If You Build It, They Will Come

april 24, 2004

I have an original 5GB iPod that I bought some three years ago. Right now it is sitting all alone not being use because I just got a new 15GB Gen3 iPod. I will find a new loving person for my Gen1 iPod soon so that it will get some play time. iPods, iTunes, and the iTunes Music Store have changed the way that people inherently listen to music -- at least right now it has changed only the ways of those lucky enough to pay the premium for the iPod. There is nothing else in the market right now that comes close to tight integration of these three entities -- and nothing comes close the popularity, hype, and fanfare. It is interesting to see that iTunes was the first thing to come out of Apple, not the iPod and not the iTunes Music Store (iMS). Apple first seeded the market with a pretty good MP3 playing and ripping software package, then they added the iPod player that integrated tightly with iTunes. The iPod is driving everything else. It is the next Walkman, Sony has dropped the ball in this respect. When everyone was moving towards MP3 encoded files, Sony was promoting their ATRAC proprietary and closed standard -- in an effort to curb illegal music file-swapping. The current problem that Sony has is that the Electronics arm of the company yields to the Entertainment arm. Sony Electronics is strapped because Sony Entertainment does not want machines that are able to transport or promote the use of pirated content. Unlike Sony, Apple does not produce any content and does not really worry about piracy, though they do wrap each iPod with a �Don�t Steal Music� sticker. When the iPod came out, Sony scrambled to get something out that was as useful and cool as the iPod. What they came out with was netMD. And for those of us who bought into the whole netMD hype, we are out a few hundred dollars. It is not that netMD is a bad technology, it really isn�t too bad (well, OK that whole 'check-in/out' scheme is/was pretty bad). There is better now and there is no competition when it comes to netMD versus MP3, AAC, or even WMA. Why carry MD discs around when a single device will do? Apparently Sony still has not learned that the American public really does not want MD because they are releasing HiMD in a further effort to push the MD standard. HiMD is a new MD format that can hold up to 1GB of data on a disc or about 45 hours of music. It still uses the ass-backwards ATRAC/ATRAC3 encoding scheme though. Sony is also planning on releasing another online music venture (their first was pressplay which was later purchased by Roxio and turned into Napster) that will tie in with other Sony music products. The new venture is named Sony Connect -- too bad it does not have something as influential as the iPod behind it. When iTunes Music Store was released to the Mac public (then later to all the Windows lapdogs), it was a hit. Why? Because it was and still is a hit because of the ease of use, plus the ease of taking the tunes with you. Before iMS was released, there were subscription music places like MusicMatch and a few others. But, one was always tied to a computer to listen to music that way. iMS was not the first to sell music online, there were others like the defunct MP3.com. But MP3.com sold independent groups, and although that is pretty cool, that is not the way to make a lot of money. Of course, neither is selling music for 99 cents a song -- but Steve Jobs isn�t out to sell music, he�s out to sell hardware. And that piece of hardware is the iPod -- and the occasional PowerMac, Powerbook, or iBook if possible. And that�s why Apple can do what they do. They have already said that they don�t make much profit selling music online. So, they fall back on the fact that they had built up quite a market with the iPod. The direct and tight integration of the iPod with iMS is critical to the success of the whole online music venture -- and so far, it is going pretty darned well. How Apple will grow past its current stage is up in the air. I doubt they will open up the iPod, as the crazed nut Rob Glaser at RealNetwork wants. They are, however making deals in the industry to further promote the iPod and iTunes -- the first news is HP's agreement with Apple to license the iPod, announced in January 2004. HP will also install iTunes on all their PCs that they sell. What Napster, Real, and BuyMusic.com do not have behind them is a solid portable music player with good integration. Yes, with WMA services like Napster and BuyMusic.com people can use a whole slew of WMA devices like the Creative Labs Nomad Zen Xtra. That is nice, there is choice in devices, but there is also no integration like that of the iPod, iTunes and iMS. That is a huge drawback and makes life hard for those that are not computer savvy (like the common consumer who just wants to buy music and listen to it). Apple built a good strategy and executed it perfectly: Build a free MP3 playing/ripping software and give it away. Let people get hooked. Then introduce an awesome portable music player that syncs nicely with the software. Then finally introduce a music store that is so easy to use and integrates so well with the software and hardware that people will plain enjoy using it. There�s no going wrong here. Apple has reported that the iMS has turned a small profit this last quarter, that is awesome. The store is also headed to selling 70 million songs on its birthday at the end of this month. So, now Apple has two streams of revenue, one from the highly profitable iPod and one from the somewhat profitable iTunes Music Store. This brings me to the final questions. How are these other players in the online music ventures going to survive? If we already know that selling music for 99 cents does not turn a good profit, how does a company survive without having something to back them up like a hugely popular and profitable piece of hardware? I guess we will just have to wait and see how things shake out.

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