Steve Jobs suggests abandoning Fairplay

Steve Jobs’ recent “Thoughts on Music” is a promising development.  There are a lot of ways to interpret it, but the simplest is to notice that it’s simply good business.  On the one hand, it could be a bluff, based on the assumption that the studios will never agree to DRM free music.  In this case, the message shifts the heat Apple has been drawing recently back to the studios.  In this case, Apple loses nothing and gains better public relations.

However, it may be more than a bluff.  If the studios did agree, Apple would have to give up the lock-in effects of FairPlay, but there are a number of upsides as well.  First, as far as music sales go Apple’s main competitor right now is not Microsoft or Napster, but CDs and BitTorrent.  Digital music sales would surely increase if DRM was removed.  Even in the digital music area sites like AllOfMP3.com may be more frightening than more traditional competitors.  The only reason to believe that it may actually be a bluff, is that right now, digital music players are far more important to Apple’s bottom line than digital music.  Still, better access to digital music would increase demand for digital music players, though not nearly as much as it would help digital music.

Whatever the motivation, it’s a good thing so there no reason to complain.  Beyond placing additional pressure on the studios to do the right thing, and abandon DRM on music sales, it might either be a sign that Apple is reconsidering some of their business practice problems, or at the very least, might unknowingly lead them down that path.

I’ve felt for quite some time that Apple has repeatedly made the same mistake, to their own eventual woe.  The closed system approach just doesn’t work long term.  In the beginning it might be a nice crutch, and in the middle it may seem like it’s helping, but in the long term it you’re bound to fall behind if you don’t allow your products to compete on their own merits. 

Apple has succeeded recently, and at times in the past because they were making good products.  They’ve always had blind spots, however, where they ignored certain segments of the population due to demographic studies, and since no one else was able to play in their sandbox those needs were met outside their sandbox.  The PC and Microsoft defeated the Macintosh because Apple didn’t support gamers, didn’t support people who wanted low priced hardware and didn’t support the business that … wanted low priced hardware. 

If Apple is smart and focuses on producing good products without isolating themselves, their long term chances are a lot better than with the closed strategy.  I won’t get my hopes up too much about Apple seeing the light about their own practices, but I’d certainly raise the odds on my first 2007 prediction, because if Apple does go DRMless, their pretty certain to do it with AAC not MP3.

iPhone will not sell 10 million units in 2007

I have another little prediction for 2007. The iPhone will receive great reviews (already has), huge amounts of fan press, and lots of excitement, but it will not sell 10 million units, or anything close to it. There are simply too many factors which make it a bad choice for most of the market.

The biggest problem, or at least the one that excludes the most users, is cost. The high price tag excludes the majority of the near billion per year cell phone market. If this were the only problem 1% of this market would still be reasonable, but it’s worthwhile noting how big an impact the price has on that rather large number. Consider that the average price of a phone in 2006 was $129 wholesale. SmartPhones, many much cheaper than the iPhone, and all less expensive, accounted for 15% or 123 million sales in 2005. Palm for example averaged $307 per unit in 2006.

This might not seem that far from the $499/$599 price of the iPhone, but remember, the wholesale price is likely quite a bit higher than $499 since that it the price with a 2 year contract.

Take all of that and combine it with the second problem, Cingular exclusivity. Cingular is big in the U.S., but it’s still only a bit more than 55 million subscribers or around 30% of the market in 2005. To suggest that the iPhone will convert 20% of Cingular subscribers is ridiculous.

I’d guess Apple has some international plans, but since I’m not sure what they are, but even if there was a 30% market share provider in each country, the pool of potentials is down to around 35 million users that Apple would have to convince to spend an extra $200-$300. How they expect to do this with $10 million of them I have no clue.

Add to this some the rumors that it won’t support Outlook, among other critical enterprise user features, and you start to wonder what is the target market for the iPhone.

It seems very much to me like the target market is that kid from the Mac commercials. But how many kids like that are there? Are there 10 million of them? I don’t think so. And those kids today aren’t buying $500 phones for the most part, they’re buying RAZR’s, that are $100 or even free. Maybe it’s possible to upsell them some, but at the rate of 10 million in one year? Once again, I don’t think so.

