Want to Marginalize the iPod? Ask Steve Jobs How!
There are a million iPod killers floating around. Some feature more capapcity, some feature more gizmos, and some feature lower price points. None of the iPod killers are actually doing any iPod killing because they’re too busy trying to be more iPodish than the iPod.
Even with the consistent lack of success the iPod wannabees have had, there are still plenty of companies willing to make iPod knockoffs. Some of the manufacturers labor under the delusion that the next iteration of their player will dethrone Apple. The more rational mp3 player producers are intent on scooping up the lion’s share of the crumbs left by the market dominating iPod. For all the bluster and imitation the competition has consistently failed to dent the iTunes/iPod stranglehold, few expect that to change. Why has every attempt failed so miserably? Because if you are truly desirous to do to the iPod what Windows did to the command line there’s only one company who can pull it off. Their name is Microsoft and it is only a matter of time until they make a serious effort. At least, that is Steve Jobs’ take on the situation as evidenced by the following quote:
The problem is, the PC model doesn’t work in the consumer electronics industry, where you’ve got all these companies and some does one thing and another does another thing. It just doesn’t work. What’s going to happen is that Microsoft is going to have to get into the hardware business of making MP3 players. This year. X-player, or whatever.
Mr. Jobs’ logic is transparent. He reasons that since iTunes and the iPod use the vertical integration model that Microsoft could use the same tactic to finally relegate the iPod to the technical trash bin. In theory, the system would work as follows: Microsoft would bundle a music playing program with every PC that, of course, pointed to an iTunes like music store. The model would be completed when people buy a Microsoft produced digital audio player. Consumers, being the lazy slugs they are, would take the path of least resistance. Inevitably, iPod marginalization would ensue.
The normal objection at this point is to state, with a certain naiveté, that the iPod is much too well designed to be toppled by any music player that Microsoft could produce. That notion gives people a little too much credit for desiring slick interfaces and elegant design. Likely, any audio player designed by Microsoft wouldn’t match the iPod’s streamlined looks but would remain desirable. Microsoft, after all, already designs some of the best mice and keyboards and has shown certain hardware engineering skills with both editions of the XBox.
At this point, it is time for a little hand wringing. If the only thiing that is required for Microsoft to decimate the iPod is a Microsoft branded mp3 player then the future is bleak. That assessment is a little too dark. Steve may have made the path to iPod irrelevancy seem straight enough but, if Microsoft takes the gamble, they will surely find the trail full of blind turns, deadly snakes and crumbling footholds.
The logistics, of course, won’t be problematic for Microsoft. They have scads of cash for development and other associated manufacturing costs. Rather, the issue would be with those who already manufacture digital audio players and license Microsoft’s DRM. Suddenly, these manufacturers would find themselves competing directly with Bill Gates and his well-paid minions.
With this realization, we now see Steve’s comment not as a roadmap but as bait. Were Microsoft to jump headlong into the digital audio player market there would be strong incentive to Apple to begin licensing FairPlay. Manufacturers would be forced to choose between two mainstream options: A) go with Microsoft or B) Go with Apple. In the past, the no-brainer has been to go with Microsoft. This time the obvious choice is different.
The folks who stick with Microsoft get to fight over, roughly, twenty percent of the market. The folks that go with Apple would be aligning themselves with what has become the industry standard. The players that license FairPlay would have access to the iTunes store, backwards compatibility with the songs consumers have already purchased, and a chance to compete on a perfectly level playing field with the iPod. It doesn’t take a Stanford MBA to deduce that the potential rewards of opting to use FairPlay far outstrip the rewards of going with PlaysForSure.
When the vast majority of manufacturers stop supporting PlaysForSure and start supporting FairPlay, as would likely happen, then the battle is over. Microsoft will be relegated to side player in the digital content delivery market. Their DRM, the most coveted part of the deal for Microsoft, will have been shunted to a distant, irrelevant second tier player.
Why doesn’t Apple go ahead and slam the lid shut on Microsoft right now in an effort to retain ownership of the growing market they already dominate? Currently, and likely until Microsoft makes a push with their own player, there isn’t a reason to share the wealth with anyone. It is feasible that Google, or some unidentified third party, could begin challenging the iPod/iTunes dominance through some heretofore unthought-of bit of innovation but the end result, Apple licensing FairPlay, would remain the same.
