Zune Marketplace’s Absurd Pricing Scheme

by James R. Stoup Nov 13, 2006

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?


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:

$5 = 400 points
$1 = 80 points
100 cents = 80 points
1 cent = .8 points
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!


  • WHOA!

    Banks can invest your savings account BUT BY LAW they must equal $1 for every dollar you put in. It’s under the laws of FDIC. Remember the 20’s?

    Walmart, etc… Purchase the gift cards from a wholesaler, a wholesaler purchases these cards from the manufacture (Wallyworld probably purchases direct though) at a discount. Money made when sold. Apple only HONORS the card at face value. Comparing gift cards is TOTALLY different then the pricing matrix MS is using. A gift card is still cash and has CASH VALUE. Points have NO, ZERO, 0 Cash value because there a virtual proprietary monetary system.

    LEGALLY you CAN NOT use customer overpayment for anything other than a simple interest account, 1-2% APR, because it MUST REMAIN Liquid should the customer request it. Depending on POLICY and TERMS OF SERVICE the money can be held indefinetly however most states require merchants to return unused credit after a period of time.

    That in itself is the DIFFERENCE, you have monetary CREDIT. You buy points, transaction is complete and I’ll be my left two lug nuts there’s a statement of No Refunds in the TOS or License of the Zune store.

    SO until I spend all my points (roughly $100) Mr. Softy esentially charged me more than Apple, and because I traded my money in for points transaction is complete. MS keeps the money, they only need to pay Universal when a TRADE is made points for song. Understand. I buy music on iTunes, they have to pay Universal at that time (I’m sure net terms are in order for bulk payment proccessing, etc…).

    xwiredtva had this to say on Nov 14, 2006 Posts: 172
  • >$249 instead of $250 is psychological manipulation of pricing.  Unless you can explain some OTHER reason why everything they sell just happens to be priced this way. <

    Only if they charge you $250.
    That’s not deceietful. Charging you $5 for 400 points, then not granting you an even and fair monetary trade is.

    xwiredtva had this to say on Nov 14, 2006 Posts: 172
  • There’s a lot more to it… But there’s not enough time nor space to discuss it here. That’s why this will never see the light of day and MS did there job well in this matrix.

    And even if it was written out, chances are nobody will care anyways.

    To put it bluntly, your getting hosed.

    xwiredtva had this to say on Nov 14, 2006 Posts: 172
  • Comparing gift cards is TOTALLY different then the pricing matrix MS is using.

    You’re trying to argue that Apple sits around on gift card revenue and doesn’t earn anything else since it doesn’t treat it as bottom line revenue.  The rest, again, is distinction without a difference.  They may be forced to return the balance upon request, but until that happens (rarely if ever) then they are earning money on that money.

    And I’m not sure what difference any of it makes once you as the consumer have purchased your gift card or points anyway.

    Again, the legit criticism I see for MS is that they force you to buy in bulk.  The rest is rather uninteresting corporate accounting machinations.  They’re all a bit shady as far as I’m concerned.

    Beeblebrox had this to say on Nov 14, 2006 Posts: 2220
  • Btw, I’m trying to figure out why earning money on revenue is a criticism of MS at all.

    Beeblebrox had this to say on Nov 14, 2006 Posts: 2220
  • Where’s the problem in setting up a straightforward business? Seems like a devious way to make people keep coming back to their music store to use up the accumulating credit. Why they would shoot themselves in the foot like this is incomprehensible.

    SFGary had this to say on Nov 14, 2006 Posts: 1
  • Beeblebrox,

    I’ve got admit that as much as you rant about James being anti-microsoft in this thread you come off being irrationally pro-microsoft.

    That aside I personally dislike everything about the Zune player. It represents all those things about Microsoft I abhor. All they do is copy copy copy. Why not let the browser market be? Why not let the game market be? Why not let the mp3 portable player market be?

    Why not, instead of simply starting the copiers at Redmond doesn’t Microsoft come up with something new.

    I would be ashamed to be on the Zune team.

    Hadley Stern had this to say on Nov 14, 2006 Posts: 114
  • The points system is definitely similar to Apple’s gift card system. But the key difference is that Apple’s gift cards are OPTIONAL. They are available because gift cards are ideally suited for some situations. (Such as, say, gifts.)

    With Microsoft’s “points” EVERYONE is forced into that system, whether it suits them or not. Even if it’s good for someone with an Xbox, it’s bad for me without an Xbox. Why not make the MS points OPTIONAL? Good for Xbox users, while someone like me could use a normal system based on U.S. dollars.

    I agree with Mr. Stoup, and I have yet to see one logical argument that makes the points system “better.”

    I compare MS points to buying “Mickey Mouse Dollars” at Disneyland in California. By the logic of Zune’s defenders, this makes sense for the consumer, because they are ALSO valid at Walt Disney World in Florida!

    Or, you could just use U.S. dollars (like iTunes), which are accepted by every single company in the United States. (And many companies outside the U.S. as well.) It’s a proven system, and if iTunes were to disappear tomorrow (what’s the death watch on “PlaysForSure” now that Microsoft is pushing the Zune Marketplace?), my U.S. dollars would be good everywhere else.

    BJ Nemeth had this to say on Nov 15, 2006 Posts: 2
  • in this thread you come off being irrationally pro-microsoft.