Still, the iPhone will probably end up a success for Apple overall. At $499, or whatever their wholesale price is, they don’t need to sell 10 million. Plus with Apple’s locked in, we own everything, and control all the software policy, Apple will probably make another couple hundred at least off each subscriber through iTunes sales, and software sales and licensing fees, when their users start to wonder how to get GPS support, or how to connect with Outlook, or view a Word/Excel document, or play some games. To be honest, if Apple reaches anywhere near their target, I’d expect them to come out with their own Skype-like service, and start charging a leg for it (just under the arm and leg the existing cell providers charge).

I should also mention that yes, the iPhone looks to be an excellent piece of engineering. It’s surrounded by a regular Apple sea of bad business and false idealism, but that doesn’t mean that if you find the phone itself attractive, and worth the cash you shouldn’t hop out and buy one. Just realize that in this case your not jumping into the wave of the future, like where the iPod went. Instead your jumping into a tightly regulated niche that will likely find itself sorely challenged even at the outset by the more open alternatives.

Indecision Harms Sales

Rumor is, Apple is going to start a program where you can get credit for tracks on an album already purchased when you go to purchase the album.  It’s something I’ve been saying for a while should be the norm, so it’s encouraging to see even a rumor of it.  One angle that that little CNet blurb missed is that not only does a lack of such a policy hurt the full album sales due to angst over wasted money (by paying for the same track twice), but it also hurts track sales as well due to indecision introduced into the initial purchasing decision.

Anyone in marketing knows that purchasing is influenced by a lot more than just price.  Often it’s far more important that a consumer feels they are getting a good deal.  Sure some bean counter can figure that you could in theory make more money by selling the same track twice, but reality has a habit of ruining these theories.

In general, any pricing model that takes indecision out of the process is going to yield better results, especially for small items like 99 cent tracks or even $9.99 albums.  Tracks should be as simple as yes/no.  If you have a pricing model that is designed to confuse, trick or coerce your customers into not getting the best deal unless they pay extremely good attention, then it should be no surprise to you how easy your customers are stolen by someone who doesn’t introduce negative emotion into billing, ordering, etc.

I know I’ve railed a llot about Apple in the past, but if the rumor holds, they’ll have done at least one good thing.  Though, Apple seems to be resisting the offering of a subscription based model, which other vendors offer.  Personally at the moment this is what I prefer because it takes all of the decision out of it.  I just pay a monthly fee and listen to whatever I fancy.  Or actually, I generally just listen to Yahoo Music which customizes a station for me.  I rate things every once in a while, but I don’t have to plan out playlists to get music I like to play.  Hassle free.

Another Nail

EMI has announced they will open a free advertising supported legal peer-to-peer service later this year. You can read about the service on hypebot, so I will not rehash the whole story. One bit of commentary I thought I would add is to draw attention that Apple, unless it begins licensing its technology, cannot participate in services like this.

So, this is yet another expansion of the market rules, which Apple’s closed market strategy will have a hard time keeping up with. It is so odd to be making the same arguments against Apples business strategy that I made almost 15 years ago in relation to Windows vs. Mac. I wonder how it will turn out…

Why I Blog about Apple

It has become obvious to me, that people quite easily misunderstand my posts about Apple. They are not really about technology. Anything related to technology is really just supporting data. They are about two things.

The first is the iPod+iTunes monopoly, and the long-term negative effects that will result from supporting a closed system monopoly.

I am trying to convince people that we should be asking Apple to license FairPlay. This one is not about Apple vs. Microsoft. In fact if Apple did follow my advice and license FairPlay, it would be a sure fire kill shot for WMA. Why would any store or device prefer the relatively unused WMA over FairPlay? Simply put, they would not. Without the option to do this they settle for WMA.

In the long term, I think Apple will lose, not because WMA or Microsoft is better, but because the combination of the entire industry is better than Apple alone. By all appearances Apple will not realize this mistake until it is too late, and all of their potential partners are firmly bound to WMA and Microsoft. By being open with WMA licensing, Microsoft is slowly binding the entire industry (other than Apple) to their format, much as was done with MS-DOS and Windows.

I do not consider this process evil. In fact, the process itself is beneficial. The binding is a negative side effect, but the overall benefits of open licensing outweigh that side effect. I think it makes sense to try to mitigate this binding through intelligent regulation, but that is another topic for another day.

The second is about the Apple community’s assumption that the world would be better off with Apple having 80% OS market share, rather than Microsoft.

I really should not care much about this, considering that Apple’s basic business strategy is flawed in a way that will prevent them from ever having 80% OS market share. Unlike portable digital music, Apple does not have the opportunity any longer to grab market share in an emerging market. The OS market is far too mature for that to occur.

