Zune Marketplace’s Absurd Pricing Scheme
Lately I have been trying to avoid talking about Microsoft. I figured the whole Zune thing had been covered to death and so my input wasn’t really needed. I continued to think this until I read about Microsoft’s “Zune Marketplace”. This iTMS competitor was so badly designed I just had to write something about it. Even though by now I expect Microsoft to be incompetent, this was taking ineptitude and elevating it to an art form. But let me lay out the facts for you lest we get ahead of ourselves.
As we all know, purchasing songs, videos or games from the iTMS only requires a customer to create an account and have a valid credit card. Thus, like most other business transactions, you purchase a good and the price of that good is billed to your credit card. It works the same way at the grocery store, at the gas station or in a restaurant. And for the most part it seems like a pretty good system. Plenty of people have credit cards and they understand the concept of purchasing items with them. So, how, you ask, could Microsoft screw this up? No, first you might ask, what is there to screw up? I mean, the system already works. All you need your customer to do is show up with a credit card? Right?
Wrong!
I suppose Microsoft saw this as a chance to “innovate”. And we all know what happens when they innovate (in the 25 Worst Tech Products of All Time MS has many entries) This was one of those times when Microsoft should have just stolen the iTMS concept lock, stock and barrel. It would have been unimaginative, but at least it would work. Instead, they decided to go with the following scheme:
The 5 Step Plan To Fill Your Zune With Legal Music
1. Create a free Zune account
2. Register a valid credit card
3. Buy “points” from MS
4. Scratch your head as you try to figure out why you need to buy “points” to buy songs. Why can’t you just use standard American currency? Doesn’t Microsoft accept the Dollar anymore?
5. Say “screw it” and go buy an iPod
Adding a completely unnecessary layer of confusion is, in and of itself, a bad thing. But it wouldn’t be Microsoft if they didn’t go that extra mile to rape their customers. You see, when you buy these “points” you can’t buy them as you need them, you have to purchase them in Microsoft defined denominations. In other words, Microsoft just invented a currency and they require you to invest in this currency before they can sell you any music. And just if you were wondering, here are the denominations:
$5 = 400 points
$15 = 1200 points
$25 = 2000 points
$50 = 4000 points
But wait, it gets BETTER! There isn’t a 1 to 1 correspondence between the value of a “point” and the value of a penny. Let me break out some math for you:
If
$5 = 400 points
then
$1 = 80 points
therefore
100 cents = 80 points
meaning
1 cent = .8 points
or
1 point = 1.25 cents
So, let me explain why this is important. If Microsoft prices a song at 79 “Zune Points” is it cheaper than a 99 cent song from Apple? I don’t know, lets do the math.
79 points * (1.25 cents/1 point) = 98.75 cents (or approximately 99 cents)
So the answer is “no, the MS song isn’t cheaper, it is the same price as Apple’s”. So, that means, to find the actual price of anything on the Zune store you have to multiply it in your head by a ZP (Zune Point) factor of 1.25, and since the general populace isn’t to keen on doing math in their head I can only conclude that this will cause no small bit of confusion. But wait, it gets better.
If you recall $5 is the lowest denomination you can purchase. So if you want to buy one song from the Zune Marketplace you have pay Microsoft $5 up front and let them keep your remaining 321 points (or $4.01, this is beginning to get confusing). Now, the expectation is that you will be back purchasing more songs (and more points) and so you won’t care about your balance. But, what you are in fact doing is giving an interest free loan to Microsoft (because they, of all companies, need the money).
Of course, you could just spend all of your points each time you buy music, but would require you to purchase songs in multiples of 31,600 points (that being the LCM of 79 & 400). That works out to 400 songs for $395. A better plan would be to buy 5 songs for 395 points (or $4.94) and just save your 5 remaining points for some future purchase. In effect, Microsoft has created a store that only accepts gift cards as the valid method of payments. And if you don’t think thats insane then you obviously already have pre-ordered your Zune.
