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Interact Software

Apple, Parlaying and the iTunes Music Store

Monday 16 August, 2004, 06:38 PM

John Gruber has recently written a couple of interesting articles. The first set out to debunk the idea that if only Apple had licensed the Mac platform in the 1980s, the Mac would have fared better in the market against Windows. I'm not proposing to discuss that article - I'm more interested in the second one.

The second article applies similar logic to the current situation with iTunes. (My previous entry started out as a response to John's article, but I thought I'd split out my thoughts about my iRiver player into a separate item. So this is what I set out to write last time...)

I disagree with his conclusion that Apple is in a strong position with the iPod. I think music devices like the iPod are on the verge of being commoditised.

I agree with him that the success of the iPod derives largely from its ability to import from that popular legacy format, the CD. And it's this very same thing that makes the iPod franchise so vulnerable right now - anyone can build a device onto which you can transfer all your existing CDs, and that fits in your pocket. The fact that I had all my music on my iPod was not a major obstacle to my buying a completely different brand of player when my iPod degraded to the point of unusability. I had the hassle of reripping, but that's all - my music still works because the new device also lets me import from CD. The iPod might look nicer, but since it is designed to be in your pocket, that's not going to be a top priority for everyone. And if other vendors can offer superiority in other aspects such as battery life, size, and reliability, all at a competitive price, just how much of a premium will most users pay for the appearance? (And who's to say Apple will always have an edge even there? It's not like they have a monopoly on good industrial design, especially not in the world of consumer electronics.)

John talks of building new success on top of entrenched positions. (He's used the word 'parlay' so many times now that I can't bring myself to write it here. Oh. Well, just once then.) For example, he rightly points out that the iPod's success was only possible because it built on the fact that lots of people already have substantial music collections that could be imported.

But what next? What is there to tie an iPod user to Apple's music platform? For me at least, having bought into the Apple's music platform, I was able to leave it again at minimal cost. Where's the incentive to stay put? As John astutely observed in his first article, Microsoft's string of successes was built on providing an attractive path for those with an existing investment in the Microsoft platform. Each new offering from Microsoft offered better value for most customers than the prospect of moving to a completely different technology. Where's the equivalent feature in Apple's music strategy? What will be the basis, in John's terminology, of Apple's next parlay? (Ag! I did it again!)

And the obvious answer is: the iTunes Music Store. If you have an iPod, then you can buy music from the iTMS. That's the next step offered to those already on the iPod rung of Apple's platform. And if you buy into that, the next step is this: if you bought music from the iTMS, your next music player had better be one made by Apple if you want to be able to continue to listen to all that music you paid for.

It sounds a lot like I'm agreeing with John here, so why am I disagreeing with his conclusion? Partly because of what I just did and why: I bought a non-Apple player because I didn't like the idea of buying music that tied me to a particular player. I chose not to move from the iPod rung to the iTMS rung because I didn't like the look of where that was taking me. I was put off from buying music from iTMS precisely because it was going to tie me to Apple's platform, and that in turn has inspired me to abandon Apple's platform completely and buy an iRiver player instead. (Aside: I was sorely disappointed that Sony's player only supports a proprietary format by the way. The fact is I had been waiting for Sony to release a hard disk music player because I've always found Sony's consumer electronics to be pretty good. Sadly, since they stopped being purely a consumer electronics company and acquired a content production division, they no longer seem to be interested in doing anything as pioneering as back when they invented the VCR.)

So while I'm reasonably open to the idea of buying music online, I'm not about to buy it from iTMS. I'll only consider buying from iTMS if there's some chance of me being able to choose which make of device I use to listen to the music I buy. (And I don't want to resort to hacky programs of doubtful legality to remove the DRM...)

So the key question here is: will most customers do what I did, and avoid a single-vendor music solution? Or will they flock to the iTunes Music Store in droves despite the egregious lock-in? I think it's too early to be sure yet - as John himself said:

"Point being, for all the attention it gets, the iTMS is a completely optional part of the iPod experience. You can buy an iPod and completely fill it with music without spending a single dollar at the iTMS."

Absolutely. And if it stays that way - if online music purchasing of music with lock-in turns out not to be popular - the iPod and its ilk will become a commodity just as quickly as every other innovation in consumer electronics did. Apple's bet here appears to be that the iTunes Music Store will in fact be popular - their strategy appears to depend on getting users to accept the lock-in involved in using the iTunes Music Store, and then using that as the basis for future iPod sales. (In the long run, once everyone who is going to buy an MP3 player has bought one, the majority of sales of iPod-like devices will be replacements for worn out units rather than new ones. This is why giving people a reason to stick with their existing brand is so important. Of course this means that when solid-state versions become large enough for most users' needs, the market will change all over again due to the change in frequency of upgrades - right now, the hard disk provides a handy source of guaranteed obsolescence.)

If Apple's users do embrace the iTMS, then yes, they will be in a strong position - Apple will have a user base that would need to incur significant costs to move to a new platform. (And for all Steve Jobs' bragging about 70% market share, this is still a big if. That's 70% of the online music sales market, which right now is tiny.) If Apple can get their users to buy into iTMS, they'll then be prepared to pay a premium for an iPod because of the costs of switching to another platform. But right now, the iTMS is not central to the iPod experience, so people are free to change brands at the drop of a hat like I did. And as long as that continues to be true, Apple's position doesn't look all that strong.

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