MS Pulled Zune Pricing at Last Minute

At least one analyst suspects that Microsoft decided to forego announcing pricing of its Zune music player at the last minute due to the surprise announcement last Tuesday that Apple would drop the price of its smallest hard-drive based iPod to $249.

This seems to match information obtained by BetaNews over the weekend, which indicated that Apple's announcement caught Microsoft by surprise. The issue created an awkward situation for the Redmond company where a product was announced, but without any kind of retail pricing or availability guidance.

Sources within Microsoft indicate that the company is taking a "we will not be undersold" approach in its pricing structure, and was likely to announce a price that was either the same or lower than that of a comparable iPod. Undercutting the iPod is a major goal of Microsoft's upcoming effort, say these sources.

American Technology Research analyst Shaw Wu echoed such reports on Friday, saying that the firm believes "Microsoft is re-thinking its pricing strategy amid potential wider losses to stay competitive in the marketplace."

The iPod's new low price throws a wrench into Microsoft's plans. The company now needs to decide whether it can afford taking a second large financial risk by sticking to its previous pricing strategy, or hope its increased feature set can buoy the Zune at a price equal to or slightly higher than the iconic iPod.

Microsoft is already losing as much as $100 to $200 per Xbox 360 shipped, according to teardowns of the unit, but those losses are sometimes offset by game sales. In this case, consoles are usually seen as "loss leaders," which allow for faster adoption of the console and allows a broader audience to afford the product.

Things are different in the digital music realm. Save for iTunes, music stores have made very little in the way of profits due to the high royalties the services are forced to pay the record labels. Thus, these services need to sell substantial amounts of music in order to make any kind of considerable profit.

It is unclear if Microsoft executives or its shareholders would approve of yet another device that would lose the company money. However, sources said to expect the Zune to come at a price that is comparable to that of the iPod, even with the price drop. What that pricing may be is yet to be seen.

Requests for comment from Microsoft went unanswered as of press time.