"...our ability to embrace and benefit from or compete with new business models - and I would say ad-funded and open source, more than this hardware thing - is more the way to categorize the key competitive dynamic for us. [Does Zune fit into the hardware piece of this?] Sure it does. Because the value of Zune, if we're successful, is all in the software. It's in community [the ability to share music and pictures with other Zune users]. I want to squirt you a picture of my kids. You want to squirt me back a video of your vacation. That's a software experience. The truth is, though, 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."
Steve Ballmer took time out recently to talk to BusinessWeek about the Zune, Xbox, and Windows Vista - where they're at now, and where they're heading. One of the major points to come out of the interview was the claim that the Zune, unlike the Xbox 360, would not be losing money through the sale of hardware alone. That's good news for Microsoft's accountants, but comes across as an awful lot less risk-taking by the company, though that's not necessarily a bad thing either. There's a time and place for gambling, and you certainly have to pick the right moment before taking the plunge and relying on the sale of accessories and media to cover any monetary losses in the sale of hardware - especially at this current stage, when the Zune brand is a mere blip on the radar, and demand is well short of that of the iPod.