I suspect the Zune price drop had more to do with

[hometeam360]

the release of Zune 2.0, than competing with Apple...

After all, you don't want people in the 30 day window trying to return $249 Zunes so they can get the new ones.

[Kaiser]

I'm convinced that the Zune is going down the same path as Creative in terms of pricing.

[kendrid]

They are trying to unload all the ones in stores.

Did you see Woot a few weeks ago?  They had thousands of Zunes (new, not refurb) for $155 shipped.  MS is trying to unload them.

[cellocello]

If MS thought they could continue selling zunes at $249, they would have.

MS wishes it could sell an mp3 player for $400 like Apple -- I predict the next zune will cost too much, given what it does.  They don't want to be seen as the "cheaper" alternative to Apple.

[prince_alfie]

If MS thought they could continue selling zunes at $249, they would have.

MS wishes it could sell an mp3 player for $400 like Apple -- I predict the next zune will cost too much, given what it does.  They don't want to be seen as the "cheaper" alternative to Apple.

you mean budget ipod? 

[cellocello]

you mean budget ipod? 

Ya, that's exactly what MS wants to avoid.  Honestly, watch the new Zunes come out at $349.

[mzunefan]

I think the Zune 2.0 will do everything the iPod classic does and more and cost a lot less than it.  I think a couple HD size models will come out not just an 80 gb

[Knyce4X]

Yea I'm probably gonna wait a year before I get a new player. So I can check out how the Zune 2.0 is, Apple will prolly have a larger capacity iTouch (maybe 20-30gigs flash) by then (they alrdy scrapped the 4gig iPhone). It's most likely gonna be between those 2. For now I'm good with the Zune1, hopefully we can get an update =) 

[Socal]

If MS thought they could continue selling zunes at $249, they would have.

I think you are spot on cellocello. Not only does heavy discounting mean no profit for Microsoft, it hurts the perception of the product with retailers (and customers). Heavy discounting results in a race to the bottom, with the chance that no one makes any money. This is likely the reason that Costco dropped the Zune - they could no longer guarantee to their members that they offered a "good" price. Consumers begin to wonder if they were ripped off by buying at a higher price following heavy discounts (look at the uproar over the iPhone price cut).