Of course, there is a wildcard. What if Microsoft could convert FairPlay tracks so that they would run on players besides the iPod? Would that be enough to drive people away from the iPod? That functionality has been hinted at and, undoubtably, Microsoft believes that is the key to dethroning Apple. In reality, it is simply a tacit admission that competing directly with the iTunes Music Store is too much to ask of even Microsoft. If the plan goes through, the end result will be another round of supposed iPod killers showing up and being quickly forgotten.
Nothing lasts forever, certainly some day the iPod/iTunes duo will be challenged and soundly defeated. That day isn’t today and unfortunately, if you’re Microsoft, it isn’t even this year.
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Comments
What you’re suggesting is unlikely because it entails a shift in Apple’s music revenue scheme from selling iPods, to licencing Fairplay. And indeed, iPods are such a money-spinner for Apple that it is hard to envisage comparable revenue from licencing. I doubt that Steve has much interest in opening the iTMS store up to other manufacturers, since the profits incurred by Apple through it are low. However, I agree with you that it’s right to take this as a ‘throwing down the gauntlet’ to Microsoft, but I think Steve’s belief is evidently that proprietary systems are the _only_ way to achieve the tight integration that benefits end users, and get massive profits from hardware sales. To me, his comments suggest the very opposite of what you say - they suggest that DRM licencing is very obviously NOT the way (in his view) to go.
iPods are Apple’s baby, don’t expect them to cannibalise themselves any time toon.
By the way I forgot to say, nice article, interesting ideas!
Yup, interesting. But MS making sth. “desireable”? I’d yet have to see that. They just have no style.
BTW, keyboards, yes, it would be so nice if Apple could wind up and give us a decent keyboard again.
MS faces one major problem that wasn’t mentioned - the consumers investment in songs from the iTunes Store. Right now that investment is worth, what, somewhere around $800,000,000 and is growing at a rate of about $3,000,000 EACH DAY. “Switching to MS” is a problem for folks with a lot of their money invested in music from the iTunes Store and I think most will stay with Apple - buying new iPods when something exciting comes along. I think MS will stick with Plays for Sure and let other companies handle the hardware side.
This was a very interesting article, but it is predicated on one particular assumption; that Apple produces iPods to promote iTMS, or rather that people buy the iPod so that they can acess iTMS. Given the relatively low number of songs that are purchased in relation to the huge number of iPods that have been purchased, it would appear to me that something else has happened.
What happened, in fact, is that Apple played the classic “second player entry to market” strategy. Apple looked at the market carefully, examined all the product available, did their consumer research, and produced a vastly superior MP3 player at a price that consumers determined was desirable given the product in hand. Once the original iPods took off, Apple continued to play this strategy by filling in all the channels possible.
More importantly, however, Apple presented two things to the MP3 world that have become factors in the iPod’s success, although not the reason behind it. The first was iTMS, which drives secondary consumption to Apple (buying songs, etc....) and furthermore helps perpetuate the sucess to the iPod.
The second thing that Apple did was produce a series of products that employed a standard hardware and software interface. This allowed 3rd party manufacturers to produce all forms of product that rely upon a proprietary interface which supplies to these manufacturers some (to date) 40 million consumers or so.
This second factor does not get enough play in the press, but in my opinion is a strong factor behind the continuing success of the iPod. First-time consumers of any consumer electronics product tend to look at the available accessories that can be purchased alongside that product. The fewer movies that were available in Beta, for instance, the fewer Beta players that people were going to buy.
Similarly, when someone is going to consider spending $400 on what is essentially a digital toy that plays music, that person may indeed want to know what else he or she may buy that can enhance the use of the product. It doesn’t take much imagination to picture a first-time buyer at the store, standing in front of a bizillion accessories, and thinking, “Wow, there’s so much cool stuff out there that’s available for the iPod. I think that I’ll buy one of those cool nanos, and that cool widget that attaches to it’s connector.”
