Rob Enderle Is Only...Mostly Wrong? December 30th, 2003
Rob Enderle is at it again. While that has become a common way to begin articles at The Mac Observer, Mr. Enderle's latest column bears commenting on yet again. This time, however, I don't entirely disagree with him.
Mr. Enderle has put together a sort of hot-button list of end-of-year tidbits he thinks are relevant. These include exhorting SBC (formerly Southwestern Bell Communications, a Baby Bell) to stop blaming Microsoft for every network problem that comes along, for Sony to get it together and stop fighting itself (good advice, that), for Sun to stop obsessing over Microsoft in general (also good advice), and several other topics. Unfortunately, Apple is one of those other topics.
Mr. Enderle says its high time Apple set about licensing FairPlay (the DRM scheme that controls iTMS downloads) to other hardware vendors. From his column:
Apple: Stop making the same mistake and license your technology.
For those who follow Apple, the biggest mistake the company made in the 1980s was the failure to license its user interface, which would have made it the PC standard rather than a niche player.
With iTunes, the company currently has the largest market share of any paid music service. But because it won't license its DRM technology, its iPod only works with iTunes, and iTunes only works with one secure MP3 player -- the iPod.
This is called customer lock-in. IBM made customer lock-in a cornerstone of its dominance until Microsoft showed that you could own a market through licensing.
Apple builds strong products that can compete on a level playing field, so the company doesn't need to lock in customers to be successful. The lock-in strategy is one typically used by a company that knows it can't compete on design or technology. Step up to the plate, Apple, and give your customers a choice. By doing so, you will expand your market opportunities
Mr. Enderle also calls on SBC to support the Mac platform with its DSL service in the full article. Surprisingly, his reasoning is somewhat sound: Mac users are less likely to be pirates, and would therefore use less bandwidth and be more profitable customers. That's a very good point. You can find the full article at TechNewsWorld.
Getting back to my point, let me try my intro once again: I don't entirely disagree with Rob Enderle. That has such a strange ring to it...
I should explain. I have publicly said (and been quoted as saying) in the past that Apple's iPod/iTMS strategy is utterly dependent on the iPod remain the #1 selling MP3 player. To a lesser extent, the iPod also relies on the iTunes Music Store (iTMS) remaining the number one music service.
On the one hand, both conditions seem a no-brainer so far. TMO reported this morning that the iPod was the #1, #3, and #5 best selling MP3 player, and that seems in no danger of changing any time soon. Indeed, so far the only trouble for the iPod is that Apple can't make enough of the units to meet demand.
At the same time, every other music service has been a complete and abysmal failure. Napster 2, MusicMatch, Dell's rebranding of MusicMatch, BuyMusic.com...All of these services were stillborn compared to the success Apple has seen with the iTMS.
That's all well and good for the nonce, but here's that other hand. If you'll remember, the Apple II series was once the bet selling personal computer on the market, and even the Mac once had a double digit percentage of the market at one time.
Just as I feel that the Mac will gain market share again, it is possible that an iPod killer could come along and take Apple's market share; and it's also possible (though less likely) that some new music service could get it right and steal some thunder there, too. Certainly the music industry will continue to change, and music services as a concept could undergo some kind of change that might leave the iTMS behind.
Again, that's not likely, but it could happen. Change is inevitable, and there is a lot of risk in predicating one's business model on always being #1, and that's what Apple is doing. Locking iTMS downloads to the iPod, and not supporting WMA files with the iPod will be successful as long as each offering maintains its #1 status. If and when some other enterprising company can make an MP3 player that everyone just has to have, Apple is in trouble.
Think about it for a second. What platform will that other MP3 player support? It will be Windows Media, and that's because Apple won't license FairPlay, the DRM scheme that controls iTMS files, to anyone else. In the foreseeable future, no one will be able to license music from the labels without a DRM scheme of some sort, so Windows Media it is.
While another company, say Sony, could invent their own DRM technology for use with AAC (the open standard file format used by Apple), that isn't all that likely with Windows Media there for the licensing. It's expensive developing such technologies.
That would mean that anyone wanting to get music downloads for their hot new MP3 player would have to turn to Napster 2, BuyMusic.com, MusicMatch, or any of the other iTMS competitors; and that's where the downward spiral kicks in. Suddenly folks aren't buying the iPod or downloading tunes from the iTMS, and the feedback loop continues unless Apple regains the upper hand.
So far it sounds like I entirely agree with Mr. Enderle, but where I differ with Mr. Enderle is recognizing that so far Apple has done everything right with these two markets. The iPod is #1, and so is the iTMS.
More importantly, there is no real competition in sight. Windows Media is geared towards the interests of Microsoft and copyright holders, and no one at all seems to be able to come close to Apple's ease-of-use, even though they have the iTMS there as a blueprint. Remember when Steve Jobs said that doing this stuff wasn't easy? He was, apparently, right.
Apple has also been able to consistently stay a few steps ahead of other hardware makers. The iPod sounds the best, looks the best, and seems to be universally thought of as the easiest to use. The only thing that competitors have done better is by building in features Apple has inexplicably eschewed, like a radio tuner, but that isn't stopping anyone from buying it, save perhaps for our own John Kheit.
So, Apple has made a big gamble by locking the iPod and iTMS to each other, but the rewards have so far been huge. Apple has sold lots and lots and lots and lots of iPods, even though they are the most expensive players on the market.
It's a balancing act, and Apple could greatly mitigate the risk by licensing FairPlay support to other hardware makers, or by supporting WMA in the iPod. The former means that Apple would make money on every such MP3 player sold, while the latter would result in more iPods being sold, but both strategies carries their own risks, too. Apple could lose control over the market, and don't forget that Apple has had QuickTime installed on millions of Windows boxes because of the iTMS and iPod, but that's a topic for another time.
Mr. Enderle does have a point about Apple licensing these things, but his problem is that he can only see one way to do business, and that's Microsoft's way. That's where he gets all screwed up, and that's why he's still a pinhead, even when he does stumble onto something of merit. After all, even a blind squirrel occasionally finds a nut.
began using Apple computers in 1983 in a high school BASIC programming class. He started using Macs in 1990 when the Kinko's guy taught him how to use Aldus PageMaker, finally buying a Power Computing Power 100 in 1995. Today, Bryan is the Editor of The Mac Observer, and has contributed to the print versions of MacAddict and MacFormat (UK).