Is New iTunes Pricing Another Apple Tax?

Microsoft's CEO has talked about the so-called "Apple Tax," which is the price premium computer buyers pay for a new Mac. It's indisputable. Macs cost more than Windows PCs. Mac enthusiasts will argue that, feature for feature, most Macs are comparably priced to Windows PC. That's simply not true of Apple's lowest-cost computer (the $599 Mac mini) or the cheapest notebook ($999 last-generation MacBook); hardware for hardware they offer less than comparable Windows PCs. For people willing to spend $1,200 or more, Apple offers lots of value. But that's the real minimum cost to join the Mac club.

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Is the price difference a tax? Not really. Macs offer some different benefits than do many Windows PCs. But the tax is great marketing and highlights the value Windows PCs offer for less money. Some people prefer Rolex watches. I'm plenty happy with my $200 Casio. The point: Product comparisons don't work, which is one reason why Apple defenders take offense at Mac and Windows PC price comparisons.

But premium pricing claims—that tax—have real meaning when two identical items sell for drastically different prices, which is now the case with popular music from the iTunes store.

Yesterday, Apple's music store went completely DRM-free, also introducing variable pricing. Single-track pricing ranges from 69 cents to $1.29. Album prices already varied, but even more today than they did on Monday. Based on my review of pricing, iTunes buyers will spend lots more to buy music than they did last week and much more, in many cases, than AmazonMP3 or Zune Marketplace. For the Zune store, ridiculously more when compared with the $14.95 monthly pass.

New Microsoft TV commercials featuring Lauren and Giampaolo already emphasize Window PC value compared with Macs. The music counter-marketing opportunity is even bigger, provided Microsoft also makes some pricing adjustments. People regularly buying from iTunes Store may not know what music sells for at AmazonMP3 or Zune Marketplace, but they should be aware enough of iTunes pricing; it's more today than on Monday. Apple just put a big sign on the iTunes Store that says, "Kick Me." So, Microsoft, what are you waiting for?

Apple announced variable pricing in January at Macworld. CEO Steve Jobs insinuated that there would be more 69-cent tracks than $1.29 ones. Heck, if I can find them. I challenge you to look. But the $1.29 tracks are in your face.

iTunes vs. AmazonMP3 Pricing
Before continuing, an important clarification is necessary. Yesterday, Directions on Microsoft analyst Matt Rossoff blogged about AmazonMP3 also instituting variable pricing, including some $1.29 tracks. He writes: "Amazon.com has followed Apple into the fray." Now other blogs are picking up on this, and there is much, much misunderstanding about what Apple is doing versus Amazon, or even Microsoft. Apple widely raised prices on popular songs. Amazon did not.

I'll explain the different stores' strategies in a few paragraphs. For now, here are some pricing examples comparing AmazonMP3 and iTunes, which are the two top online music download stores:

• Six of the 10 songs in iTunes' "Top Songs" list sell for $1.29 each, such as "Right Round" by Flo Rida, Lady GaGa's "Poker Face" and "Gives You Hell" by the All-American Rejects. They were 99 cents on Monday. When purchased from AmazonMP3's "Today's Top MP3 Songs" list, the same tracks cost 99 cents each. Yesterday, as part of a New Music Tuesday promotion, Amazon sold the three tracks for 79 cents a piece.
• Every track on Flo Rida album "R.O.O.T.S" is separately priced $1.29 at iTunes, and the album is $9.99, or $11.99 for the "deluxe" version. Amazon's price: $8.99 for the standard album, which includes one more track than the iTunes or Zune Marketplace versions; Amazon sells the tracks separately for 99 cents. Neither Amazon nor Microsoft offer the deluxe album.
• Today's top album at the iTunes Store is Rascal Flatts' "Unstoppable" for $10.99. AmazonMP3 offers the same album for a promotional price of $4.99, or it did when I started writing this post. Some time in the afternoon, the price returned to $9.49.