Here Apple finds itself in what as known as a beneficent cycle, where every choice in the cycle leads to further positive choices at other points in the cycle. So; consumers buy iPods in part because of the accessories; buying more iPods leads to more manufacturers providing more accessories, which leads to more people buying iPods. One personal example will suffice: I was in a store last year that sells and supports Apple products. While I was in the store a group of six late middle-aged people walked in and told that salesman that they each wanted a 60GB 4G iPod. From the conversation that I overheard they were each interested in the iPod because they were all long-term owners of BMWs and they were each upgrading their lease, and wanted to purchase a car with an iPod dock built in--hence they purchase an iPod.
What Microsoft needs to do is not prodcue its own player--even though I would be very amused to see what kind hideous piece of overheating hardware the boys and girls in Redmond would manage to mis-design. What Microsoft needs to do is propose a single specification for software and hardware/docking system that would be adhered to buy a group of large manufacturers. this would give these manufactuers the two things that Apple has at the present: A strong, common operating system amongst a diverse group of products, and a common hardware interface that, along with the common software interface, allows accessory manufacturers to produce secondary products for this standard.
Don’t get me wrong, this is not a simple process. Microsoft would actually have to produce a well-designed piece of software that is nice to look at, easy/intuitive to use/virus free, and robust. Given that Microsoft has never managed to do this in its corporate history, it remains to be seen whether MSFT could do this now. The manufacturers would be left to see if they could actually produce a physical product that people would want to use over an iPod--i.e.; something that is more elegant and more beautiful. This is a challenge, but it’s not impossible to believe that some company out there could come up with a product that is as elegant and beautiful to use as an iPod.
So, in the end I think that what Steve did was try to bait and switch MSFT away from the correct strategy and lead them to the vertical integration model--which is almost assuredly a path to short/medium term frustration on the part of MSFT, and continuted success to Apple.
And, given Apple’s huge dominance over the MP3 palyer/tunes market, by the time that MSFT achieved dominance in that market, the market would have become like a commodities market, and Apple would be looking to exit--much like IBM did when they realized that the marginal returns on PCs did not justify the company’s ongoing investment in resources.
Nice nalysis rougueproof but I think you missed one small point. The iTunes music store is huge for the iPod despite the number of songs sold. I live in Knoxville, TN where it hasn’t snowed substantially for five years. Yet a ton of people buy fourwheel drive vehicles out of the fear that it might snow. (I’ll leave the fact that you can get around in a two wheel drive car in the snow just fine, it isn’t like everyone in Nebraska has four wheel drives or stays home five months at a stretch) In any event it isn’t so much that people buy iPods so they buy music, rather they buy iPods because they might want to buy music.
The stuff bout the iPod add accessories is dead on. You don’t really see any add ons for, say, the sony bean. The acccesory market is a big factor.
Chris. I’m sorry but you’re wrong. In a recent survey in my university rag NOBODY had bought anything from the iTMS. Three other members of my immediate family have an ipod and none of them show the least bit of interest in purchasing things from itunes.
Even for those people who have bought *many* things from the ‘store, without significant exception these mamke up a small percentage of their music. It comes down to this: *all* the people I have had experience with have bought the ipod because they have a large body of pre-existing music and want to be able to listen to it in a more flexible, convenient way. These people, and I am one of them, WOULD BUY IPODS if the music store did not exist. In fact, most of the people I know would probably call me a sucker for having bought 150 tracks or so!
I have serious difficulty understanding how you could possibly think that people buy ipods just because they might want to buy things from the itunes music store. Maybe I’ve misunderstood you?
Everyone drives 4 by 4s nowadays, people are just looking for an excuse
If you get my drift.
Everyone uses iPods nowadays, people are just looking for an excuse....
The point isn’t so much that people buy iPods because to get at the music store but more of a if you have an option between one that works and one that doesn’t work with iTunes which one, all other things being equal, would you pick? You might have no intention to use the iTunes music store but, hey, maybe someday.
My neigghbor bought an iPod mini just to the free tracks iTunes passes out every tuesday? My nephew bought two ipods, a shuffle for riding his bike around and a New video deal...so he could ask for iTunes GC so he wouldn’t have to get crappy according to him nickleback CDs for Christams. Anecdotal evidence being, well, anecdotal take that for what it is worth.
