"The truth is," Ballmer added, "if it makes money, it will be built into the gross margin on the hardware. We'll figure out how to make money on the community perhaps later though advertising or other means."
Translation: We have not clue! We don't know if the hardware will make any money. The software may not do what we want. Advertising is the catch phrase right now, so I'm using it. If it actually succeeds, its because we just subcontracted a box with wifi and slapped on a marketing campaing.
Asked how much money Microsoft will lose per Zune, Ballmer said, "None."
"Apple put the hammer down there, dropped the price [of its 30GB iPod] down to $249," he continued. "If they had been $299, it would have been nicer. They have the advantage of scale. So we're at $249, too. We don't make a lot of money, not to start out."
The part of the interview that didn't take place and wasn't answered absolutely honestly is as follows:
Q: So, you mean $249 will cover your hardware development, software, marketing, and sales?
A: No, of course not. That's how much we'll be paying Toshiba to make the Zune for us, less a couple of dollars, so we can say we're not losing any money on it.
Q: Then what about the hardware development?
A: Well, we spent some millions on that, but couldn't come up with anything, so we went over to Toshiba and asked them to add wi-fi their existing Gigabit player. They said that would be easy, just use a double PC Card connector and slide in a wi-fi card.
Q: That's all?
A: Well, no, we had to spend a few more million on the software to get he wi-fi card working. We made limited progress, so right now, the Zune only talks to other Zune players. We might add the ability to talk to other wi-fi computers, but that depends on whether we have some more millions to spend on that development.
Q: What about sales and marketing?
A: Oh, we don't count that. It's part of a campaign, so we're writing it off as a one time expense this year. We'll do it again next year if we still have to, and we'll probably still have to.
Q: How many units do you plan to sell this year?
A: As many as Toshiba can build. They said they could get us at least 1000. That should be enough to get in the hands of a few of our important reviewers and a few for real customers. It will create the impression of such a shortage that everyone will want to see what the big deal is. Of course, we don't want it in the hands of too many people, especially those that will say bad things about it. It's one thing for them to speculate, it's another to actually have evaluated one and speak from experience. |
