Interoperability drives growth & will limit Apple's iPod strategy
By stephendavis on Sep 14, 2006
Working for an IT company, people naturally expect you to know about all sorts of technology. A couple of days ago, an economist friend rang me up to ask whether he should buy an MP3 player or an Apple iPod. As an iPod Mini owner myself and regular downloader of Podcasts from the iTunes site, I recommended that he buy a generic MP3 player particularly since I have needed to return my iPod Mini for repair twice under its warranty.
The iPod product family has been a runaway success for Apple and largely responsible for restoring the company's fortunes. But like the Apple Macintosh computer before it, having adopted a closed proprietary platform in terms of its digital rights management system, the current success of the iPod is unlikely to be either scalable or sustainable in the longer term. Just as the Mac lost out to cloned IBM personal computers in terms of market share, it's likely that over time the iPpod will lose to the MP3 players that have adopted industry standard DRM software instead.
Again like the Mac, the iPod has a stylish and distinctive design. Its rotary wheel device control offers best-in-class usability. In the UK, iTunes peaked at 70 per cent market share of music downloads but in the past tweleve months, as the content owners themselves such as HMV/EMI woke up to the fact that online distribution was the future, as well as new start-up aggregator sites, have entered the market. Most of these download sites are able to offer a considerably larger music catalogue than iTunes and I believe without exception have undercut the GBP 0.79 price per single file download charged by Apple iTunes.
It seems like a direct replay of the Mac vs PC battle. For the time being, there will be many iPod loyalists, willing to pay a premium for its distinctive design and usability. But the market as a whole is moving towards the common DRM standards providing another example of the laws of free trade, showing that collaborative market participation drives overall growth.
As a post script, in the pub last night my friend told me that despite my advice he was going to buy an iPod anyway, since his girlfriend thought they looked "cool". Now that's the power of branding.
Thanks also to Tawky Tawny who pointed out that the iPod is an MP3 player. FairPlay, the digital rights management technology used by Apple is proprietary. Files purchased on the iTunes store can be played on a Mac or a PC with iTunes, or can be copied to an iPod. HMV and the other music stores sell DRM protected WMA files.