Microsoft Matches iPod Price for Zune

As first confirmed by BetaNews earlier this month, Microsoft said Thursday that it would match the price of Apple's 30GB iPod, and lower the price of its Zune portable music device to $249.99 USD. The announcement means that Microsoft will now lose money on every player - at least initially.

Sources told BetaNews in mid-September following Zune's initial official announcement that pricing and availability was pulled at the last minute due to the surprise cut in price of Apple's hard-drive based music players. They also said at the time that Microsoft would match the iPod's new price.

Microsoft confirmed this, along with announcing that the player would be made available starting on November 14. Songs in its Zune Marketplace music store will sell for 99 cents, while subscriptions to the service would be available for $14.99 USD per month.

Scott Erickson, senior director of product marketing for Zune, said that the player is part of a "multiyear strategy," acknowledging they would use the Zune as a loss leader.

With Microsoft's music player now selling for less than it costs to build -- as a company spokesperson told Reuters -- the company has two products on the market that are losing it money rather than generating profits. The Xbox 360 costs $100-200 more to build than it is sold for, and while a teardown of the Zune is not yet available, Microsoft has admitted it is looking at a "multiyear plan" to be profitable.

"Hard to see how they're making money at $249," JupiterResearch analyst Michael Gartenberg said. "They can't be getting the volume discounts Apple gets and that larger screen and WiFi all add to the bill of materials."

"The key, I suspect, was not being undercut by Apple and if they need to lose money on Zune to build market share, they will, much as they have done with Xbox," Gartenberg added. "For the moment, price against Apple will not be a factor."

While much of the specifications between the two devices are quite similar, it is the Wi-Fi connectivity that sets the Zune apart. The player will allow people to share pictures and music -- on a limited basis -- with each other over the wireless connection.

Apple has been said to be working on similar functionality, but it has not appeared in any of the company's devices as of yet.

"On Nov. 14 we're delivering not only a device, but a shared, social experience that will be shaped by the collective imagination of consumers," said Chris Stephenson, general manager of global marketing for Zune.

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