Its pretty funny seeing the hysteria in the media over the old Zune selling out, considering Microsoft have had this $hit-on-a-stick hanging around for the last year without managing to get rid of them.

Unremarked on by anyone on the Street is the fact that each Zune sold at $80 is losing Microsoft about $120. Go for it boys, knock yourselves out! Sell sell sell! Yet another Microsoft consumer product that will lose the company hundreds of millions of Dollars

Will they ever learn? More importantly, will MSFT investors ever learn?

As usual, Roughly Drafted has this covered:

http://www.roughlydrafted.com/2007/11/22/why-microsofts-zune-is-still-failing/

Very, very sad:

At a Toys “R” Us store in Cherry Hill, N.J., the Torres family from Camden came for Microsoft Zune MP3 players, which were selling for less than half the usual $200.

They secured their spot in line at 1:30 a.m., then sent some family members to a Kohl’s Corp. (KSS) store to pick up toys, watches, a portable DVD player and a griddle in a frenzied 4 a.m. shopping spree that they said took all of six minutes.

They also nabbed four Zune MP3 players.

“It’s called teamwork,” said Christal Torres, 19.

Four Zunes? I call it child abuse.

[quote author=“Tommo_UK”]

Four Zunes? I call it child abuse.

The problem for M$ is once a brand name is diminished in stature and perception through a high publicity clearance cycle, good luck reestablishing sales demand for a premium-priced product.

I can’t believe the amount of coverage the Zune is getting in the media and on CNBC because it is “selling out.”

They’re selling last year’s model at $80 compared to its original $300 price tag to try and shift their old stock, and they’ve barely begin shipping any of the new one at all. Rarely is the distinction made. It would be much fairer (and far more insightful, useful to investors) to say that it took almost a 75% discount from the original sticker price before people started buying the Zune with any meaningful enthusiasm, and Microsoft are losing hundreds of millions of Dollars in the process.

The media truly are incredibly gullible, and hypocritical. When Apple discount the iPhone they are accused of grand larceny/theft/deceit/you name it. When Microsoft discount the Zune by 75% they get congratulated for selling out!

Amazing.

[quote author=“Tommo_UK”]I can’t believe the amount of coverage the Zune is getting in the media and on CNBC because it is “selling out.”

Tommo - you beat me to it - just bin home to fix lunch and the coverage on CNBC is outrageous - even stuff that seemed to have nothing to do with - such as a shot from ToysRUs it had Bill chiming in with an:

“I bet he’s asking for a Zune - which he won’t get for love nor money.”

Nothing about the fact that MS haven’t actually supplied the shops with the units in any quantity.

This is pure and completely unnecessary hype.

The psychology of consumer spending is quite complex with differentiating strata between consumer groups with regard to their behavior. Smart retailers know not to put the sales racks, for instance, near the clearance racks because they appeal to two distinctly different sets of buyers. Clearance buyers are looking for the lowest possible price. They will accept “good enough” if the price is low enough. The value of the product is the shopper’s mind is determined first and almost exclusively by price. The consumer’s threshold for quality drops proportionally with the drop in price.

A market for a new product (or newer product) that is desired to return a satisfactory margin can not be built with clearance shoppers, especially during the holidays.

I can almost guarantee the clearance tactics on the old Zune model will materially ding sales of the new model because people now see the Zune (regardless of model) as an $80 value product not a $300 value product.

Consumers interested in a $300 Zune will be far more critical than those buying a Zune at clearance prices.

Apple won’t lose any sales over the Zune’s clearance tactic. The family mentioned above wouldn’t have purchased four iPods for Christmas. They see the Zune’s price as a cheap way to get in the game. I don’t think that same family will buy a full-priced Zune today or next year. It’s a one-time purchase based exclusively on price. Price drove the sale, not the usefulness of the product. That’s part of the expanding market where Apple doesn’t need to play.

[quote author=“DawnTreader”]... Clearance buyers are looking for the lowest possible price. They will accept “good enough” if the price is low enough. The value of the product is the shopper’s mind is determined first and almost exclusively by price. The consumer’s threshold for quality drops proportionally with the drop in price….

Sounds a bit like Windows sufferers & discount PC buyers? 

Did those MORONS over at MSFT ever stop to think for a second ?

“Huh ... if we discount the OLD crappy Zune which is so lacking in features and design we’ll sell a bunch of them .... INSTEAD of the newer better reviewed model.  Great now people can get the OLD zune as a christmas gift and it won’t take long before they run into someone with a iPod .... the difference will be staggering and their first encounter with a zune will leave a nice sour taste in their mouth .... so much so that when they get a new upgraded mp3 player they will be sure to check out an iPod .... wanna bet which they will buy ?

STUPID move for trying to launch a new product ...... one that will already have a tough time trying to compete ...... MSFT would have done better to recall all of the old product and give it away .... to their employees as christmas bonus maybe ? 

I hope Steve Ballmer stays at Microsoft for a LONG time .... we LOVE you Mr. Ballmer ! 

[quote author=“Gtrplyr”]Did those MORONS over at MSFT ever stop to think for a second ?

“Huh ... if we discount the OLD crappy Zune which is so lacking in features and design we’ll sell a bunch of them .... INSTEAD of the newer better reviewed model.  Great now people can get the OLD zune as a christmas gift and it won’t take long before they run into someone with a iPod .... the difference will be staggering and their first encounter with a zune will leave a nice sour taste in their mouth .... so much so that when they get a new upgraded mp3 player they will be sure to check out an iPod .... wanna bet which they will buy ?