Despite this, I hear this argument so often that it does tend to get under my skin in a way that I feel a palpable need to refute it. I am not suggesting that Apple users need to stop using their Macs. If you like it, use it. There are some benefits to OSX.

However, be honest with yourselves and admit that most of those benefits derive from elements that would either disappear or be very negative if Apple had 80% market share, rather than 3%. Security is one example, and lack of conflicts with closed system hardware is another.

Also, be honest with yourself and admit that your biggest gripes come from these elements as well. A closed system with 3% market share will not have the same amount of compatibility with hardware or software, as the 80% system that is openly licensed.

If you really want to advocate a better dominant operating system, I suggest you choose one that is open. The Linux group, or better, BSD group, have a better argument for this then Apple does, because they are open. However, I think you do get a better user-experience through Apple than through Linux/BSD. Just because Apple is not Microsoft, does not make them Linux. Also, since I am sure this will come up, just because Apple uses BSD, does not make them BSD. OSX is as free as a man in Alcatraz, and as open as the ground beneath your feet.

I will however try to refrain in the future, as I think I have made my point in as clear as manner as I can manage.

WhatIf: Microsoft announces Windows Vista to be available only on XBOX.

Yes, the title is complete fiction; but what if it was true? An anti-trust suit would be filed, and Vista would never make it to market, and that would make sense.

So why is it the Microsoft hating Apple users seem to be suggesting this is Microsoft should be doing? No, they don’t say this literally, but the implication is there. Within the Apple community, the current hype is about how Apple’s closed system is superior to the PC system. If the suggestion is that closed systems are better, than should everyone be creating them, including Apples competitors, including Microsoft?

Personally, I think they are wrong, but that is the suggestion that comes across loud and clear. I think they are wrong because the closed system has been defeated several times already. In fact, this has a lot to do with Microsoft’s initial rise to dominance. Not only is there the obvious defeat of the original Macintosh operating system, but the mainframe market as well. Mainframes often are not considered a direct competitor to MS-DOS systems, but it is certainly true that all microcomputer architectures were in competition with mainframe architecture.

But I digress, the point is MS-DOS became so popular because it did something very few others were even trying to do, and that was open the hardware-software loop, so that when a developer wrote code he could move it to different hardware. There were a few others trying to do this, but most were not much different from MS-DOS (like CP/M86). Microsoft however succeeded, creating the IBM compatible market with IBM’s assistance. The only other effort to achieve any similar success was UNIX. UNIX however had much internal strife, and generally was slower in opening closed systems.

For the early years of UNIX, DEC’s PDP-11 systems were the only supported platforms. VAX support was added by BSD but this changed little since VAX was still a DEC machine, just more expensive and more powerful. In 1982 Sun released SunOS (the precursor to Solaris), and systems built using Motorola processors. SunOS ran only on Sun hardware, and applications required recompilation to move from other UNIX platforms, but at least it was a beginning of hardware independence for developers.

Other less closed developments happened later, like Linux and BSDI, but by that time, the IBM PC compatible market was well established and so was MS-DOS. I will not bother to cover the years since, other than to concede that yes, Microsoft has an effective monopoly on operating systems, and that dislodging them is certainly difficult due to the large amount of software designed for the Windows. A great deal of people contend that Microsoft has abused their monopoly status in many ways. I will not attempt to debate any of these contentions today however, as it is not necessary to make my point.

The point is that none of the acts Microsoft has been convicted of, settled for, nor even accused of, has been as black and white wrong as a closed hardware/software system. Preferential licensing, undocumented APIs, and bundling of extra software into operating systems would be harmful, but absolute exclusion through lack of licensing is simply and obviously inappropriate for a monopoly.

Apple users however ignore this, and advocate a system far more restrictive than the one they campaign against. In terms of OSX, Apple can legally do this as long as their market share is small, because minor vendors have that freedom if they want it, however misguided it may be. But what astounds me is the acceptance of it in the digital music arena, where Apple does have a monopoly nearly as strong as that of Microsoft in operating systems. No one has asked Apple to remove features, alter hardware or software on their iPod. The best one expects from Apple is to license the FairPlay DRM to other companies who either sell music or players so they can alter their own products. At the very least one would hope Apple would not sue companies that reverse engineered the DRM and re-implemented it, nor go to great lengths to intentionally break those implementations.