I know what you’re thinking. Why would Microsoft do this? Perhaps to screw customers out of their money by creating a complex, uselessly confusing layer designed to hide the real price of their products? No, of course not. Why, according to Zune.net the reason is:
The Points that you purchase can be easily managed in a special account that you can use on Zune Marketplace and Xbox Live Marketplace.
Well there you go. It isn’t targeted at average consumers it is targeted at these special Marketplace users. So how many of theses users are there? To figure that out we need to know how many Xbox Live users are there. Well, there have been 24 million Xboxes sold and almost 6 million Xbox 360s sold (as of Sept. of this year). So, if every Xbox owner also buys a Zune, and they also decide to use both Marketplace services (or else what’s the point?) then this service will be useful to, at most, 30 million people. That assumes that all of those people who bought Xboxes outside the USA fly over here and buy a Zune (because the Zune is US only baby!) and then use that Zune in America to load up on their music. (presumably they can then fly home and enjoy their music, assuming of course, that they can both read English and enjoy American music, but whatever)
A more realistic figure is Microsoft sells around 2 million Zunes and maybe half of those users also use the Xbox Live Marketplace. So, this horrible system has been put in place (according to Microsoft’s logic) to make life easier for less than 1 million people.
“Welcome to the Social”, b***h!
del.icio.us
Digg
Facebook
Slashdot
StumbleUpon
Comments
I own two Macs and an Xbox 360. Oh, sure, one PC but I use it as little as possible.
I don’t have issue with the MS Points concept although it does, indeed, bring into play a new monetizing system. The reasons I can guess:
1) As a consumer you don’t feel guilty spending “points” vs. actual dollars; sure you’ve already bought the points but guilt is a strange thing
2) Raising prices is easier because the “points” thing is money but not really; regardless of the dollar amount of a song, going from 79 points to 89 points doesn’t seem like a big deal although that difference adds up over a subscriber base
3) I’m sure some accounting people have figured it’s in MS interest to get “advance payment” (by way of blocks of Points) based on the time value of money or some other interest-related concept
I’m not against the point system nor have I really thought much about it. It’s “how it works” on Xbox Live Marketplace so I’m stuck with it.
My only guess would be because 79 “points” might have the marketing advantage of seeming cheaper than 99 cents (ignoring the fact that it is actually 1/4 of a cent cheaper).
Maybe now all the Zune users will know how us Canadians feel when we see USD, having to convert it in their heads. They’re providing an experience that no American has ever had the pleasure of feeling!
Mr. Stoup,
I agree with your analysis of the pricing scheme of Marketplace. However, if you look at it from Microsoft’s point of view, it is actually a very smart idea. Like you said, the average consumer in the United States is an idiot. I don’t distinguish myself from this population because, well, hey, we all do stupid things, especially with our money. That being said, most people will just see that they have to pay 79 points as opposed to 99 cents. They will not even make the correlation that 79 points EQUALS 99 cents, and that they will, indeed, have to shell out money that they didn’t intend to spend otherwise. In essence, this does, in fact, create an interest free loan on the part of the consumer. If anything, the argument shouldn’t be made that Microsoft sucks, or that everyone who uses the Zune is an idiot. While it may be true that a lot of people who use the Zune are idiots, here is where I draw my distinction. Microsoft doesn’t suck for creating this pricing scheme. It’s brilliant. Make the consumers pay more than they expected. If they use it all somehow, fine. If not, then we’ll have some of their money for a while. They won’t know any better because most of them are dumb.
However, not all Zune users will be dumb. Many will find other ways to get music. For those people, it doesn’t matter how you price it, they’re not going to be getting music from Marketplace anyways, unless there’s some other vested interest in Marketplace. Say, for instance, owning an XBox.
Therefore, this was actually a very smart move on the part of Microsoft. While it sucks for some consumers, it works out to Microsoft’s advantage, which is obviously what they want. They’re a business, and they are in the business of making money.
I hope no one views this in any way as a personal attack. You can use your Mac, I’ll use my PC. You can use your iPod, I’ll use my Zune. The world would be a much better place if people understood that different people have different tastes.
