The 30-gigabyte Zune now costs $199, Microsoft said on its Zune Insider blog.
"It's part of the normal product life cycle, something we've had on the books for months," wrote Cesar Menendez, a Microsoft employee and Zune Insider blogger.
Zune comes in a handful of colors, but only one hard-drive size, while Apple's music players come in a variety of shapes and sizes and account for the vast majority of digital music player sales in the U.S.
Matt Rosoff, an analyst at the independent research group Directions on Microsoft, noted that the Redmond, Wash.-based software maker is expected to announce new Zune models and features for this holiday season. Until then, it's not necessarily fair to compare the Zune with the iPod.
"I think they're doing OK considering that they are only competing against one iPod," Rosoff said. If Microsoft adds to the Zune line, "then it's really apples to apples."
At a special media event near downtown San Francisco, Apple Chief Executive Steve Jobs announced that the 8-gigabyte iPhone, which combines the features of an iPod and a smart phone, will now cost $399 instead of $599. The 4-gigabyte model has been discontinued.
Jobs also showed off an iPhone-like iPod Touch, which can be used to surf the Web and wirelessly buy music from iTunes, and he said the tiny iPod Nano will now have a bigger screen and the ability to play movies. The iPod Touch will go for $299.
After Apple changed the game with the iPhone, Microsoft watchers have been parsing executives' comments for hints of a Zune phone for the holidays, but Rosoff said he thought that was unlikely.