How to Kill a Zune: Give It Away

Phones are a utility that is required for maintaining a normal life style. You need it when apply for a job, have a medical emergency, or to order pizza. On the other hand, music players are not essential. You will always cancel your music subscription before your phone service.

Despite this very obvious reasoning, it seems Microsoft is trying to “innovate” the music player market by making the Zune subsidized.

So instead of paying $250 for a Zune, now you might pay $50 for the Zune and $20/mo for 2 years. In a time when DRM is finally being peeled away, Microsoft is still trying to figure out ways to lock their customers in. But I will accept that there is a market for “renting” music, which is exactly what that monthly subscription fee would go toward. But there is a second consequence to what Microsoft is planning to do.

By subsidizing the Zune, the brand is cheapened. Just think: would you pay full price ($200-$300) for a phone that you can get for $0 and a 2 year contract? Never. And if you were asked to sell it, would you expect to get $200 for it? Maybe you might, but to you, it’s worth something in between $0 and $200. The problem is image, and by making your product “free” or even half off, you destroy perceived value in your product.

In short, doing this would torpedo the Zune’s ability to ever fully compete with Apple. The iPod is a premium product that people save up for months to get. If they gave them away on street corners, you can most certainly guarantee that the iPods image would take a beating fast. You would likely stop seeing celebrities with them as soon as the next “exclusive” competitor was released. Right now, when you get an iPod as a gift, you know it was expensive. But if you got a Zune with a “2 year contract”, it suddenly feels cheap, even if it might cost more in the long run. Besides, only people who can’t afford the iPod get a Zune — or at least that’s how regular consumers might start to think of the situation.

Why would being more affordable hurt?

• In order for the cost of the Zune to be made up, the subscription fee would be substantial. It currently costs about $15/mo for a “to-go” subscription service. It would need to be $20 or $25 a month to repay the $250 of the Zune. At a $5/mo margin, it would take two years to pay back half a Zune.
• The product is more difficult to give as a gift. It’s sort of like receiving one of those Nokia phones for Christmas and you still have to pay the plan out of pocket. Wow, mom, you shouldn’t have.
• What happens when DRM is abolished and none of your customers can take advantage of that? This may be a reality sooner rather than later.
• When the iPhone comes out, people will be comparing the Zune monthly pass to it. Except a phone is a necessity. It doesn’t matter if they aren’t the same thing. It’s an unfair comparison, but it will happen — and the Zune will look like a crappy deal in comparison.

I know Microsoft is struggling to find an edge over the iPod, but this isn’t it. First they wanted to do the wi-fi sharing, but that didn’t exactly turn out as good enough, especially now that DRM is about to wash away. Then Microsoft thought about a Zune phone, but that would be a tragedy. They tried to compete on features, but then they realized style is not a feature. So they tried hip marketing, but it all just came out freaking weird:

And now they’re thinking about slashing prices like there is no tomorrow. Here’s my three suggestions:

1. Don’t add DRM to songs being shared that don’t already have DRM in them.
2. Get rid of your crazy E-induced ads and start using humans in regular, every day life doing regular things.
3. Fight the labels and either lower prices or remove DRM entirely — before Apple does (and they will).

If Microsoft wants to compete, they need to stop avoiding the real issue. Put consumers first. None of the Zune’s competitors lock in their customers for long periods of time, and introducing this plan will only back fire and further degrade the brand. Microsoft should use its considerable clout to do some hard-core negotiating. Take one to the chin for the consumers and people will recognize it.

So long as Microsoft follows Apple’s moves, they will always be perceived as another iPod-killing “me too” company. They need to lead the industry if they want people to abandon their iPods, which just crossed 100 million today.