“Apple’s iPod digital music player is a cultural phenomenon and a source of huge profits. The company also dominates the market for legal music downloads. However, Apple may be mistaken in preventing songs stored on its iTunes software from playing on other gadgets. A similar strategy nearly killed off the company a decade ago,” Robert Cyran writes for Breakingviews.com via MarketWatch.
Cyran writes, “So far Apple has been relying on its iTunes online music store to push iPod sales. Songs sold on the site can only be played on iPods. This locks customers into buying Apple products. So far the strategy has worked. Sales of iPods are expected to grow about 70% this year. That success lies behind the rise in Apple’s stock which has tripled over the past couple of years.”
“Yet its competitive position is not impregnable. Microsoft’s newly released ‘Zune’ player may become a credible rival. The software giant is also launching a digital music store to compete with iTunes. There’s another risk. Just as smart phones rendered the PDA obsolete, phones with embedded digital music players may one day crush the iPod. Apple could start manufacturing mobile phones. But phones tend to be more complicated to make than digital music players and Apple hasn’t had any success to date,” Cyran writes.
Cyran writes, “The company should take a leaf from its past. In the early 1980s, Apple dominated the personal computer market. Its Macintosh operating system was the best in the business. However, the company refused to license its operating system to other manufacturers. They turned to Microsoft instead. That error nearly killed Apple and led to Steve Jobs’s departure from the company he founded.”
“Apple could fend off competition by opening up its iTunes software to all comers. True, that would hit profits as rivals introduced cut-price versions of the iPod. But Apple’s future as the dominant online source for digital music and videos would be assured. Microsoft has shown that software is a more profitable business than computer manufacturing. Jobs should have learnt this lesson. The future of Apple may depend on his willingness to sacrifice the iPod,” Cyran writes.
Full article here.
[UPDATE: 2:42pm EDT: Rewrote headline. Thanks, Jon.]
Sigh. We’ll just take them in order:
• Apple should license FairPlay DRM only if a competitor begins to take significant market share. To license for the sake of licensing would obviously be a mistake based on even the most-favorable realistic potential licensing terms and fees.
• Songs sold via Apple’s iTunes Store can be played on Macs, Windows PCs, iPods, Motorola cell phones, and burned to standard audio CDs. Some “lock-in,” huh?
• Has Apple’s iTunes Store really been pushing iPod sales? It’s a part of helping iPod sales, for sure, but how much of a part, really? Plenty of people own iPods who have rarely or never purchased music from the iTunes Store. iTunes is the jukebox application, remember; you don’t have to use the store. Plenty of people buy iPods to listen to CDs they rip to iTunes, they buy iPods for looks, for ease-of-use, because everybody else has them, because they like U2, because they want their player to just work, etc.
• Have you read the reactions to Zune? If you’re waiting for Zune to become a “credible rival” to iPod+iTunes, you’ve got a very long wait. Like until infinity arrives.
• According to analysts and other reports, Apple is well along the way in creating their “iPhone.” Are you going to bet against Apple when it comes to marrying the iPod and the cell phone? We wouldn’t.
• The Macintosh platform required and still requires huge investments by developers to create compatible software. So, when faced with budgetary contraints, they chose and still sometimes choose to go with the most popular platforms. The iPod simply plays music that can be encoded, for very little cost, in any format the “developers” (musicians and labels) desire: AAC, MP3, WMA, etc. The music doesn’t need to be rewritten, recorded, and remastered. It’s like writing Photoshop once and then pressing a button to translate it for use on Mac, Windows, Linux, etc. To draw an analogy between Mac OS licensing and the iPod/iTunes symbiotic relationship simply highlights the writer’s ignorance of the vast differences between the two business situations.
• We do not believe that the Mac “lost.” With the Mac, we have today the best personal computing platform ever created that is taking market share from Windows PCs.
• Mr. Cyran, do some research, any research. Steve Jobs left Apple in 1985 and did not return as CEO until 1997. He’s not responsible for failing to license the Mac operating system at the proper time and that failure did not lead to his departure from Apple.
• Apple’s future as the dominant online source for digital music and videos is already assured. Cyran doesn’t even seem to understand what iTunes, the iTunes Store, and the iPod really are, using the terms interchangeably and at the wrong times for the wrong reasons. Nonetheless, he has the temerity to advise Steve Jobs to license the FairPlay DRM to also-ran music outfits and also-ran device makers.
• Cyran’s article is an amazing conglomeration of inaccuracies multiplied by ignorance resulting in near absolute inanity.