Keep in mind that iTunes is closing in on one BILLLLLLLEON, pinky in corner of mouth, tracks sold so obviously someone is buying them. Don’t discount the vertical integration factor. Sure for you college types it isn’t a motivating factor. For that fifty year old guy who wants to buy one song by the kingston trio, well, the story is a bit different.
You are doing a heck of a job Chris.
No… seriously: Nice article.
This thread of argument suggests why Apple’s recent success with the iPod is no fluke. Indeed, even Bill Gates had, early on, called the whole iPod phenomenon a fad. We can now see why he got this completely wrong.
First of all, the iPod has become a standard of sorts for the consumers of digital media players, as rogueprof has suggested. People buy iPods nowadays because it is what they are most familiar with. Those who own them are most likely going to buy them again because they have become accustomed to them - and because they know that there is a whole ecosytem of third-party devices, software and support out there for it. Just think of how much iPod/iTunes-enhancing software there is out there. So, the ecosystem has become sigfincantly important to both Apple’s iPod and the businesses that benefits from it.
However, I do agree with Chris Seibold that iTunes Music Store is also a significant factor in the popularity of the iPod. Ben Hall and Chris are actually in agreement on this point, dispite Ben’s apparent feelings to the contrary. People do buy iPods because, in a sense, getting useful access to iTMS means that there is an easy and convenient way to get additional music for their iPods - if they so desired. I’ve over-heard people asking where they can get music for their iPods. People *do* base their decision on buying an iPod on more than just the “cool” factor or well designed interface. They want to know that the device has an easy to understand warrenty; they want to know that they can enhance it’s usability; they want to know that, if they get bored of their collection, they don’t have to throw away their iPods, because the service they want isn’t compatible with the iPod. When you opt-in in this way, your hope is to be able to exert some kind of discerning influence over what kind of service is delivered to you in the future - regardless of whether you’ll use it. I have satelite in my house. I don’t get all of the channels because I don’t pay for them. But a significant, and largely subconscious, factor in choosing my provider is the fact that if I did want additional content there are a plethora of good channels that I can add to my basic package. To be sure, I bought the service I have, in the first place, simply because I wanted a tv service that was better than terrestial. I also chose my provider because they are well-known for having a good, effecience service, and have a really great selection of channels. (The expandability of the service is a bonus.) The fact that Ben Hall’s purchasing behaviour goes contrary to his own argument that iTMS is not a factory is a good example of how this works!
Chris Seibold’s article, however, which is simply about Job’s apparent baiting technique is most interesting. It makes so much sense. It is, however, an inevitably. Unless, ofcourse, Microsoft get’s Sony, Creative, Samsung, and all of the other device makers, as rogueprof suggests, to agree on a standard connector/interface - and possibly Window’s supported featureset - for their products. Seems unlikely.
That’s why Jobs stated it with such conviction. Even if he *is* baiting Microsoft, they also know that its true. As iPod becomes ever more popular, and Apple more of a consumer electronics company, Microsoft will find competing against Apple difficult. It needs flexability to win in the short term. Supporting devices in a 17% market bogs it down and stifles innovation. It must compete with Apple on better terms. Playsforsure just don’t work.
(Isn’t it interesting, though, that Jobs refered to Apple as a consumer electronics company - *not* a computer company? By his comments is he not suggesting that Apple is following a CE model, not a traditional computer company model. Even more interesting Richard Doherty, of analyst firm Envisioneering Group, as stated on CNNMoney.com, recently described Apple as “the world’s largest consumer electronics comapny! Significantly bigger than giant Sony. Atleast in terms of market capitalisation.) ---NB
A billion songs is a lot of songs, for sure. But let’s qualify what that means:
-1: This averages out to 25 songs per iPod user.... Not too many songs/iPod yet… although this will improve in the future, I’m sure.
-2: Apple’s profit/song is somewhere between 7 and 10 cents. So, when the company hits 1 billion songs it will have made, at most, approximately 100 million dollars in profit, over three years. This isn’t chump change to be sure, but the ITMS is not driving Apple’s profits in any way.