For years, Microsoft has let Wine go about its way. Recently they have designed WGA to not function on Wine. However, their official policy seems very weak on the issue. The overall effect only turns out to be that users must use a manual process for downloading updates for Office applications. If Microsoft were Apple however, they would have made WGA disable the office applications, and threatened lawsuits.

Microsoft is not perfect, but at least they are better than Apple.

Part of why the IPod is doomed

As this list should show, the iPod simply has too much, and too diverse of competition to be able to cover ever users wants/needs. My personal favorite, which I’ll probably buy rather soon is the Sandisk e270. Basically as light, and almost as small as the Nano, it has a 6GB plus a SD slot for expansion. Right now these max out at 1GB, but they’ll probably grow to 4GB before you decide to buy another player. Adding to the longevity is the fact that the battery is replaceable, which is an uncommon feature for MP3 players (and not something any iPod I know of does).

Yahoo Music is better than iTunes, especially the almost unique Launchcast Plus service (there is also Pandora, which was created by the designer of Launchcast). iTunes has nothing like that last I checked. Also, your not locked into only a purchase plan but can do a subscription as well (it is your choice).

So what is Apple best at? Oh yah, locking your hardware and software up into a inflexible system, giving you no options for buying, browsing, listening to music except for their limited choice of hardware, and their inferior software.

Why is Quicktime ok, but not Media Player?

Why is it that the EU forces Microsoft to remove Media Player from Windows XP, but has never made so much as a peep about Quicktime being bundled with OS X?

It would be scary to see where this trend might go. I recall plenty of people wanting IE removed, yet no one has ever complained about Safari. Maybe Vista will have to remove Desktop Search. While were at it lets get rid of Outlook Express.

But you know, I think I see the problem. It would all be ok if Microsoft bundled all this stuff with hardware. That would really change things.

I suppose the problem is that from MediaPlayer you can buy music, and that it’s unfair to suggest a limited set of choices like Napster, CinemaNow, AOL, MusicMatch, MSN, Wal-Mart, XM, Audible, Puretracks, SongTouch, MovieLink, Rhapsody, V CAST, eMusic, MusicGiants. What they really need is not a limited set, but a very strong recommendation, like use iTunes and only this and forget about ever switching. Oh, by the way, buy an iPod.

It’s all so clear now.

French DRM Law

It’s interesting how distorted the true facts are on this law are. The biggest thing that is often overlooked is that the DRM interoperability piece that has drawn so much attention is an amendment that softens the blow of a DMCA like law.

Another overlooked item is that the suppliers are given an option. The supplier can either willingly create and provide interoperability with competitors, or lose all legal protections against hacking of their DRM.

A lot of sites out there only talk up one of these two possibilities, and when it’s the first that makes the cut the story can be quite misleading. Apple would not be required to disclose any details on how DRM works, but would merely be required

The amendment provides some limited consumer protections, by allowing for users and companies at their own expense to reverse engineer the FairPlay format.

Think back to RealPlayer to find the true purpose of this amendment. With the amendment in place Apple would not have any legal recourse against a company like RealPlayer which reverse engineered FairPlay and began selling songs in FairPlay format. They would also have no recourse against users who used DRM cracking tools to translate from FairPlay to MP3, nor against the developers of those tools…

.. Unless Apple created the interoperability on their own, which they surely will not.

But despite all this, Apple can carry on doing business as usual because the protections of the amendment have virtually zero effect outside of France. The concept that music retailers would pull out of fear that downloaded songs would be posted online is ludicrous because they are already online. You don’t need to crack FairPlay for that.

Similarly the thought that Apple would pull out because it would be legal for a French developer to create a FairPlay hack is similarly ridiculous. First off, it’s only a possibility. Second that software would still be illegal in other countries with DMCA like laws. Third, there are plenty of countries already in the world where the development of a hack would is not illegal today. Fourth, even if Apple close iTMS in France, it would still remain legal to develop a hack. Should I go on?

Like I’ve already said, the amendment is essentially a political statement. I think it is a good statement, but it is not ground breaking.

Interesting French Draft Law

While it’s a step in the right direction for consumers, I doubt it really changes the way Apple runs its business.

The SCPP’s claim that “The person who will have converted iTunes songs will be able to make it available elsewhere,” is completely bogus because everyone with a 35 IQ or higher realizes that it’s far easier to make your MP3′s from a CD, so unless they plan to stop selling CDs too there is no reason that Apple will change their tunes.

The only real effect, other than the political statement, is that if a user decides to switch from iPod to something else or vice versa they won’t need to break the law to do it (in France).