    I will not be buying a Zune.  I will not be shopping at the Zune Marketplace for now, but I could change my mind if the product comes through.  I’m neither pro nor anti-MS, and neither pro nor anti-Apple.

    James’s rant is just silly.  For one thing, James will never buy a Zune or shop at the Zune Marketplace EVER.  It doesn’t matter what they do or how well or badly they do it.  It will always suck no matter what.  And he admits to rooting for Microsoft’s failure at every endeavor.  That’s “irrational.”

    I have only defended the points system to the extent that it’s not an unusual system nor particularly “devious.”  I DO think it’s a bit clunky and I don’t like being forced to buy in bulk, which I’ve stated repeatedly.

    And everyone keeps failing to consider what will almost certainly be the bread and butter of the Zune Marketplace, which is subscriptions, which are charged in dollars.

    Also, I have mercifully ignored the entirely different argument made in defense of iPod, that owners actually purchase very few songs and therefore the “lock out” system is totally fine and doesn’t affect anyone at all (while arguing at the same time for the run-away mega-success that is the iTunes Store!)

    Let me ask you, if no one purchases music at the iTunes store, then what does any of this matter for what is MS’s inarguably smaller customer base?

    Beeblebrox had this to say on Nov 15, 2006 Posts: 2220
  • The points system is definitely similar to Apple’s gift card system. But the key difference is that Apple’s gift cards are OPTIONAL.

    Which I’ve pointed out already.  Certainly it would behoove MS to make the point system optional, accepting points from X-Box Live but also dollars.  More options are what we’d ALL like to have with every product out there.

    I was trying to use the Napster Subscription system (free trial), and it just so happened that the one song I really wanted was a “purchase only” song, which means you couldn’t download it as part of the all-you-can-eat system.

    The same thing has happened to me with the iTunes Store.  There was one song I was going to buy, but it was “album only.”  WTF?

    So consistency and more options are great, and definitely should be advocated.  But they’re not all scream-worthy.

    Beeblebrox had this to say on Nov 15, 2006 Posts: 2220
  • Beeblebrox said, “And everyone keeps failing to consider what will almost certainly be the bread and butter of the Zune Marketplace, which is subscriptions, which are charged in dollars.”

    To this point in the legal digital download era, subscription-based models seem to have failed. One of the things I’m most curious about with the entire iPod-vs.-Zune business is whether the Zune can actually give the subscription-based model traction.

    I have no personal interest in subscribing to music. It just doesn’t suit me—I like to own my music outright. But it seems like it would be a great fit for a lot of people who aren’t me. And I think choice is a good thing.

    Give the Zune a year or two, and we’ll see whether or not the market for music subscriptions has grown. Maybe it’s true that only a very small percentage of consumers want to subscribe to music. Time will tell.

    BJ Nemeth had this to say on Nov 15, 2006 Posts: 2
  • <i>To this point in the legal digital download era, subscription-based models seem to have failed.</i>

    To this point, most legal digital download stores OTHER than iTunes Store have failed.  I don’t think the subscription model has really been tested.

    Personally, I don’t download enough music for this to matter, but my brother does.  He’d prefer it but it doesn’t work with the iPod.  And that’s the real catch.

    I also agree that choice is a good thing and I hope for a worthy successor to the iPod even if the Zune might not be it.

    Beeblebrox had this to say on Nov 15, 2006 Posts: 2220
  • One point that was addressed early on in the comments was that of visa charging for each charge made to a card.  Although those charges have gone down (the user said they were previously $1 each charge), they are still present.  And this is one reason that has been brought up before in debates over itunes pricing, that if they were to go lower than 99 cents, they would be making next to nothing considering all the hands getting a peice of the pie.

    Here, Microsoft has the ability to change things around, allowing them to charge as much or as little without worrying about the visa charge cutting into their profits with so many micropayments. 

    But of course here I am giving Microsoft the benefit of the doubt, yet again.

    Chicken2nite had this to say on Nov 15, 2006 Posts: 79
  • Lets see:
    $15/mo for unlimited downloads through the Zune Marketplace.

    And the so-called “points that you must oh so carefully think about before purchasing and make sure that you’re not getting screwed over by a company that already has enough money to buy every country in the world 5 times over”, well, they also work with XBOX 360 Marketplace (which explains having the “points” system at all in the first place. The genius up there didn’t understand you can buy things on XBOX Live with points)

    When are you guys going to understand that iPods are for democrats? Zune > iPod, no way around it. Email me if you want to argue.

    JebusTheMexican had this to say on Nov 15, 2006 Posts: 1
  • Actually, there’s at least one very good reason why MS’s implementation is a good idea. You just have to look at it from a point of view other than your own.

    Under 18’s can’t have a credit card.  Sure, their parents could buy them some MS points using their card, but there’s another option available:

    The under-18 with a desparate need to play the full version of Uno on Xbox live, or buy the latest depressing Emo song (whatever the kids listen to these days, I’ve no idea) can also go into a brick-and-mortar store and buy an MS points voucher with cash, which they then associate with their account, no credit card needed at all.

    I imagine there would be a pretty huge percentage of under-18s who would love to use ITMS if it wasn’t for the credit card thing. MS is going to attract them in droves.  It’s not that much different to buying time in bulk for your Pay-as-you-go mobile phone.

    tezmc had this to say on Nov 15, 2006 Posts: 1
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