Microsoft Cuts Zune Price

Microsoft lops $50 off the device to make it more competitive with the iPod.
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SAN FRANCISCO --

Microsoft

(MSFT) - Get Report

, shifting its resources toward entertainment hardware, made a price move Wednesday to compete more effectively against

Apple's

(AAPL) - Get Report

iPod.

Additionally, a company executive addressed the rumor mill regarding regarding whether Microsoft has plans to acquire

Research In Motion

(RIMM)

.

Microsoft dropped the price of its 30-gigabyte Zune music player by $50, to $199, according to Microsoft's blog, Zune Insider. "It's part of the normal product life cycle, something we've had on the books for months," wrote Cesar Menendez in the blog.

That announcement appears timed to pick up on Apple's

launch of its new iPods with the touchscreens that have made the iPhone a hit.

The new 8-gigabyte touch-screen iPod will feature Wi-Fi and Web-browsing capabilities and sell for $299; the 16-gigabyte model has a $399 price tag. A 4-gigabyte Nano is $149, while the 8-gigabyte version is $199.

Microsoft reported in August that it sold 1 million Zunes in the device's first eight months on the market. Apple has sold more than 100 million iPods since 2001.

New customer research shows satisfaction with the 30-GB Zune is "really high," at 94%, Menendez wrote. "And we expect even more consumers will now want to discover the Zune experience at the new lower price."

"You'll see the continued evolution of that product," Mindy Mount, CFO of Microsoft's entertainment and devices division, said Monday at an investor conference. Changes to the Zune will address design deficiencies.

"People like the durability. They like to have the video screen. But maybe the device was a little heavier than people would like," Mount said.

Mount would not say whether new models will be available for the holiday buying season.

Looking beyond, Microsoft may add form factors and functions to new Zune models. "As opportunities come up, you can expect to see us expand along those ways," the CFO said. "For this holiday season, we don't have anything to announce right now."

Mount also played down rumors that Microsoft may be doing a deal with RIM, the maker of the BlackBerry phone and personal organizer popular with business users.

"I'd ask what that really gets you," Mount said of such a deal. Much of RIM's revenue comes from its hardware, whereas Microsoft's strategy is to offer its many PC-based software programs and services on mobile devices, she added.

Microsoft positions its Windows Mobile operating system as a lower-cost alternative for corporations that already own Microsoft Exchange servers. Companies usually have to install a separate server to handle traffic from corporate BlackBerry devices, Mount said.

"Mobile clearly climbs to the top of the list," of highest revenue areas for Microsoft, Mount said.

In a broad hint at integrated hardware-software devices to come, Mount said that it "wouldn't be unreasonable to expect" Microsoft to launch a mobile handset of its own.

"Doing pictures and music on a phone is something consumers want. It's a very natural thing for us to have in our product roadmap," Mount said.

Roughly 140 devices have installed the Windows Mobile OS, Mount said. "It's pretty consistently growing 80% a year." Last year, the company sold 11 million licenses. "This year, we expect to do 20 million."

Microsoft stock was down 35 cents, or 1.2%, to $28.45 in late afternoon trading.