Time for a decision: how Apple can win the online music war (opinion)
Sep 30, 03 / 10:15 am
Once again, for the first time since the early 1990's, Apple finds itself with a choice while in the driver's seat: should they reap profits from a premium-priced hardware product with clear advantages in the marketplace in terms of features, ease-of-use, and positive "buzz" or sacrifice the short-term profits by cutting the price of the hardware in order to sell as many as possible and guarantee dominance of Apple software with continued profits over the long run? The battle here is all about AAC vs. WMA. Which will become the format for online music downloading? Who will control the format, Apple with its AAC/Fairplay digital-rights management (DRM) solution or, shudder, Microsoft with WMA?
"Microsoft hopes to become a popular standard among online media stores and electronics makers. Windows Media Player is already built into over 300 types of consumer devices, Microsoft said. Philips, which globally ranks third behind Japan's Sony and Matsushita, has chosen not to support Microsoft's Windows Media Player in its consumer electronics products, a company spokesman said separately," Reuters reported Friday. Although I applaud them, Phillips alone cannot hold back the tide. Apple can, but they must act soon.
Apple's iTunes Music Store relies on Advanced Audio Coding (AAC) with "Fairplay" DRM technology which is used to determine what you can do with the music you buy from iTunes Music Store. Microsoft's WMA format contains its own DRM technology. Apple finds itself in much the same position as it found itself in the early 1990's with a superior hardware and software solution and a decision to make. Substitute iPod for the Macintosh and iTunes Music Store for the Mac OS and you get the gist. History repeats itself. The iPod plays AAC files, but not WMA files. iPod competitor players don't play AAC files. iTunes Music Store sells only in AAC format. All of the other "iTMS pretenders," so far, like MusicMatch and BuyMusic.com sell their tunes in WMA format, not AAC. If you own an iPod then, of course, iTMS for Mac, and soon (hopefully) iTMS for Windows, will be your music store of choice. Just like if you own a Macintosh, Mac OS becomes your operating system of choice. If you own another portable music player, iTunes Music Store files won't work for you, just as Mac OS X won't run on a Dell. Apple needs to make sure iPods keep selling well.
The reason the Mac's market share pales in comparison to Windows is that the Macs in the late 1980's/early 1990's simply cost too much and people wanted to have a Mac for less, so they settled for a "good enough" knock-off. Bill Gates understood this long before Apple woke up one day with single digit market share. Gates has reaped the profits accordingly.
Right now, the iPod can get away with its pricing, but not for much longer. Knock-off players from Creative and others, promoted by powerhouses like Dell with their re-branded Dell Digital Jukebox (Dell DJ) player are going to be "good enough" for 90% of the world; especially at the prices the Dell's of the world going to charge compared to current iPod prices. Let's not get into the fact that we, as Mac users, understand that "you get what you pay for;" most people don't care about much beyond the sticker price. So, Apple, it's time to decide: lower your iPod prices and ramp up the marketing or reap short-term profits on a premium-priced piece of hardware only to lose the war in the end?
Apple can dominate the online music scene for decades if they can get enough iPods out there to guarantee iTunes Music Store's and AAC/Fairplay's success. Apple must make the iPod price-competitive with Dell's prices for the Dell DJ. No small task, unless you sell them at cost or lower as Dell probably will. Game console makers lose money on every game system they sell. Why? Because they make the money on the software (games), not the hardware. Apple has to get out the calculator and see what dominating online music distribution worldwide could bring them over the long run and see if it's worth forgoing short-term iPod profits for a few years.
It's pretty clear that Apple has decided not to license Fairplay since nobody else seems to be using it; Apple is going to the big win with this strategy. Will they risk losing it all for iPod profits?
If Apple loses the portable music player market share game, iPods will be firmware updated to play WMA files, the iTunes Music Store will be known as the Newton of online music store's (a great pioneer that failed to capture the market), iPod owners will be shopping for WMA files with MusicMatch or similar software, and Apple will have repeated the same mistake it made with the Mac and the Mac OS. In time, Dell DJ player's market share will dwarf iPod sales and AAC will be scoffed at as inferior to WMA. If Apple wins with iPod sales, the world will largely use Apple iPods, shop at iTunes Music Store, and Apple will have a trojan horse in place to build Macintosh and other sales for the future. The choice is Apple's. And the time to choose is now at hand. Will Apple learn from history or repeat it?
SteveJack is a long-time Macintosh user, web designer, multimedia producer and a regular contributor to the MacDailyNews Opinion section.
