What Happened:
In response to the low prices for the forthcoming Zune HD PMP, Apple today slashed prices on its iPod Classic and Touch lines to combat the possibility of Zune gaining market share. This will lower margins on the line for Apple, but given the endless cash that the iPhone generates, this will not likely effect their bottom line in an overly negative way. Microsoft has yet to respond. Apple cut the cost of the 32 gigabyte iPod Touch from 399 to 279. We hope that you did not buy one yesterday.
What This Means:
Apple just tossed the glove down for Zune. Instead of not worrying about the price difference, and standing on a supposed differential in product quality, Apple went all out and cut its margins to cut the Zune out of the holiday picture. War, in other words. Of course, Microsoft could simply respond with some form or rebate, promotion, or something similar before the all important Christmas season, but we will have to wait and see.
In the short term, this dramatically hurts the Zune line, which under the Zune HD was set to pick up a few points in market share this fall. Apple is digging the moat deeper around the App store, iTunes, and the iSOMETHING line. This is a new move, generally speaking, after Apple has tended to merely mock the Zune in the past.
What We Think:
The Zune HD is a damn fine PMP, and it has Apple worried. MSFT has been diddling about sending us a test unit, but for the time being, we are content with the reviews that have come out. Perhaps Apple will announce something today for the iPod line, perhaps not. Either way, with these cuts the game is back on full-speed. Microsoft will have to add a new bell, whistle, or price cut to the Zune HD to get it back to its pre Apple price cut level of competency.
