Zune’s Funny Money: Microsoft Points Explained (For the Non-Gamer)
After months of hype Microsoft will finally release the Zune media player tomorrow. We assume that someone, somewhere will actually buy the damn thing. If you’re one of those soon-to-be Zune owners there’s one last thing you should know before you run off to stand in line at the local Best Buy. When the Zune Marketplace launches later this week you won’t be able to buy songs with your local currency. That’s right, your money is no good in the Zune music store. Instead, you’ll have to convert real money to Microsoft Points, and then use those points to purchase songs. Of all of the puzzling Zune “features”, this one has to be the strangest.
From zune.net:
What’s all this talk about Microsoft Points? Microsoft Points, the coin for the Zune Marketplace realm, is a system that works across borders, including Xbox Live® Marketplace and other Microsoft properties. You can buy Points from the Marketplace by using a credit card or you can pick up Microsoft Points cards at a participating retail location.
Gamers and Microsoft Xbox enthusiasts are undoubtedly rolling their eyes right about now wondering what my problem is. The rest of you are likely scratching your heads wondering what the hell a Microsoft Point is and why you can’t just use your credit card to buy music from Microsoft the same way you can just about anywhere else in the free world.
Microsoft Points were introduced a while back as a way to facilitate transactions in Xbox 360 Marketplace. Microsoft claims that Microsoft points will finally enable affordable micro-transactions. Because all online transactions cost money to process, small transactions have traditionally not been practical or affordable. It doesn’t make sense to sell something for a few cents when most of the cost will be eaten up by processing fees. By translating dollars, pounds, euros, and yen into Microsoft points first, Microsoft can facilitate extremely small monetary transactions at almost no cost. Essentially, Microsoft pays the transaction fee on the initial conversion, then processes subsequent transactions directly without going through the traditional middlemen (banks, credit card gateways, etc.).
Microsoft recently told Gizmodo that the point system will be used in the Zune marketplace because it was so well received by the Xbox community. While that may be the case, you have to consider the demographic makeup of the Xbox community. If Zune and the Zune Marketplace are going to effectively compete against Apple and iTunes it might behoove Microsoft to consider accepting payments in the manner most adults are used to making them. The whole process of buying Microsoft Points is sort of like buying tokens at a video arcade. Something most of us haven’t done in decades.
There’s more to this story, of course (there’s always more when Microsoft is involved). Individual songs can be purchased from the Zune Marketplace for 79 Microsoft Points. That might sound like a deal when compared to iTunes 99 cent song pricing – until you realize that 79 Microsoft points is around 99 cents. It all just seems like a lame way to try to make Zune tunes appear to be cheaper than iTunes.
Here are a few of the more obvious problems I have with Micosoft Points:
- You have to buy a minimum of $5 US worth of points to fund your account. If you only want to buy a couple of songs, too bad. Of course, once you’ve got those extra points sitting around Microsoft is hoping you’ll buy a few more songs. It’s more likely that consumers will just be confused or offended by the whole concept and skip buying points altogether.
- The conversion rate for the Microsoft Point is not pegged to the US dollar, or any other currency for that matter. In fact, Microsoft seems to have gone out of their way to make it difficult to translate points to local currencies. A dollar buys 80 points, a Pound buys 120 points, a Euro buys 67 points. If you’ve traveled to foreign countries you know what a pain currency conversion can be. Thanks to Microsoft’s point system you can now experience the aggravation of currency conversion without even having to get a passport (although Microsoft would be happy to give you a passport).
- No interest is paid on the money you’ve deposited to your account. It’s conceivable that some users may deposit more than the minimum in their accounts in order to avoid the annoyance of constantly having to buy more points. Collectively Microsoft could be holding huge sums of money. On the off chance that the point system actually catches on, this could turn into a nice profit center for Microsoft.
While it’s great that Microsoft has found a way to make micro-transactions affordable, it’s hard to avoid the conclusion that they are essentially positioning themselves as a bank, while at the same time avoiding all of those pesky regulations that most banks have to comply with. Microsoft is trying to create its own currency and it’s only a matter of time before governments around the world begin asking questions about all of this.
In the meantime I sort of wonder if Microsoft might try to pay Universal their Zune royalty in Microsoft Points.
