Zune: Hurts Microsoft and Partners more than Apple

Yesterday, Microsoft announced pricing and release dates for its anticipated Zune portable media player. Once thought to be the greatest threat to Apple's dominant iPod lines, some experts now contend that the device will do more damage to Microsoft partners instead.

The Redmond Wash.-based company announced that it will price its new device at $249, putting itself in position to harm partners who rely Microsoft's PlayForSure alliance - a partnership of manufacturers united under Microsoft's Windows Media Player.

Before, it was Apple and everybody else, with most of them in the Microsoft camp, Jupiter researchers commented in an official company brief on its website. The Microsoft camp just got a lot smaller.

The price is also a reaction to Apple's new aggressive pricing of its video-iPod, which is $249 with similar storage space experts believe. At this price, however, Microsoft is selling at a loss, while Apple still makes profits.

We believe [Microsoft] not pricing lower [than $249] demonstrates AAPL's (Apple) under-appreciated scale and supply chain strength, Shaw Wu of American Technology Research told clients.

In research released on Friday, Wu contends that Microsoft will lose nearly $50 per every Zune sold, while Apple enjoys an estimated 18-22% gross margin and 8-11% operating margin.

To us, the key question is whether Zune priced in-line with a vPod will take share with its bulkier form factor, same Windows UI and software currently available from 15-20 vendors, and inferior battery life, he said.

Regadless, the analyst believes the Zune will see modest success due to Microsoft's vast recourses and strong brand, however also concludes it will come at the expense of its Windows 'partners.'

Microsoft's Zune player will be available on November 14, the company said.