INDUSTRY ANALYSIS

Apple Replays Old Mistakes

It might seem hard to believe, but there was a time when Microsoft’s Bill Gates was begging Apple’s Steve Jobs to license the Mac operating system to PC vendors. Apple turned down the offer, and was later crushed by Gate’s plan B: Windows.

That was in 1985, and thanks to Job’s mistake, Gates doesn’t need to beg for anything anymore.

However, back then, Gates wrote a memo to Apple executives asking that Apple “open the Macintosh architecture” in order to create “the independent support required to gain momentum and establish a standard.” This would allow production of “a wide variety of peripherals, much faster than Apple could develop the peripherals themselves.” And Microsoft wanted to help.

Gates understood that Apple had a good system and he wanted to help make products like programming tools and office applications in order to expand the pie for everyone. Instead, he was locked out and told to go away.

Nearly Destroyed

Microsoft probably wouldn’t have created Windows if Apple had agreed to license the Mac OS to PC vendors. And even if Microsoft did have a future plan for Windows, Apple would have been in a much better position to compete if it had cooperated with other companies.

Instead, Apple was almost completely destroyed because the company wanted absolute control over its product. Currently, Apple has less than 4 percent of the market for personal computers. In spite of this rather hard lesson, it appears that Jobs is about to replay history.

This time, the focus is on digital music, encompassing Apple’s iPod music player and the iTunes software. Apple’s iTunes service made it easy and cheap to download songs, a great relief for consumers. For 99 cents, it’s possible to download an old Eagles tune and relive old times, resulting in increased revenues for Apple. Indeed, the company sold 860,000 iPods in the last quarter alone.

Unhappy Consumers

But Apple’s iPod music player only plays songs in the company’s “FairPlay” digital rights management (DRM) format and songs downloaded from iTunes only play on the iPod.

For instance, a person who downloads a song from iTunes and wants to play it on his or her Rio player is left disappointed. Similarly, someone who owns an iPod music player is limited to buying music exclusively from iTunes, even though there are many other services on the Web, such as Napster and RealNetworks’s RealRhapsody.

These restrictions don’t make consumers happy, and many, including RealNetworks, have noticed the problem. Indeed, in a Bill Gates-type move, RealNetworks’ CEO Rob Glaser sent a message to Steve Jobs suggesting that Apple allow others to provide music for the iPod.

Like he did 20 years ago, Jobs dismissed the idea. Like Microsoft, RealNetworks resorted to plan B.

Real came up with a way to fix the problem without Jobs’ blessing — it figured out a method to allow people to listen to music in RealNetworks’ digital file format on iPod devices. Real named the software work-around “Harmony.” The reaction from Apple wasn’t pretty.

Going It Alone

Apple accused RealNetworks of adopting the “tactics and ethics of a hacker,” even though that’s not how most consumers felt. Apple then went even further and said in a statement that “It is highly likely that Real’s Harmony technology will cease to work with current and future iPods.”

Apple’s resolve to go it alone and not work with others backfired in the past and will do so again if it doesn’t change its ways. A long time ago, Adam Smith made some observations that Steve Jobs would do well to note: Markets work best when individuals follow their self interest to serve others.

When a warped idea of self interest leads people to cut themselves off from others, the system tends to break down. Jobs has been there before, and it boggles the mind that he appears set on a return trip.

The French online music store Virgin Mega has filed a complaint against Apple on the basis of its refusal to license its DRM. But if history is any indication, by the time a bureaucrat in France gets around to acting on the complaint, Apple won’t be the leader anymore. Apple is now, but the market is open to win or lose.

Microsoft and several other companies also are competing in the digital music space. Indeed, Microsoft already has sealed deals with other digital device makers and some big content companies. If Microsoft winds up overtaking Apple in this space, no one should cry antitrust.


Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute.


8 Comments

  • It’s true that the only DRM the iPod supports is Apple’s FairPlay. One of the reasons for that is that neither Microsoft nor RealNetworks has seen fit to port their DRMs to the Macintosh!

    Talk about consumer choice! What’s good for the goose is good for the gander, Ms. Arrison…

  • Ms. Arrison wrote, "But Apple’s iPod music player only plays songs in the company’s "FairPlay" digital rights management (DRM) format and songs downloaded from iTunes only play on the iPod….someone who owns an iPod music player is limited to buying music exclusively from iTunes…"

    This is the crux of your article. Unfortunately, it is incorrect–the iPod and the iTunes jukebox software play MP3, AAC, WAV, AIFF, Apple Lossless, and Audible encoding formats. iTunes will also encode any of these non-DRM’d formats to open formats like MP3, etc. One can simply buy a CD and convert its content to MP3 format for subsequent use on a huge array of compatible players, including the iPod itself. In addition, Apple’s FairPlay DRM has the most liberal usage policies in the industry.

    It is unreasonable to assert that Apple and its music delivery system is ‘limiting’ consumer choice. On the other hand, Microsoft and RealNetworks are blatantly guilty of doing precisely that. You’re barking up the wrong tree, Ms. Arrison. I suggest you turn your attention to the parasitic companies that refuse to make the R&D investment that would allow them to truly compete. Anything else is a disservice to your readership.