Technorati Tags: Microsoft, MSFT, Zune, Microsoft Points, Micro-Transactions
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30 Comment(s) so far
1. cJw wrote on November 13th, 2006 at 9:52 am
Wait a tic – I thought it was The Google that was going to take over the world…?
-.-
2. Cameron wrote on November 13th, 2006 at 10:39 am
This is ridiculous. It seems so juvenile and insulting to the consumer. Why NOT pay with the currency of your state instead of giving Microsoft this leverage over your purchasing?
3. » stupid Zune Tricks (or Microsoft points - what’s the point?) » jmcgready’s misc. universe » Blog Archive wrote on November 13th, 2006 at 10:44 pm
[...] not so fast…. medialoper has an an article explaining the Zune’s token-like approach to buying tunes [...]
4. Richard Logie wrote on November 14th, 2006 at 5:39 am
What Microsoft is doing is nothing new but they have recognized the power of creating your own money which companies have been doing for decades there are hundreds of thousands of companies around the world who have been using currency systems to create loyalty from their customers and it has been proved to work
5. Kirk wrote on November 14th, 2006 at 8:59 am
Richard: Care to name a few who’ve done this online and managed to build a business that can overtake the dominate market leader – in this case iTunes.
If you’re talking about rewards systems, that’s one thing. Microsoft Points isn’t a rewards system.
Consumers may go along with this to a point, but it will undoubtedly have a negative impact on sales.
On the plus side, I see this approach being a big hit with pre-teens.
6. Arthur wrote on November 14th, 2006 at 10:51 pm
There a many examples online and offline: postage stamps, gift certificates, frequent flier miles (which are purchased in cash by partners like hotels, car rental companies, and credit card companies who in turn give you miles), online games with internal currencies and external cash markets for the currencies (second life, everquest, etc.), starbucks duetto dollars, ebay’s anything points, and many more.
Think about it this way – How much does a college credit cost? It’s an internal currency which gets you a degree when you stack them up into the right piles to qualify. But there is no universally accepted price for a credit. The cost will depend on the school, scholarships, financial aid, in-state/out-state, etc. This is the case for online and offline educational institutions. It doesn’t stop people from paying for the credits. In the case of Zune, you get songs for points instead of a degree for credits.
We use these kinds of currencies every day, it’s about time we recognized it and stop crying out in alarm every time we launch another application for them. Do you really trust the bankers who create dollars to have your best interest at heart any more than you can trust microsoft? You may already be getting fleeced. Or do you really think microsoft will beat the bankers at their own game?
7. Kirk wrote on November 14th, 2006 at 11:33 pm
Arthur: It’s pretty clear that the Microsoft Point system is structured in a manner that’s designed to confuse consumers as to the real cost of what they’re purchasing.
I’m not sure a college degree is the best example in this case. We’re talking about commodity purchases. A gallon of milk might be a better example. How many Microsoft Points would you pay for a gallon of milk? Would you tolerate having to convert your cash into points before buying groceries? Something tells me you might be annoyed if that were the case.
Ultimately the marketplace will decide whether this approach succeeds or not. Right now I’m betting they won’t.
Oh, and to answer your other question. No, I don’t trust Microsoft more than I trust bankers. Why should I? Microsoft isn’t subject to the same oversight and regulations that banks are.
8. Jim wrote on November 15th, 2006 at 9:43 am
I also think that Arthur’s examples of rewards systems such as frequent flyer miles is off the mark. Noone would expect to automatically convert a penny of their money one-to-one for a frequent flyer mile, or a Starbucks duetto dollar or a Best Buy Rewards Zone point.
And as a matter of fact, it only reinforces what Kirk is saying: these are totally arbitrary values, and their relationships to actual dollar value can (and will) change at any time based upon the whim of the issuer.
For example, when Best Buy originally came out with their Reward Zone points, I did the math and figured out that I got $5 worth of points for every $100 I spent.
Now, it’s down to $2 worth of points for every $100 I spend. Which makes it much less worth it.
