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ITunes: China's Latest Import

By Staff Writer MacNewsWorld ECT News Network
May 18, 2004 9:26 AM PT

One of China's largest PC vendors is jumping on the digital-hub bandwagon. Apple and Founder Technology jointly announced Tuesday that Apple's iTunes digital music software for Windows will be preinstalled on its new PCs starting next month.

ITunes: China's Latest Import

"Digital music is becoming very important in the Chinese PC market, and Apple's iTunes is the runaway market leader," Founder Technology chairman Wei Xin said. "As the first Chinese company to bundle this innovative software with our PCs, we are excited to provide our customers with the world's best digital music experience."

For his part, Rob Schoeben, vice president of applications marketing at Apple said that the company is teaming up with Founder "to deliver an easy-to-use, seamless music experience to millions of Chinese customers."

Reading into It

Meta Group analyst Steve Kleynhans told MacNewsWorld that, while Founder is the number-two homegrown PC vendor in China, he does not think this announcement is so important and cautions others from reading too much into it.

"All software makers want their applications seeded in larger and larger parts of the market," Kleynhans said. "If they get a few more desktops, chances are they can stay there. I see deals like this all the time."

For his part, Yankee Group senior analyst Mike Goodman said obtaining Chinese distribution is a big deal because of the size of its market.

"China's market puts McDonald's 'billions and billions served' to shame," Goodman said in an interview with MacNewsWorld. "Everybody wants to sell to virgin territory."

Selling to the Windows Crowd

According to Kleynhans, Apple's deal with Founder is interesting given that all Founder machines come with Windows Media Player and the various services linked with it. Founder's decision to bundle iTunes with its computers is an example of how PC manufacturers want alternatives to raw Microsoft offerings.

For his part, Jupiter Research vice president and research director Michael Gartenberg called the deal good for both companies. Apple gains another venue for iTunes while Founder gets the ability to deploy high-quality jukebox software on its PCs.

"Certainly any time Apple does [something like this] for iTunes, it is driving it forward. It will be interesting to see where it leads," especially if Apple moves to sell digital downloads through the iTunes Music Store (iTMS) and iPod digital jukeboxes, Gartenberg told MacNewsWorld.

Narrow Window

Kleynhans went on to say that Apple is trying to grow its base on the Windows side of the market while it can because the market might become more difficult by the end of the year.

According to him, Microsoft is looking to enter the music business, and once it does, it will be able to push quickly past Apple because of sheer numbers and volume. Similarly, Dell has the potential to do the same, he said.

"Apple had a fairly narrow window" to augment its customer base, Kleynhans continued.

Where's the iPod Killer?

Gartenberg disagreed with Kleynhans assessment. "One can't ignore Microsoft's presence should it enter the marketplace," he said. "But one of the strengths Apple has is the success of the iPod. Microsoft has no iPod killer lined up."

Similarly, Dell's digital jukebox offering has yet to catch on, despite its cheaper price. Gartenberg said that rival vendors have yet matched the iPod in terms of features, particularly its combination of decent battery life, sleek form factor and ease of synchronization.

Although Gartenberg noted that Apple needs to maintain its edge on the device side, he said he has no reason to think that any competing vendor will surpass it any time soon.

In addition, Gartenberg pointed out that the iPod and the iTMS generate a synergy that Dell and others simply do not have. For his part, he believes that even a vendor like Microsoft would struggle for the success Apple has had unless it could offer a device and jukebox software with the same level of functionality.

Gaining Traction Important

According to Yankee analyst Goodman, a majority of Chinese households still do not own PCs, and many citizens are buying them for the first time. Apple's ability to get onto Chinese PCs means the Chinese government granted its approval to the venture because the Chinese government has its hands in everything.

In any event, obtaining distribution through a Chinese vendor is an important step for Apple, and gaining that traction is crucial, Goodman said.

"Think how many iPods Apple could sell there," he said.

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