-Scott
Since you like to talk about Zune, check the Zune’s chipset also:
http://www.zune-online.com/news/zune/we-have-zunes-chipset-info.html
And as I posted in my first comments I tried to use the Zune MarketPlace from Greece to buy a track. And it works!!!
http://www.zune-online.com/news/zune/buying-tracks-from-greece.html
These comments have spoken about the “MS currency” aspect of this system.
What about what that means to an individual using it? The only legal complaints you may be able to make, or issues that may be resolved as a consumer are with the “money for points” exchange. Any other issues you have, like with what you get for “spending” points, could be up to MS alone, in their newly created economy. You may be very limited with what you may do regarding what you consider “value” for a points exchange since it is not a “real money for product” exchange.
They are separating the music from the purchase! Spending points can be interpreted as “signing their one-way agreements” as far as their new “economy” is concerned, leaving you without much of a legal recourse. (virtual money and virtual objects that go missing or taken away in an online game come to mind)
This sounds like they may be able to use this licensed/non-purchase-purchase as a selling point to any music labels from whom they seek music-product. After all, in their system, they can play prosecutor/judge/jury with any issues the users bring up in regards to the “non-sale-sale”. Potentially also giving more weight to their own or their suppliers desires regarding use of their “non-sold-sold” products.
Or is this all in my head….
You can use your iPod, I’ll use my Zune. The world would be a much better place if people understood that different people have different tastes.
This would be a fine thing to say if it wasn’t the case that Microsoft is exploiting the greed and anticompetitive nature of the music industry to try to gain monopoly.
When I begin to think about it, the extent to which Apple appears to have resisted the draconian wishes of the music industry in iTunes is absolutely extraordinary. Note that this does not necessarily excuse locking out other music player manufacturers, but the article linked to above convinces me that Apple’s ipod has actually done us a vast service in the long run, if simply by showing consumers how the experience should be. In short, a precedent has been set and it’s a superb one.
/optimism
Check out this anti-Zune website at: http://www.microsoftshitbrick.com ... it’s hilarious!
Nice article. It’s a bummer that there are comments on the article where people are stating opposing viewpoints without actually backing up their view with supportive data.
I agree with the points made in this article (opinion). And I’m going to back up that opinion by stating facts based on personal experience. We run a Google-like Adwords type of program at MacUpdate that we build that allows people to buy and control online advertising campaigns themselves. They do it by purchasing “credits” to a credit card. MacUpdate holds the “credits” in a retainer account.
Right now we’re looking to re-work the entire system to eliminate credits. We’ve found that it totally confuses people. And when these people are confused, they DON’T buy more credits and continue the campaigns. And I’m not just talking about average developers looking to test the system. I’m talking about companies that really need the advertising on MacUpdate. So it’s not just as casual as say, buying a $0.99 song. It’s something these companies need, but they get so confused about the conversion and what a “credit” is actually valued at, how many impressions they get with a credit, etc… that they cease to spend.
There. I’ve stated my data from my experience that backs up claims written in this article. I didn’t just state an opinion without supportive evidence. I’m not saying this because I use Macintosh. I’m saying this for the simple reason of experience I’ve had issuing the exact same type of “make believe” currency. I hope those other people with other viewpoints can do the same, because I’d actually be very open to learning about how this could be an advantageous move for Microsoft.
Thanks, Babbleboy. If you want to see something equally funny, check out the Zune installation error screen. You can find it at http://www.engadget.com/2006/11/12/stores-selling-zunes-early/.
I don’t like the fact that I have to spend a minimum of 5.00 everytime I want to purchase a song (or songs). I like iTunes because it’s simple to use and straightforward. I mean, hey there have been times where I’ve only had 2, 3, or 4 dollars in my account at the time and was able to buy a song or two that I liked and really wanted right there and then. With the Zune Marketplace, I have to buy “blocks of points” meaning I have to spend at least five bucks…five bucks that I might not have right then. So that means if I’m browsing the store and come across a track that I am really feeling and want right now, if I don’t have any points saved, and don’t have five bucks, I’m out of luck ‘till I get paid. That just doesn’t make sense to me. I’ll stick with iTunes.
