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May 27, 2004

Microsoft Takes Aim at iPod

Apple's goal with their music store was to sell cheap music at, after costs, low or no profit to the company in hopes of driving sales of the iPod. Thus far, the system has worked well for them. Microsoft looks to head the other direction with the media player that they'll be marketing, according to a report in the Denver Post.


The Microsoft-branded devices will "look and feel" as good as the iPod for as little as $50, said Yusuf Mehdi, corporate vice president of MSN at Microsoft Corp., at the Goldman Sachs fifth annual Internet Conference in Las Vegas. The iPod sells for $249 to $499.

Aside from wondering whether Microsoft can truly manage a product that looks and feels as good as the iPod, what it looks like the company hopes to do is drive customers to use the music service that they'll be launching. Subscription based models, like the one that Microsoft will be using for their service, haven't been particularly successful so far. With such an inexpensive player, though, the idea of buying a subscription begins to be much more enticing.

Microsoft will also be releasing a range of players, so there is also the possibility that the fifty-dollar player will be a fairly underpowered item. Without specifics, it's hard to say. What can be said without doubt is that at this time a profitable, hard drive-based music player the size of an iPod can't be made for fifty dollars. The hard drive itself would eat up most of that cost, not to mention R&D, hardware, packaging, advertising, and distribution costs.

If Microsoft is selling a Flash memory device instead, then its natural target isn't so much the iPod as it is other Flash memory-based players.

The XBox proved that Microsoft can be successful outside of its normal niche. Their music strategy is a little more confusing to me--especially the subscription model for their store--but they seem intent on differentiating themselves from the iPod as much as possible on business model and mimicking as much as possible on form factor.

I look forward to seeing what they have to offer.

Posted by zombyboy at May 27, 2004 12:27 PM | TrackBack
Comments

Devil Gates remembers the shaving razor tycoon who revealed the secret of why the razors sell so cheap: razor blade refills.

Posted by: McGehee at May 27, 2004 06:12 PM

But razor blades are meant to be disposable. Will people really be willing to adopt that attitude toward the music that they buy?

Posted by: zombyboy at May 27, 2004 06:14 PM

Remember that MS has a virtual black hole of money to throw at the problem, and as much as Bill Gates would probably hate to admit it, Steve Jobs has eaten Gates' lunch on the whole "digital lifestyle" thing.

Of course, one has to wonder when they'll release the first security update. ;-)

Posted by: bryan at May 27, 2004 08:54 PM

BTW, those razor blade refills are getting really ridiculous. It's like $4 a pop for those triple-blade things. I'm thinking about going back to the disposable razors.

Posted by: bryan at May 27, 2004 08:56 PM

But razor blades are meant to be disposable. Will people really be willing to adopt that attitude toward the music that they buy?

It isn't about disposability, it's about the satisfaction of a demand. When you buy music, does that put you out of the market for more music for an appreciably long time? No.

The razor model worked while it did because the demand for razors never goes away.

Neither will the demand for music.

Posted by: McGehee at May 28, 2004 12:19 PM

I mostly use a Norelco, but when I want a close shave I do lather up and scrape with a razor. I tried getting a "keeper" razor and doing the refill thing, but now I've got enough disposables that, at the rate I use them, should last me the rest of my life.

Gotta love those warehouse stores and their giant economy size packages.

Posted by: McGehee at May 28, 2004 12:21 PM

I tend to think that if that were the case, the other subscription services would have worked, too. If you don't get to keep the song and play it a month from now, even if you've let your subscription lapse, is it any good for you to have bought it?

The disposability does come into play because, with razors, you throw the thing away without ever desiring to use it again--you want to use the replacement. With music, there is a desire for repeatedly using the thing; there is no replacement, only supplement. They really aren't the same things either in why people buy them or in what people want to do with them.

I don't ever rent CDs--if I like a song but I'm unwilling to pay for it, I'll hear it on the radio. If I like it and I'm willing to pay for it, then I want to keep it forever and ever. How does a subscription service actually satisfy my demand for music?

Notably, some of this is speculation, since MS hasn't detailed their service. I'm just noting up until now that users have shown a clear preference for download and keep schemes and no strong love for subscription services.

To me, this is closer to the "free" computer schemes that came out a few years back. Where a person was shipped a free computer and, in return, had to sign a contract for internet service through a specific provider for the next 3 years. The assumption was that a cheap piece of hardware could be a good loss leader for a subscription based service. I don't think any of them survived the experiment to continue it on currently because the model didn't work.

I think this hardware scheme may have the same effect. For example, if they do make this thing, it is a loss-leader for their service, and it is equal in ability to the iPod, then I'll buy one at the cut-rate price and just use it for the music library that I already have. I won't sign up for their service, but I have a 700 disk library that is just begging for a cheap mobile player. I'm not tied to their service in any way--and I won't pay a subscription for music downloads.

With the razor blade model, the customer is tied into an actual product, so the return business is a better bet. I don't see that with what MS is doing.

I shave once or twice a week and get stubbly the rest of the time. I use a Gillette Mach 3.

Posted by: zombyboy at May 28, 2004 12:41 PM

Notably, some of this is speculation, since MS hasn't detailed their service. I'm just noting up until now that users have shown a clear preference for download and keep schemes and no strong love for subscription services.

I guess I don't understand the distinction, then. It seems to me if someone has bought the hardware and downloaded the music through a subscription, then as long as they still have the hardware they still have the music.

Are you saying they can only listen to it one time after each download? If so then you're right -- it won't fly.

In the absence of more info, though, I just can't see that being how it works.

Posted by: McGehee at May 28, 2004 02:57 PM

If this report from CNet is right, then it is a music rental, not a purchase.

Fans of portable players could then pay as little as $10 a month for ongoing access to hundreds of thousands of songs, instead of buying song downloads one at a time for about a dollar apiece.

Few online music subscription plans have enjoyed great success to date, but some music company executives said they believe Janus will make renting music more attractive to consumers and eventually give a la carte download services such as Apple Computer's iTunes Music Store a run for their money.

The only new thing that Microsoft is adding to the subscription based model (assuming that they also have the capacity to sell songs individually) is the capacity to put the music on a portable player during the subscirption period. That's a significant addition, but I still wonder if it's really giving people what they want. It wouldn't give me what I want--I want to "own" the music. But what will kids (who will probably be the biggest users) want?

Like I said, I'm curious to see what they come up with, but in my mind, the model seems flawed.

Here's the link to the article.

Posted by: zombyboy at May 28, 2004 03:28 PM

Scroot. I'll just listen to the radio. Atlanta's a big enough market I have no trouble finding whatever I want to listen to -- except when 90% of the stations are broadcasting the Braves.

Posted by: McGehee at May 28, 2004 08:19 PM

news

Posted by: news- at August 25, 2004 09:46 AM
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