser market. Just look at iTV and think about what it means for extending the "reach" of the iPod/iTunes Store phenomena into the living room.
MS hasn't really been very good at this kind of thing- integration across consumer devices that creates synergy-- although they've been able to kinda pretend they are because of Windows, which allows them to execute fairly poorly and still be the only game in town. They have done a pretty good job in extending OS functionality vertically for corporate markets, but that's quite a different kettle of fish.
Clearly they hope to make Zune the cornerstone of a WiFi enabled MS world of Media Center, Xbox, Phone, tablet, etc.
I don't think they can pull it off, because MS doesn't have the cohesion across development teams and overall strategic vision of what an easy to use digital world looks like that Apple has. They think they do, but their one and only solution to competing is "more features", which actually works against smooth integration of multiple devices.
I think Apple has a real opportunity here to show what they can do when they aren't completely hobbled by the Windows monopoly . It's what the last 5 years have been pointing at: easy to use, easy to integrate digital lifestyle building blocks with pervasive metaphors and UI elements.
What I don't understand is how does Apple make so much money on this but Microsoft can't?
Those estimates only lists the cost of the PARTS inside the iPod.
There are many expenses related to running a business that those prices simply don't cover. Apple's typical net profit is around 10%, not 50%.
--note your operative word: "WHEN" apple releases a better iPod. We'd all like that, but we've been waiting a long time. I was hoping it would be announced at LAST year's MWSF. Does it bother anyone that MS got to market first with a bigger screen, or an fm tuner?
Sorry, but I don't see anyone walking around with a Zune yet. Microsoft may have been the first to ANNOUNCE their new product, but the launch date is...??? Some time this year? Early next year? We all know that MS is known to be late with everything. Apple is known to have their products available for purchase on the day it is announced.
My theory is that Microsoft is going after a monopoly position on all media -- software, video, music, games, electronic documents -- all electronic media of all kinds. They want anything that anyone does anywhere with any form of electronic media to be ultimately dependent on a Microsoft-owned operating system, Microsoft-controlled licensing, Microsoft-designed formats, and Microsoft-held DRM keys.
If Microsoft could pull this off, it would be hugely profitable, and it would guarantee solid, steady income for many, many years to come, without any need to shake off their growing corporate lethargy and inefficiency.
Microsoft can't get there with Apple in the way. If this kind of media monopolization is what they're after, they've got to throw something like Zune out into the market now, ready or not, short-term profitable or not. I don't think Zune, short term or foreseeable long term, will have what it takes to displace Apple's position. Zune is probably hitting the scene too late in the game as it is. But if Microsoft doesn't at least try to counter Apple and the iPod now, if they make no attempt at all, then the media-monopoly strategy I believe they want to pursue would be totally and complete lost, as opposed to merely unlikely to succeed.
The potential pay-off of a successful media monopolization strategy is so high that it's easy to imagine why Microsoft would risk eating a lot of near-term loss on Zune if they believe they have a chance at that possible huge pay-off in the future.
the iPod for many people is a contributing factor to making "the switch"
microsoft realizes this.... forevery Zune player they put out, that is one less person that gets to experience the "Apple Euphoria"
Apple dominated the market for PCs with a Graphical UI for years.
MS came out with a 2nd rate, obviously plagiarized competitor years after Apple did.
Who dominates now?
I know things don't exactly compare. But Apple would be stupid to dismiss any threat from Microsoft, even for a product that is inferior (and the Zune is roughly feature-equivalent to the iPod).
(Trust me, I'm not rooting for MS. In fact, I think this kind of selling at a loss should be illegal (rather, I think it is illegal, but isn't enforced except in a few industries, like airlines) and smacks of monopolistic practices. But asking our current crop of spineless do-nothing politicians of either party to stand up to a wealthy corporation is like asking Johnny Knoxville to have some self-respect. It's just not what they do.)