These three comparisons show drastic differences in Amazon and Apple approaches to variable pricing. Like retailers often do, Amazon offers discounts on newer music. Apple charges more—a lot more. I purposely left out Zune Marketplace in the above examples because of Microsoft's arcane "points" pricing. From a marketing perspective, points don't easily compare to dollars and cents. That's too bad for Microsoft because Apple really charges more for essentially the same product, barring encoding, which, DRM-free, is AAC from Apple and MP3 from Amazon and Microsoft.

Zune Pricing Is Variable, Too
So how does Zune Marketplace pricing compare to AmazonMP3 and iTunes stores? Interestingly, it depends on the measure. One measure is variable pricing, which Amazon and Microsoft both use but not as aggressively as Apple. Microsoft does more higher-priced variable pricing than does Amazon. Each Microsoft Point is worth about 80 cents. So the typical 79 points per track is around 99 cents. How does Microsoft pricing compare to the examples above?

• Four of the 10 "Top Zune Songs" sell for 99 points, which is about $1.24, including Lady GaGa's "Poker Face." Same points pricing applies to Keri Hilson's "Turnin Me On," which—uh-oh—Amazon and Apple sell for 99 cents. Soulja Boy Tell`em's "Kiss Me Thru the Phone" also costs more from Zune Marketplace than AmazonMP3 but not iTunes Store, which charges $1.29. Microsoft sells the album for about $10, while the other stores only ask $7.99.
• Flo Rida's "R.O.O.T.S" costs about the same, as album or by track, as AmazonMP3—or less than iTunes Store.
• Rascal Flatts is Zune Marketplace's "Artist of the Week." Retailer Amazon treats new album "Unstoppable" to a discount. Apple charges more. Shock of shocks, Microsoft charges even more. The album is 900 points, or about $11.25.

For a low-volume music store, at least compared with AmazonMP3 and iTunes, Zune Marketplace is surprisingly aggressive about variable pricing. I would think Microsoft would offer more deals to encourage sales and to reward loyal customers, even against rising record label fees. They're called loss-leaders for a reason.

I don't expect Apple to pull back on variable pricing. As the No. 1 retail distributor of music in the United States, iTunes can nickel-and-dime customers. But Microsoft, and even more Amazon, shouldn't let that happen. Microsoft should make a marketing issue out of iTunes pricing, which is higher today than just two days ago. But it's harder for Microsoft to talk Apple Tax for music when Zune Marketplace sometimes charges more for albums than iTunes.

Microsoft Should Learn from Amazon
The messaging has to be about value. Why pay 30 percent more for a single at iTunes, when the same DRM-free track is available from Zune Marketplace for less? For every four $1.29 songs available from Apple, Zune Marketplace buyers can get five songs selling for 79 points, with some points left over. Apple has little incentive to lower pricing even if people complain because it's No. 1 and has a larger catalog than other stores. But price increases are always tough sells, especially during a recession. Microsoft should capitalize on Apple pricing.

But Amazon is better positioned than Microsoft, which should learn something about selling music from the retailer. Amazon didn't follow Apple to variable pricing. Amazon has long offered variable pricing, using sales tactics typical of large retailers. Every day, AmazonMP3 heavily discounts one album. Today, it's Fleet Foxes' "Sun Giant" EP for 99 cents. On Tuesdays, the discounted album typically releases that day, which yesterday was "Unstoppable." Amazon also regularly offers albums and singles at sale prices, which is contrary to Apple's approach of largely charging more for the same stuff.

Microsoft should imitate Amazon, particularly as Zune and Zune Marketplace expand internationally. But do more. It's time to restart messaging around the monthly $14.95 all-you-can-download Zune Pass. It's a great value, considering subscribers keep 10 songs, which reduces real cost to about five bucks a month. But why not offer more subscription content, syncable to more devices and without rights restrictions? Right, no DRM. Nokia has the right idea with Comes With Music.

Zune device owners could pay a monthly fee that lets them fill up the device. For example, Microsoft could offer a 1,000-song plan, where people pay X dollars for Y months to download up to 1,000 DRM-free songs. When they reach capacity, they pay up for another allotment. There are many ways Microsoft could and should differentiate Zune Marketplace around value. But first, Microsoft should follow that "Kick Me" sign and whack iTunes, calling the music pricing another Apple Tax.

[Please send your tips or rumors to watchtips at gmail.com.]