STUPID move for trying to launch a new product ...... one that will already have a tough time trying to compete ...... MSFT would have done better to recall all of the old product and give it away .... to their employees as christmas bonus maybe ? 

I hope Steve Ballmer stays at Microsoft for a LONG time .... we LOVE you Mr. Ballmer ! 

This is much inline with what I said above. Sales of the clearance-priced Zune won’t help build a market for the new $300 Zune.

Further, Mac users represent between 25% and 30% of the desirable consumer demographic. This means M$ needs to reap 100% of its sales from 75% or less of the market. Not an easy feat with Apple innovating more quickly they they can make products.

M$ has lots of smart people, but an increasingly stupid corporate culture. The smart play would be to adopt iTunes and thus QuickTime as the default media content player. This would help almost immeasurably in their fight with the EU and allow the company to focus its resources on delivering the best video game platform available while forgetting about the Zune. The Xbox would benefit from the effort and Apple and M$ could actually partner on bringing the Xbox into the Mac environment similar to the way the two companies have worked on Office.

But then again, the culture would rather fight for a dwindling portion of the higher-end digital music player market than work with Apple on delivering a better home gaming solution. 

I was in BB in Denton, Texas today. There was a small line behind each of the iPod displays set up for customers to try. The Zune display set up for customer interaction, which was inches from the iPod display, was vacant.

[quote author=“DawnTreader”]
M$ has lots of smart people, but an increasingly stupid corporate culture.

It really is the corporate culture and leadership. I’ve had several friends at MS over the years (in xbox and product development departments) and when I would visit them and pick their brains, you could tell when they were giving their own thoughts about good and bad ideas, and when their brains would switch off and spew the corporate-speak.

For example, they might dissect the good and bad about the zune designs, flaws to be addressed, or features that are lacking with enthusiasm and vision..but then say unapologetically that, “Here at MS, we typically start with the 1.0 product as an experiment. The zune is the 1.0. The 2.0 will be the real one.”

Huh?? Who is feeding them this crap? Are they aware that approach does not make money?? IMHO, there is a really bankrupt culture at that company that will be the death of them.

[quote author=“superbaka”]
For example, they might dissect the good and bad about the zune designs, flaws to be addressed, or features that are lacking with enthusiasm and vision..but then say unapologetically that, “Here at MS, we typically start with the 1.0 product as an experiment. The zune is the 1.0. The 2.0 will be the real one.”

Huh?? Who is feeding them this crap? Are they aware that approach does not make money?? IMHO, there is a really bankrupt culture at that company that will be the death of them.

Now, now…don’t forget that there are many folks who will not by any Apple 1.0 product due to the flaws that may exist. That though is a consumer strategy that works for people who do not wish to be early adapters.

However, for a corporation to intentionally design with 1.0 being a beta prototype is a failed strategy based on the flawed belief that early adapters will always buy.  If you have a great reputation for quality and desirability, it will work once or twice. Unfortunately, MS has neither and their new products must prove themselves in the marketplace.  (Vista anyone?)

[quote author=“Play Ultimate”]
Now, now…don’t forget that there are many folks who will not by any Apple 1.0 product due to the flaws that may exist. That though is a consumer strategy that works for people who do not wish to be early adapters.

To be fair Apple normally get it right by 1.1 and it usually is a software update.

[quote author=“superbaka”][quote author=“DawnTreader”]
M$ has lots of smart people, but an increasingly stupid corporate culture.

For example, they might dissect the good and bad about the zune designs, flaws to be addressed, or features that are lacking with enthusiasm and vision..but then say unapologetically that, “Here at MS, we typically start with the 1.0 product as an experiment. The zune is the 1.0. The 2.0 will be the real one.”

Huh?? Who is feeding them this crap? Are they aware that approach does not make money?? IMHO, there is a really bankrupt culture at that company that will be the death of them.

Actually, it does work. See Internet Explorer which was knocking the pants off of Nescape by version 4, Windows 95 which was good enough to push Apple in the doldrums, or the more recent Xbox.

Microsoft is a company which has the resources to compete with anybody and the smart people to actually develop something surprisingly good. They are getting in partnerships with many content providers and are brazen enough to push (their) secondary technology onto partners.

As I have mentioned in a post in May, I will feel that Apple has weathered the Zune when Microsoft closes that division.

[quote author=“awcabot”]Actually, it does work. See Internet Explorer which was knocking the pants off of Nescape by version 4, Windows 95 which was good enough to push Apple in the doldrums, or the more recent Xbox.

Microsoft is a company which has the resources to compete with anybody and the smart people to actually develop something surprisingly good. They are getting in partnerships with many content providers and are brazen enough to push (their) secondary technology onto partners.

As I have mentioned in a post in May, I will feel that Apple has weathered the Zune when Microsoft closes that division.

Seems like an unfair comparison…Netscape was a commercial product that was being sold. IE was given away free.  Monopolistic practices existed with MS pushing Windows ‘95 onto manufacturers.  XBox is still being sold below cost as a loss leader.
However, Microsoft has the $$$ (  Not as much as before ) to sell something at a loss for years. Fortunately, Apple has a nice nest egg to fight off competition.