“When Microsoft launches its Zune to compete with Apple’s iPod, it won’t just be reversing its own strategies but going against two decades of received wisdom. This could indicate a sea-change that will help more people get what they want. But it could also lead to users being increasingly locked into whichever systems they happen to buy – and ultimately paying higher prices,” Jack Schofield reports for The Sydney Morning Herald.
“The idea’s poster boy is Apple’s iPod system, which includes the online iTunes Music Store and iTunes software on personal computers. Analysts believe that this vertical integration of online store, PC and portable player enabled Apple to deliver the ease of use that helped it overwhelm the businesses that pioneered the digital music business, such as Elger Labs, Creative Labs and OD2 (On Demand Distribution), the online music service launched by musician Peter Gabriel,” Schofield reports.
Schofield reports, “Apple’s vertical approach to the music market matches its vertical approach to personal computers, where it maintains control of both hardware and software, its own online service and even its own shops. Microsoft’s horizontal approach matches the one it took with its DOS and Windows operating systems: it licensed them as widely as possible. For Microsoft to try the vertical approach is out of character, and means it will be competing against itself and its own partners in Play For Sure.”
“The trend towards vertical integration is also visible in the printing and digital photography markets, where companies are linking personal computers, printers, printer cartridges, photo paper and online services,” Schofield reports. “Is it worth trading some choice for simplicity and a better end-to-end experience? The problem is that vertical integration can give suppliers so much control that they can manipulate prices.”
Schofield reports, “Vertical integration may now be making a comeback because consumers are facing the problems businesses faced before: integrating a wide array of products that they barely understand. These include PCs, printers and webcams, smartphones, portable media players, digital cameras, set-top boxes and digital video recorders, games consoles, internet phones and home networking.”
“But I also suspect that as these markets grow and mature, they will tend to tip over into horizontal ones. If we’re going have 10,000 manufacturers, we can’t have 10,000 different processors or operating systems, and we don’t want 10,000 different DRMs. Common standards have to emerge,” Schofield writes.
Full article here.
We wouldn’t trade our Macs and Apple’s vertical integration for a Dell or any other Windows PC even if our Macs weren’t less expensive than comparable PC boxes. Ditto for iPod+iTunes. We want and need our tech to work well.
Microsoft tries to match Apple’s vertical approach – October 11, 2006
Apple was right all along: vertical market quality trumps horizontal market woes – April 30, 2006