Please don’t tell Bob Regular
this, but I have never used Kazaa. Instead, I’ve given a few
hundred dollars to Apple’s iTunes Music Store. For those not
current on the pay per download music scene, iTunes offers a
library of one million songs available for purchase at $.99
with albums often available for an average price of less
than $.99 per song. Apple, who has sold more than 100
million songs, will still contend that they are not in the
music business. They are in the hardware business. They
offer arguably the best online music store for the sole
purposes of moving what is arguably the best portable music
player, the iPod.
The iPod will play MP3s, but
all music purchased from the iTunes Music Store comes only
in their proprietary encoding format. This may sound
selfish, and that is certainly what RealNetworks tried to
prove, but if we remember that Apple cares only about
selling iPods it becomes understandable why they don’t have
their downloads open for all portable music players.
RealNetworks certainly understands this, but they insisted
on picking a fight with Apple nonetheless.
Real is a software company;
they do not create hardware. Real, too, has proprietary
software. Their RealPlayer only plays certain media formats
and none of their software works on the Mac. They continue
to try and find a model for the Player including
subscription based content. Their latest digital foray was
in the pay per download space. A recent crack of the iPod
allowed their proprietary music encoding to work on the iPod
and started a heated exchange that included a potential
lawsuit by Apple and a full page ad along with online
petition against Apply by Real. As a final ploy, Real even
lowered their price per download to $.49 for a short while.
For all their efforts, Real
shows that they don’t understand the business or the
consumer. To survive Real needs distribution; Apple has it
with their iPod. Like a virus, it makes sense that Real
would try to infect the iPod in hopes of finding a suitable
host. And like a virus, only one side benefits, Real. For
Apple though, this represents just the beginning. The “real”
challenger just revealed itself.
Only one company could afford
to compete with Apple, both in brand and strategy. That
company is the one that knocked Apple out of top spot in the
OS business more than a decade ago, Microsoft. Unlike WebTV
or even the Xbox, Microsoft’s entry into the digital music
space represents the type of project that will allow them to
become the dominant player. Like Netscape before it, Apple
will remain the emotional favorite, but the economic giant
will dominate the marketplace. That Microsoft chooses to
enter a new market brings interest in itself, but the
interest comes from the reasons why this venture will differ
from those lackluster ones before it.
Microsoft’s music store will
succeed for the same reasons that make SP2 so threatening –
instant access. To reach 130 million people almost
overnight, more than Apple has access to, Microsoft needs
simply to hit commit. With a simple update to their already
installed Windows Media Player they can incorporate access
to their store. Like Wal-Mart, Microsoft attracts those that
look for something convenient and in their minds
trustworthy. The vast majority of users don’t have the
comfort level required to download someone else’s software
and use software that isn’t directly supported by Microsoft.
Many simply don’t know. With MSN and Hotmail, hundreds of
millions of these people will know soon, and with the
multi-million dollar ad campaign launching in October, they
will feel even more comfortable and likely to try it.
Like Apple, Microsoft won’t
make much money from the sale of music. Even if they sell
one billion songs per year, that would equal no more than
two hundred million dollars in profit - a lot for most
companies, a fraction of earnings for Microsoft. Instead,
success will be measured in the amount of search revenue and
the continued proliferation of the Windows operating system
that results from increased use and peripheral expansion.
This venture is about the digital empire that Microsoft
looks to build. They succeed by volume and integration. No
other company better leverages its existing user base than
Microsoft, and it’s arguable that no other company enjoys
the integration among products that they do. Digital music
represent simply one other thing that users call a part of
their life. When users call something a part of their life,
that’s where Microsoft can make sure they continue to call
the shots. Real estate may be about location, location,
location. In this space, it’s all about leverage. We see the
same on smaller scales in our industry. Understanding when
and in what areas Microsoft can find success should teach us
a lot about our own strengths and weaknesses.
Jay Weintraub
