Rumor: Zune Phone Coming Near You in December

Crunch Gear has broken a new story that indicates Microsoft is working on a Zune Phone. But is anybody surprised? Honestly?

Probably not. Even the most anti-Microsoft haters knew that Microsoft would immediately follow the iPhone to kill its thunder. This phone will do what Microsoft does best: be a “good enough” alternative. It will likely be in bed with Verizon (more on this below), which will likely be a love-hate relationship. It may look similar to the iPhone (hopefully not shit-brown), have many of the same functionality, but have one distinguishing feature.

Will that feature be more of that useless sharing crap? Who knows. We’ll see in the next year when it comes out. We’ll probably hear an official announcement from Microsoft right before the iPhone launches in an attempt to:

  • Kill iPhone launch thunder
  • Give users time to not renew their plans, just as Apple did
  • Steal potential customers by promising the world

Apple Isn’t Stupid

But this made me think. If everybody saw this coming, Apple must have seen it coming from the days the iPhone was just a sparkle in Steve Job’s eye. So what are they going to do?

That’s right, we will have to expect a big surprise come launch time. Steve Jobs isn’t done revealing all of the secrets of the iPhone. Any potential competitor will get a slap in the face in six months as a counter-counter measure. We should expect a new feature that is not yet confirmed or announced. Stream content to friends like you would with iTunes over the network? Integration with Apple TV? Customizable song-based ring tones? Well, we’ll find out in June. And so will Microsoft.

And in the December months during the peak spending season? Oh, you can expect another change, most notably in the price. And conveniently, my iPhone Prediction post happened to cover this. The article is long, so I will quote the most relevant part about the iPhone price drop in conjunction with a Nano upgrade:

The iPhone’s price must drop. However, that price drop can’t happen until the Nano lineup gets a storage space upgrade. When the price of flash drives drops again (to Apple wholesale), Apple will use this margin to upgrade their Nano lineup. Then, rather than apply that margin on the capacity of the iPhone, Apple will use it to drop its price instead. This will happen at the same time or a few months after the Nano drop.

If this happens in December, it will keep Nanos competitive, and the iPhone becomes more affordable since its number one drawback is that it is too expensive for Average Joe. If a Zune Phone turns out to be real, it will greatly increase the likelihood of my prediction coming true.

People have been practically begging for an iPhone product since 2002. Why compete with the juggernaut while it’s running full steam? Realistically, I expect a Zune phone in 2008 after the iPhone madness dies down.

Of course, if a decent Zune Phone can be released by 2007′s end, much props must go to Microsoft. It took Apple three years to produce their phone. If Microsoft can match that in under a year, they deserve all the credit they can get.

I want to point out that Microsoft already sells smart phones — way to irk all of your existing partners. Just goes to show that partnering with the devil only gets you screwed in the end.

Don’t Count MS Out… Right?

In order to reach the mass market, Microsoft will be forced to partner with Verizon since Cingular/ATT is already taken by Apple. A lack of a partnership would put their phones in no better of a position than their current smart phones offered by many carriers (AKA expensive). And, unlike Apple, Microsoft doesn’t have a religious following for its Zune Phone to bargain with Verizon for an extra special deal.

If it happens, Zune Phones could be subsidized. This may help Microsoft gain considerable market share among the money conscious consumer (everybody). So up to this point, things sound great!

But I Noticed a Storm Ahead, Sorry

Unfortunately, this taps into a whole new set of problems for Microsoft. With a phone priced at a directly comparable range to other phones that offer music, such as Verizon’s Chocolate, Verizon has a lot to lose if Microsoft’s phone takes off. Microsoft would cannibalize Verizon’s own customers at the direct expense of Verizon’s music store and music phone peripherals (like that retarded $14 custom headphone).

Which means Verizon isn’t exactly happy to see the Zune Phone’s price lower. Verizon makes a killing on ring tones and music, but if a new cheap phone came in that stole their market, they will not let that happen laying down. This will inevitably place Microsoft between a rock and a hard place when doing negotiations. You want it cheaper, but they don’t want it cheaper. What do you do?

Apple escaped this problem because Cingular loses no money to subsidizing the phone, although it is rumored Apple takes a cut of your monthly payments. But, the iPhone is expensive enough, especially during the first two years in which Cingular has exclusivity, that it will not impact the majority of the potential customer base. This means Cingular will retain their ring tone market for low-end consumers and benefit from Apple’s popular iPhone – at the same time.

And if Microsoft plans on releasing a phone at the same price point by either not partnering with Verizon or by going at it alone, well, that’s going to be a hard sell to consumers. There’s plenty of great smart phones out there that aren’t the iPhone. And, as this article probably makes clear, from here on out it’s all about the iPhone vs the rest.

Good luck, Microsoft.