Apple’s iPod Price Cuts Derail Zune Progress

Well, Apple has swept Microsoft’s legs again.

First it was Snow Leopard’s early release cutting in front of the upcoming Windows 7; now, today’s Apple’s iPod enhancements and price cuts are set to trip up Microsoft’s Zune HD rollout on Sept. 15.

Ultimately, Snow Leopard only buzzed for a short time and is unlikely to have much effect on the launch of Windows 7 on Oct. 22. But today’s iPod/iTunes news could be a kick in the head to Microsoft’s low-price strategy to sell lots of its Zune portable media players this holiday season. Zune underwent a significant hardware and software refresh in late May and will be generally available, with the new name Zune HD, on Sept. 15.

The Apple announcements that had the tech world swooning and tweeting on 9-9-09 include: a new version of iTunes with syncing and app management upgrades; price cuts to iPod Nano models with new features such as a video camera and audio recorder (8GB for $149, and 16GB for $179, a $20 price cut on the high end); price cuts to the lower-end iPod Touch models (The 8GB model is now $199, down from $229), and additional storage and a faster processor for larger Touch models (it has shelved the 16GB model for a 32GB version for $299 and a new 64GB model for $399).

You’ve got options folks.

Though the iPod looms large over Zune in nearly all categories — market share, advertising, consumers’ hearts and minds — Zune’s best bet to compete is not as much with features like a bigger screen, Wi-Fi or an HD radio, but rather with its lower price. That advantage is now in jeopardy.

For example, the 32GB version of Zune HD will sell for $289.99. Even though that’s still $9 less than the new $299 price of the 32GB iPod Touch, under Apple’s previous price for the same model ($399), the Zune was over $100 cheaper. The only bright spot for Microsoft is that the $220 16GB Zune HD is only $20 more than the 8GB iPod Touch.

Apple’s deep price slashes indicate that the company sees Zune as a legitimate threat to gain market share. But that’s cold comfort for Microsoft. Aware of the Zune HD prices, which were announced last month, Apple added features to the iPod fleet and closed the price gap to rub Zune out of the holiday buying season.

How can Microsoft retaliate? It may too late to add features to the Zune HD, but Redmond could cut prices by adding a rebate or a promotional sale or something like that. Or it could reallocate more cash toward Zune’s advertising budget.

But no doubt the iPod price cuts, along with a beefed up ecosystem with iTunes 9, are a blow to Zune and could make for a blue Christmas in Redmond.

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