Thanks for an interesting article. While I don’t find flaw with your analysis, I think your conclusions are a little extreme.
I think the point ratio scheme is pushing at the edges of ethicality a bit (ie it’s sleazy), but it’s only one step down the road from pricing a $400 item at 399.99.
On the other hand I think the “interest-free loan” scheme is a pretty good idea. Microsoft can make a ton of money off the float from the spare points. How much interest can you make off of $4.99 (the max you’ll ever have outstanding, regardless of what other comment posters here imply)?
This is one of the major ways almost every large company creates revenue. It permeates through all kinds of business to business transactions (although in that context it usually turns up in the reverse: payment is delayed rather than goods being delayed), and it’s inevitable that it will hit consumers too.
Sure, a better company than Microsoft would use the interest they make on all that cash sitting around to lower prices for consumers. Maybe even Microsoft is. It’s not clear if they’re getting better or worse deals from the music peddlers than Apple is. I wouldn’t be surprised if MS’s margins are tighter.
I’m a big fan of the iPod and iTMS, and will probably never try out the Microsoft shtick, but I can’t begrudge them making a buck (unless you count not using their stuff ‘begrudging’ ).
After reading what I wrote you should have come to one of two possible conclusions
Wrong. MS has implemented a monetary system based on points, the same system they use with X-box Live and which is transferable from that system. You may not like it (and clearly you don’t) but that neither makes it right or wrong.
The question for me is whether or not you’ve picked a suitable whipping boy for your typical anti-Microsoft tirades, and I have agreed with you on occasion. This isn’t one of those occasions.
Other than calling it “points” instead of “cents,” the only real difference here is that you have to buy points in bulk, with a minimum of $5 (about 5 songs).
Ideal? No (but I’m hardly the target market here). Is it worthy of yet another excoriating OHMYGOD CAN YOU BELIEVE HOW MUCH MICROSOFT FUCKING SUCKS AT EVERYTHING??!!! from our beloved Stoup? Not really.
For one thing, the Marketplace’s chief source of revenue will almost certainly be all-you-can-eat subscriptions (a feature completely absent from your rant), which is denoted in dollars, not points.
Heck, if anything you should be glad. If the Marketplace is as bad as you say, then consumers will stay away in droves. You, who admittedly root for Microsoft’s failure at every endeavor, should celebrate this incompetent misstep, if indeed it turns out to be one.
the extent to which Apple appears to have resisted the draconian wishes of the music industry in iTunes is absolutely extraordinary.
Um yeah, as long as you ignore them capitulating to the draconian wishes of the music industry by implementing restrictive DRM, then they certainly have resisted.
Yes, MS has gone the extra step of paying a kickback to Universal (and probably to the other labels as well) for every Zune sold, but it’s hardly enough to exonerate Apple while denigrating Microsoft.
t’s only one step down the road from pricing a $400 item at 399.99
I was going to make this analogy as well. Go to the Apple store and see if you can find any device or computer that does NOT have a “9” at the end of the price. Do they price the iPod for $249 instead of $250 because that’s the fair market price they arrived at after totaling expenditures and estimating a fair profit, and it just happened to come up a dollar short of $250?
They do it because psychologically $249 seems much cheaper than $250. MS is doing the same thing, just implementing it in a different way. To say this is the foundation of sleaze when MS does it and perfectly fine when Apple (or any of the other millions of companies) does it seems a tad over-reactionary.
Mr. Stoup, you certainly come across as being a short-sighted butt-head. Let’s take a 2 step process and plug in superfluous items to make it appear twice as complex. You are stooping lower than MS in your attempts to trash them.
I’m no MS fanboy and I probably won’t be buying a Zune anytime soon but I certainly won’t be spending my dollars or points on shackling myself to a DRM-laden iPod…even if that means I can’t hang out with the self-appointed cool kids like you with your white ear buds.