The surprise announcement that the new 30GB Video iPod to $249 has left Microsoft flat footed. They had intended to announce the Zune 30GB player at $299 later this year. This would have still been at a loss but now Microsoft is looking at a deeper loss per player than they initially thought.

In the meantime, Apple continues to drive down the cost of the key iPod components. According to Businessweek and iSuppli, the cost of each iPod decreased consistently from revision to revision. This largely reflect the buying power that Apple now controls making it even more difficult for the likes of Toshiba (the manufacturer of the Zune Player) to source.

It’s also growing more profitable for Apple (AAPL) with each passing revision to the product, says market research firm iSuppli. The researcher has just completed a teardown analysis of Apple’s second-generation iPod nano, released Sept. 12 (see BusinessWeek.com, 9/13/06, “Apple’s Latest Fruits”). The conclusion: It costs Apple significantly less to produce a player with average memory capacity than it did a year ago.

This buying power will stand Apple in good stead when it comes to keeping Microsoft on edge. Indeed this edge that Apple has will be very hard for Microsoft to compete with unless Microsoft commits upfront to large inventories, further eating into costs of the MP3 Player.

Microsoft not supporting Playsforsure in Zune

Microsoft will not be supporting Playsforsure content on the Zune player. The rational from J Allard, VP at Microsoft was:

That continues to be the premise for devices that are branded in that category, and we think that we’ve clearly done a lot in that program, where there’s a lot of devices out there, there are a lot of services out there, there are a lot of partners, and there are a lot of satisfied customers. We like that program. We’ve also found that there’s a category of customers that say, “Give me a brand experience, advertise it to me on television; I want to be part of the digital music revolution, and that solution [PlaysForSure] doesn’t work for me.” So they’re two complementary solutions — not everyones gonna want Zune and not everyone’s gonna want PlaysForSure. They’re different paths there, and we’re okay with both of them.

I am not sure that the consumer does agree that there are two markets. They either want their music everywhere or they don’t. My money is on the fact that customers purchase it once, then they want to use it everywhere. There are going to be some very P*** off customers when they purchase the Zune and they cannot move their music over.

This obvious would have been discussed in development. There is generally only one reason you destroy the customer experience, and that is for strategic reasons. The only reason that I can think of is that they want to drive the Playsforsure partners (Amazon, Yahoo, Raphosdy ) out of the business as a fast way to get marketshare. This is totally consistent with past Microsoft/Partner behavior.

Real said Monday that its Rhapsody service would switch over to its own in-house DRM software called Rhapsody DNA, ending a partnership with Microsoft for its PlaysForSure Windows Media technology. The SanDisk Sansa e200 line will be the first with the DRM embedded.

The announcement puts to an end Real’s short-lived use of Microsoft’s PlaysForSure digital rights management technology. Real began employing PlaysForSure following its settlement with Microsoft last October. However, Microsoft’s DRM proved to be glitchy and prone to error, the company said.

Real Cuts Cord on PlaysForSure, WMA

As I have said before, this is a bloody mess.

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