Convergence Kills
Convergence Kills
August 02, 2004
There are some really interesting things going on in iPod land, starting with the fact that RealNetworks announced that after being diss'ed & dismissed by Apple when they approached them to talk about opening up the iPod to Real's competing service, they went ahead and reverse-engineered how the iPod deals with DRM'd media files via their new 'Harmony' software.
My view is going to be a little different than the direction other people are going on this one, as I believe the last few steps are pointing to greater maneuvering as a whole... they've found their Next Big Thing™. I don't really think RealNetworks themselves are significant, they're just the most desperate.
Real confusion
Harmony would allow users of RealNetworks' own music store, which uses a different Digital Rights Management scheme, to sync and use the iPod. Remember, the iPod is able to play a few other unencumbered-by-DRM formats like MP3s, AACs, etc. But the iPod is the only player tthishat can play Apples' FairPlay-DRM'd AACs from the iTunes Music Store, and, until now, none of the other online music services were able to access it for their DRM-encumbered files while keeping their DRM schemes intact.
Apple's response to Harmony was just as interesting as the Harmony announcement itself:
"We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod," Apple said in a release.
Now, besides the fact that Apples' response was decidedly uncool for a company whose products must stay cool at all costs, it's also perplexing because if things Apple has said in the past are true, it shouldn't be that big of a deal.
Remember, Apple has gone to great lengths to talk about how the iTunes store is a loss leader to sell iPods. This makes sense; from each $.99 song sold Apple gets a percentage, but it's not a large percentage and when you factor in all the costs involved what they make is a pittance compared to the margin skimmed off the sale of an iPod. Apple gets them hooked on how easy it is to buy music, they decide they have to have it with them while they're out and about and they pick up an iPod.
At first blush it doesn't seem to make a whole lot of sense for Apple to get too uptight about Real sliding their songs onto the iPod, as theoretically someone who happened to be a user of RealNetworks service now has the option of buying an iPod, whereas before they were limited to other devices. By keeping it closed there might be some RealNetworks users who, for whatever reason, decide they have to have an iPod and dump the service altogether and pick up iTunes for Windows.
But there have to be plenty who have way too much invested in Real's Rhapsody service and pick up an iPod competitor that supports their already-purchased music, and it's not as though Apple is offering a cross-over program whereby if you turn in your Rhapsody music files you get FairPlay'd AACs instead (Feel free to use that one). Either way, they're selling iPods, and that's really where the money is right? Not a few cents actually selling the songs. Keeping it locked in would be more about Apple keeping control over the process and the 'quality of the user experience', but really that's just cream... right?
In fact there are several more stores out there, none of which are doing as well as the iTunes store, but which are making headway. I'll give a nod to Napster, simply because they've been brilliant in getting universities to include subscriptions to their service in their student tuition. They can still use other players for their mobile-Napster needs, but they aren't able to use to use the iPod because, as was mentioned before, the iPod doesn't support their DRM.
Of course Napster isn't alone; Sony, Walmart, even Microsoft have stores in the works, and while none of them have the share of the iTunes Store they have been gaining users. And when Microsofts' store ships, built into the OS and all that, you better believe that even if it sucks it'll get users. It took their various MSN-services years to gain on AOL, and it's still behind, but it's now a valid competitor in its many forms... I know I'm getting real sick of people asking if I have MSN. And these people won't be buying iPods, and eventually that'll add up...
It would make sense to sell to these people, as by Apple themselves have stated they've reached "supply equilibrium" with the traditional iPod, while they still aren't quite able to meet demand with the mini. What this means is that given their current production capacity, they're able to meet all their orders from stores and individuals around the world.
This is good, because it means they're pulling in all the earnings they can in a given quarter for the product. This is not so good because it means if they increased their production capacity there'd be excess inventory in the channel, and the prices of iPods would start to fall.
This isn't completely static, and there are two things of note here:
* The HP deal hasn't really hit yet
Remember, Apple penned a partnership deal with Hewlett-Packard on the iPod, whereby HP will be shipping iPods they manufacture themselves, but co-branded with the Apple & HP logos. While Apple is at supply equilibrium, it simply doesn't have the distribution capability of an HP and a Dell who have their fingers everywhere, both in institutions and worldwide. Remember, there's no China Apple Store... Apple has massive brandwidth at the moment, but the pipes for channeling it are humble compared to the big guys. This deal, and possibly others, are going to give the iPod another shot in the arm.
* Apple is starting to feel the pricing crunch
People can only buy what they can afford. Lots of people want an iPod; they simply can't plunk down a $300 for a digital music player. Some of them might save their pennies, other will buy something cheaper, even if it's not what they really want.
The fact that the MP3 player market is still doubling, but that Apple has reached supply equilibrium points to them pretty much sapping what growth they can get with the iPod at its current price point. The early adopters with the cash have bought in. But drop the price point down into the realm where the masses can afford it and things go boom. The obvious example here would be the CD player or Walkman, but analogies to TV, DVD players or VCRs would be equally appropriate.
