Microsoft Drops Zune Price, Talks Zune Phone

Microsoft has decided to drop the price of the Zune in an effort to spur sales, while indicating it hadn't completely ruled out a Zune phone.

Effective Wednesday, the price of Microsoft's competitor to the iPod is now $199 USD. The company said the price cut was something it had been planning to do for months, and was part of the normal product cycle.

"We just got some research back and customer satisfaction with the 30GB device is really high (around 94%) and we expect even more consumers will now want to discover the Zune experience at the new lower price," Zune team member Caesar Menendez wrote in the Zune Insider Web log.

In the same token, sales of the player have been consistent but not extraordinary. Through June, the company had sold a little over 1 million Zunes since launch, meeting its goal, but falling well below the 25 million iPods sold during the same period.

While Zune is still very much being dwarfed by Apple and iPod, many Microsoft supporters still point out that the company has been able to take a 3.6 percent share of the market as of June, and controls 12.9 percent of the HDD-based player market. But most MP3 player manufacturers today no longer produce HDD-based devices, thus Zune's success there may be inflated.

This confidence may be playing into Microsoft's apparent reconsideration of the Zune phone. Earlier in the year, CEO Steve Ballmer said that combining the player and a phone was not something the company would likely do.

However, in comments at a conference hosted by Citigroup, Microsoft officials were saying it would "not be unreasonable" to see a Zune phone in the near future. Ballmer's previous comments seemed to indicate that Microsoft was planning to add music and gaming functionality to Windows Mobile instead.

Again, Microsoft is sending a convoluted message. At the conference, officials seemed not too keen on moving away from the business-centric focus of Windows Mobile, saying that was still the target demographic for those products.