Contacts:
Robert Cyran – Correspondent: https://www.breakingviews.com/details/feedback.asp?emailtype=S&sid=0&cuid=81&eid=0
Hugo Dixon – Editor/Chairman: https://www.breakingviews.com/details/feedback.asp?emailtype=S&sid=0&cuid=68&eid=0
Related articles:
Microsoft’s Zune underwhelms – September 15, 2006
Enderle: Microsoft Zune ‘a design mistake’ – September 15, 2006
Microsoft hypocrisy exposed with Zune: What ever happened to ‘choice?’ – September 14, 2006
Analyst: Microsoft Zune with fake scroll wheel ‘hardly an Apple iPod killer’ – September 14, 2006
Analyst: Microsoft Zune won’t spoil Apple’s biggest iPod Christmas ever – September 14, 2006
Microsoft unveils Zune 30GB player, Zune Marketplace; declines to disclose prices – September 14, 2006
Analyst: Microsoft’s Zune an ‘underwhelming’ repackaged Toshiba Gigabeat; no threat to Apple iPod – August 30, 2006
Microsoft confirms brick-like Zune to be made by Toshiba – August 25, 2006
Microsoft Zune is chunky brick made by Toshiba – August 25, 2006
Microsoft to spend hundreds of millions, several years on Zune trying to catch Apple iPod+iTunes – July 27, 2006
Zune: Apple cannot lose. Microsoft cannot win. – July 26, 2006
More blood on Apple iPod’s Click Wheel: Dell’s ‘DJ Ditty’ flash-based MP3 player is dead – August 22, 2006
More blood on Apple iTunes Music Store’s play button: MyCokeMusic is dead – June 20, 2006
More blood on Apple iPod’s Click Wheel: iRiver gives up on digital media player market – May 23, 2006
More blood on Apple iPod’s Click Wheel: Sony’s Walkman Bean is cooked – February 13, 2006
More blood on Apple iPod’s Click Wheel: Dell dumps ‘DJ’ hard-drive MP3 player line – February 04, 2006
More blood on Apple iPod’s Click Wheel: iRiver pulling out of Europe? – February 01, 2006
More blood on Apple iPod’s Click Wheel: Thomson gives up on MP3 player, CE markets – December 12, 2005
More blood on Apple iPod’s Click Wheel: BenQ withdraws from MP3 player markets – November 28, 2005
More blood on Apple iPod’s Click Wheel: Olympus halts production of portable digital music players – November 09, 2005
More blood on Apple iPod’s Click Wheel: Rio is dead – August 26, 2005
Apple’s iPod has blood on its Click Wheel: Virgin Electronics is dead – March 08, 2005
Apple’s iTunes Music Store has blood on its play button: BuyMusic.com is dead – March 28, 2004
The iPod is not the Mac, so stop trying to compare them – August 13, 2004
k1w says:
Since the iTunes Store is the key to iPod sales, according to the author, wouldn’t that move reduce sales of iPods? The author isn’t even consistent in his misinformed logic, unless he actually believes that Apple should give up high-margin iPod sales in exchange for increased break-even sales from the iTunes Store.
Hello? McFly?
The author suggests a new stream of revenue, and potentially more lucrative (though I personally disagree) would be generated by LICENSING THE FAIRPLAY DRM.
The article is stupid shit. But if you’re going to trash it, do so without writing equally stupid shit.
as always kudos to you for debunking this bunk. do you ever email these guys your counter points? do they ever respond?
i know that readers often will email these guys on your behalf, but your dissection of this guy’s article is primo!
magic work “perform” as in way to perform on debunking this guy’s crap argument.
Ok Apple should sell just software and not hardware because he says software is more profitable – so in that same vain maybe Ford and GM should start selling just gasoline since it is very profitable and the hardware (cars) are not. Thats just supid – Apple is a harware company that happens to also make great (IMHO the best) software.
“MDN is all about tearing apart the ignorance surrounding Macs and iPods. “
Nope MDN is about ignorant, inward looking, head in the sand opinions with little basis in reality.
There is an old saying: Never ascribe to malice what can be perfectly explained by stupidity.
Fine MDN rebuttal to this pos essay (mislabeled as “news”), which unfortunately appeared in marketwatch.com, owned the the WSJ, one of the most widely read and distributed online Wall Street publications. The timing is suspect, could be that it appeared as part of a hedge fund dump of AAPL this week after last week’s run up in price.