  • We have Job’s to thank for Windows! We have Job’s to thank
    for MSN iPlayer! There are two things I look foward to;
    Job’s demise and Apple to follow. With their self-center, self-
    serving attitude, they have done nothing but hurt the computer
    industry. They are not a people’s company, but run by greedy
    and selfish techno’s. I for one will dump my G4 Mac in the near future and switch to HP’s window desktop when it comes out. I can’t wait to donate it to charity, if they even want to a stupid
    computer, like a Mac. Apple would have been greater than
    Windows and Gate’s, without Job.

  • Sonia unfortunately got this whole thing backwards. Apple lost the war with MS precisely because it was too liberal in it’s licensing terms with MS, which gave MS the keys to the kingdom to create Windows. They gave too much away because they didn’t think they had to worry about MS.
    MS, OTOH, built it’s empire on a closed system the kept competition out … precisely what Apple is doing now in music. When you have a dominant position you have leverage and can determine the landscape. When you open it up you also level the playing field and then you must compete with all other vendors on the same terms.
    The single most compelling feature of Apple’s music approach is the value derived from the tight integration of the iTunes Music Store, computer, and iPod. Sales of iPods spurs sales at the music store, and vice versa. Opening it up at this point would be counterproductive. The technology is already there to support other formats if any one begins to emerge as a serious competitor. Apple is wise not to flip that switch until (and unless) it becomes necessary.
    And as far as Apple not working with other companies, this is simply not true as evidenced by recent announcements from HP and Motorola. These strategic deals leverage and expand their leadership position without any of the drawbacks associated with broad and open licensing terms.
    The companies like Real who are crying foul are doing so for good reason, but not the reason you claim. They realize that so long as iTunes remains a closed system they stand to lose a ton of business. Claim all you want that they are representing the wishes of the masses, but this isn’t the case. The masses are scooping up iPods and ITMS songs by the millions and are extremely happy for a digital music combination of software and hardware that "just works".

  • This article compares Apple’s iPod to Microsoft’s business strategy for Windows. The two concepts are not interchangeable. Did you ever think Apple controlling the whole show is the reason for its success? As it is, Apple can respond quickly to problems, and make improvements. Moreover, attempts by companies such as Real to force its music onto the iPod are not good for the customer or Apple. Why? Because when Real’s software does not work as advertised, Real goes out of business, or Apple has to make changes to its iPod to improve it, which causes Real purchased songs not to work on the iPod, these customers are probably going to get upset at Apple, not Real. This would cause Apple bad press, and ultimately lost sales.
    Moreover, this market is young, and companies like Microsoft are not even in the market yet. Apple needs to be able to capatilize on these markets it created. Right now it is making licening deals with companies it chooses. This is good for Apple, as it controls the customer expereinces, which the strong sales of the iPod shows that Apple is good at providing here.
    Moreover, Apple has publicly said if its market share significantly falls, it is not beyond allowing other formats to work with the iPod. It is foolish to tinker with success.
    When Apple created the Mac, it never, ever had anywhere near the market share it has with iTunes, and the iPod (70, and 50 percent respectfully). It merely had 10% at the height of its hay day. Apple has such a huge lead right now, if its share starts to drop it has a comfortable cushion to work with. Moreover, since more people had IBM based machines back when Windows came out, it was easier for Microsoft to make deals to capture the market quickly. We see this with Apple and the iPod. Companis want to work with Apple because of its market share. I do not see how allowing other companies to play now, coul benefit APple in any way.

  • Articles like this one beg the question of what success means to Steve Jobs. Steve was interviewed once on a business show where the woman interviewer asked why he hadn’t accepted the permanent CEO position (to paraphrase, "how much money do you want Steve"). With some scorn he replied that by 25 he already had more money than he would ever need.
    Apple is interested in success, but is focused more on quality of product than quantity of money. Clearly this is true of Steve, who does the same at Pixar. The biggest auto maker doesn’t make the best cars either. People who think that money is the only measure of success are shallow indeed.

  • I really wish AUTHORS would THINK before they write such drivel. Sonia clearly has no grasp of Computing History when the above words were penned. Steve Jobs LEFT the Company in 1985! There is NO WAY IN THE WORLD to project what would of happened if his hand was allowed to guide the Macintosh forward more than 1.5 years after its birth. To say, MicroSoft had the right idea is to COMPLETELY overlook the MESS Windows is today. The Mac is GREAT because it is tightly controlled. The iPod is GREAT because it is tightly controlled. The MASSIVE difference here is Steve is still at Apple 3 years later… and able to guide the iPod forward. For ANY AUTHOR to claim opening the iPod would be a repeat of Bill Gates’s Windows is clearly wanting the iPod to be unorganized like Windows, poorly written like Windows and painful to use like Windows. PLEASE make sure ALL AUTHORS are corrected when they write poorly researched articles such as this. They are 100% wrong, because they OVERLOOK Steve Jobs left in 1985! There were NO REAL PC Vendors in 1985, only IBM and Compaq. PC’s were unable to perform even rudimentary functions of the Mac until 5, 10 years later! On and on. Opening up the iPod would be a DISASTER for people wanting to enjoy Music. If they want a BAD experience there is Napster, OD2, Real, Virgin, Etc. So please, put the pen down Sonia, (and others) you don’t know the History of the Macintosh, so don’t claim to know the Future of the iPod. Thank You.

Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

TechNewsWorld Channels