-3: Music is far more price sensitive than the iPod. IT doesn’t take much a rise in price before consumers look for alternative channels to get their music, and a slightly cheaper price somewhere else will cause music buyers to walk across the street in an instant. I think that this means that ITMS is perhaps the most vulnerable aspect of the iPod/ITMS combination. Once the record industry gets its act together and stops whingeing and actually puts together a decent web-based business model the iTunes store could lose a significant proportion of its market share. Of course, this is a huge condition, and the RIAA doesn’t seem to be prepared to smarten up any time soon.
One more thing: anecdotal evidence is just that, anecdotal evidence. Consider:
Between a good friend and I we have 10 000 songs on our iPods. None of it has been purchased through iTMS.
When discussing consumer trends and experience it’s always better to use aggregate data,w hich in fact is the only data that allows us a clear interpretation of what people in general are doing, and frees us from the blindness that can be caused by the quirky friends that we all have.
Actually it averages out to 25 songs per ipod, not every ipod is bought by a unique individual.
As for the price sensitivity issue, that is interesting. I would have thought the same thing but when Wal Mart opened their digital doors they charged less than Apple and, well, they’re not exactly rolling in market share for digital downloads. There is something, perhaps a lot, to be said for seemless integration.
Yes, anecdotal evidence is anecdoatal (didn’t I mention that earlier?) but you bring up a really interesting point with the ten thousand songs deal. At 3.5 minutes per song that is, what, 24 days of music? Far too long for a single charge to last. Why do people want such spacioua music palyers? Because they think they might someday use it.
For example the average iPod user has, according to one study, 375 songs on their ipod. And that is probably enough for most folks. But they are still buying 60 gig players, cause, well you know maybe someday they’ll want 10,000 songs or something. It isn’t always how you use something, it can be how you hink you might use something.
OK, let me rephrase:
“it isn’t so much that people buy iPods so they buy music, rather they buy iPods because they might want to buy music” seems an unclear way of saying “the iTMS helps to sell ipods but the main factor is form factor and being able to listen to anything, anywhere, which is so revolutionary.” (I feel a song coming on: there’s no factor like form factor...)
So here’s a straight question for you that might help me to understand your position on this:
What do you think is/are the most important reason/s for buying an ipod?
More generally/relevant-ly, in reply to your very interesting point about people getting things because they *might* need to use it, I personally think it’s more likely that consumers tend to buy the best they can afford. After all, this sort of behaviour is not limited to ipods: why do people buy expensive designer clothes? Because they might ‘need’ something extra some day? No, because the clothes *by the very fact of being more expensive* are more desirable. Apple’s success with the ipod is largely because they could bring this all-pervasive consumerism fueled by a sort of abstract desirability into the world of electronics far better than any one else.
The fact that the iTMS (and itunes itself) is/are there by Jobs’s own admission (please don’t ask me to say where!) to help sell ipods shows that of course, it is an important part of the system.
But I have to highlight that what I was trying to say was that I believe the iTMS is not the _main factor_ that generally causes people to buy an ipod. quote nerdbrain:
“The fact that Ben Hall’s purchasing behaviour goes contrary to his own argument that iTMS is not a factory is a good example of how this works!”
My behaviour is fully consistent with my argument: that people buy an ipod for the ease of use, form factor and other things mentioned, and the fact that i have bought some tracks from itunes in no way evidences the idea that I bought the ipod in order to do so.
All I’m doing here is saying that while your idea is interesting, it is not proven, and I think there are alternative explanations that I feel are more likely, in which case to take buying habits that are mutually compatible with more than one explanation as evidence for this particular one is illogical, but that’s just my opinion.
Everyone above who says that the author missed the point because Apple’s profit model is based on the iPod rather than iTunes, misses the point.
Yes, Apple has a cash cow right now with the iPod. However, the big money (even bigger than the iPod) is to be the de-facto standard for DRM and content distribution. People buy iPods once every couple of years, but they buy content every day.
I can’t tell you Apple’s plans, but I would think they would sacrifice a portion of their iPod sales in order to be the one everybody has to pay whenever a piece of entertainment gets downloaded.
Besides, it’s not just about what Apple can win, it’s about keeping Microsoft from controlling the next phase of the Internet and taking all the profits. If Plays For Sure becomes the standard, how popular will Apple’s products be?