9. Arthur wrote on November 15th, 2006 at 9:32 pm
Kirk – I’d bet the purpose of the structure is less about an intention to confuse or obscure the price as it is about setting up a new value market for lots of different small price tag intellectual property items. What if you got points for reporting bugs to Microsoft that you can buy songs, videos, small utilities or clip art with? It looks to me like that’s the kind of place they’re positioning themselves.
Also, we’re not talking about commodities, we’re talking about information. When you take the gallon of milk, the store no longer has it to sell. When you download a song, they still have it to sell. Just like when you get a college degree, you don’t use up the professor’s ability to teach other students. Since information increases in value when it’s shared, they have the ability to price those things pretty dang arbitrarily.
Jim – When someone is a bit shy on the miles they need to book that flight to Europe, people do buy additional points in pennies. Also, you’ll note that I specifically referred to the airline’s partners (such as car rental agencies, credit cards, hotels) who give FF points. They purchase them in cash from the airlines to give them to you for your purchases. Cash sales of points to partners accounts for over $1 billion of annual revenue for American Airlines.
10. Kirk wrote on November 15th, 2006 at 9:49 pm
If Microsoft paid me to report bugs I’d be a very rich man.
11. The Weekly ‘Loper - November 19, 2006 | Medialoper wrote on November 19th, 2006 at 12:55 pm
[...] Zune’s Funny Money: Microsoft Points Explained (For the Non-Gamer) – I’ve read this over and over again and it still doesn’t make any sense. I might as well just be using Monopoly money. Though in a way, I guess, Microsoft Points is Monopoly money. [...]
12. Leave the dang points alone wrote on November 30th, 2006 at 10:24 pm
MS points are just arcade tokens on steriods. Your not loosing money, your not saving money, your just exchanging for a token…….. so either buy the points or dont it really this simple. So apparently MS is going to be very slick and scame everyone, but oh wait gj you caught them in the act what are they going to do now?? not have your money. im pretty sure it wont matter cause everyone else in the world will still buy this stuff. Personaly I think its a very good idea. It makes it easier to keep track of your money, you go but 1k points and thats all you have is 1k points not a unmaxable creditcard. This is also a nice thing for the cross platform stuff. I can buy 4k MS points and spend them on music and 360 content, an dim sure in the future that there will be more outlets to spend your MS points on, well that is of course if you relize that its not a huge scam… cause im sure it is… i know im gonna hear “ms is just trying to make more money” well nah crap… i mean they are a business and all thats what they do. ok let the flamage begin. i wont be back around to read the flamming comments. Yes i know im an ignorant idiot who is just to young to relize that MS is some huge monster that is going to eat everything in its path… Well im done with my rant hope you enjoyed it
13. Kirk wrote on November 30th, 2006 at 11:52 pm
> It makes it easier to keep track of your money, you go but 1k points and
> thats all you have is 1k points not a unmaxable creditcard.
Something tells me you’re the target audience for Microsoft Points.
Me, I’ve got better ways to keep track of my money.
14. Jim wrote on December 1st, 2006 at 1:23 pm
Well, Leave the dang points alone sure has convinced me.
Since I now relize that I don’t have to worry about loosing my money to Microsoft’s scames, I’m not going write any flamming comments.
15. ikyouCrow wrote on December 26th, 2006 at 3:33 pm
it’s like casino tokens… the only difference being that the tokens have a 1 to 1 relationship with an actual dollar value.
i personally don’t care, so long as it’s easy to get points and i get to burn what i “buy” with them.
on the bright side, if i see an album i must have, i’m glad i won’t have to scratch my head wondering if i have enough money left on the card (not my primary account).
for me, pre-paid beats haulin ass to the atm anyday.
16. william berreten wrote on March 31st, 2007 at 3:08 pm
your cat smells
17. Kirk wrote on March 31st, 2007 at 3:17 pm
so, what about it?
18. ian wrote on May 26th, 2007 at 5:53 pm
this is dumb i am not a fan of MS and think that the next time i upgrade i’m going with something else
but i have a zune and i like it but still the best way for me to get music is going and buying the CD if i am gonig to pay for a song i want cd sound if i want just one song i go to limewire
i have never bought a song online and most likely wont
19. gary wrote on January 21st, 2008 at 3:38 pm
points! is all this talk for real OR legal huh!
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