Apple recently redesigned the iPod a bit, while lopping off $100 and doubling the battery life. While much of this has to do with competitors fielding increasingly competitive offerings, it also very much has to do with the fact that for millions upon millions of people, $300-$500 is the price of a computer or rent for a month.
So the iPod can still use help, and things are only going to get tougher from here on out due to increased competition... entropy has a way of working its way through marketshare that isn't artificially dominated; and much of the fruit coming out of the deals that have been inked by rivals won't show up right away. But it's coming...
The paper mache trojan horse
Consider that Apple has stated over and over again that the iTunes Store is really a trojan horse for selling iPods due to the margin differences, it would make absolutely perfect sense for them to look the other way while Real allows users of its store to choose iPods for their mobile music needs. This is absolutely well-founded business logic, but methinks thou doth protest too much.
To recap the popular trojan horse meme, remember that when the iPod was first released for Windows, Apple went and incorporated a 3rd party piece of software for Windows to sync and connect. This worked reasonably well, until iTunes for Windows was ready to ship. After using the mac base as beta testers for their software to reassure the music labels giving mac users first crack at the store, iTunes for Windows was released with great fanfare.
The iTunes Store wasn't really aimed at those downloading gigabytes of music from Kaaza, but rather those who were sick of doing it due to the lousy experience it can offer and those who really didn't do it at all. Make it painless... short and sweet, and they'll load up on those FairPlay-DRM'ed AACs. Eventually they'll want to take them with them, and the only thing that plays FairPlay AACs is the iPod. Cha-ching, they're feeding off each other, with the low-margin iTunes store as a loss-leader for the high-margin iPod.
This has been a wildly successful meme; mostly because like all successful lies it has a kernel of truth behind it. It's been picked up everywhere. When Napster released their branded MP3 player, the big thing you heard repeated was: "Smart. Remember Apple only makes pennies on each iTunes song, but a bundle on each iPod. Napsters' business model wouldn't hold up without using their service as a trojan horse."
Again, there is truth to the above, and a whole lot of truth as far as Napster is concerned, but its a short-sighted-do-we-have-a-profit-this-quarter truth. Napster, Real, and WalMart don't have the box of tools to use in tandem that Apple is quietly placing across the chess board.
But again, RealNetworks' Harmony tech (or just opening the iPod) doesn't clash with this meme at all; it only reenforces it and helps sell iPods, and its arguably the only thing keeping their market cap from equaling their cash hoard. Apple could simply be overzealous in wanting to control everything, but considering their screw up over not opening the original MacOS is held as a staple example in Business 101 of what not to do, I really doubt anyone there wants to be the responsible for repeating it with the iPod.
Most people believe that opening up the iPod is going to be in its future due to past history and simple economics, and Apple has even hinted that provided that the other Stores start getting some serious share they'll look at doing it. If things turn really bad with Real, they could simply issue a software fix and make things pretty miserable for them while selling iPods all the way. So why would Apple be so... vehemently... against it?
We're thinking about the iTunes Store, Napster and Rhapsody through trojan horse colored glasses, and not as what it truly is: The Gateway to DRM Content on the Desktop. RealNetworks is stepping on that, and it's the long-term lifeblood of the company.
That's why Apple is freaked about what Real is doing; it knows the iPod is going to be a surprisingly short-term success story, and that its era of growth is going to die out much faster than expected. This might sound stupid at first, due to how little Apple actually makes from the store, and how well the iPod is doing now...
Convergence kills
It's a sad truth, but yes, the iPod is going to go away. Everyone knows it; they just don't know when. This isn't dismissing the fact that it's shot out of the gates on a wildly successful run and become to MP3 players what Kleenex is to tissues, but it's eventually going to start losing share in one form or another. This could be from pricing pressure, from a competitor or two hitting some products out of the park, Apple getting lazy, or just a few missteps.
Given enough time, any number of the things mentioned above would start to erode the iPods' share at a fast rate, but they're all irrelevant really, as the MP3 player isn't going to be around for a whole lot longer.
Witness Exhibit A, whereby Apple and Motorola have agreed to bringing the iTunes Store to the next generation of Motorola phones:
...partnering to enable millions of music lovers to transfer their favorite songs from the iTunes jukebox on their PC or Mac, including songs from the iTunes Music Store, to Motorola’s next-generation 'always with you' mobile handsets, via a USB or Bluetooth connection. Apple will create a new iTunes mobile music player, which Motorola will make the standard music application on all their mass-market music phones, expected to be available in the first half of next year.
"We are thrilled to be working with Motorola to enable millions of music lovers to transfer any of their favorite songs from iTunes on their PC or Mac to Motorola’s next-generation mobile phones," said Steve Jobs, Apple's CEO. “The mobile phone market -- with 1.5 billion subscribers expected worldwide by the end of 2004 -- is a phenomenal opportunity to get iTunes in the hands of even more music lovers around the world and we think Motorola is the ideal partner to kick this off."
The announcement of the deal kicked off two main forms of speculation:
* That Apple and Motorola are partnering to create the long-fabled iPhone
* That this is another trojan horse; many people haven't bought into the iPod MP3 craze yet, but this will give them a taste... and, when they're tired of only being able to store 12 songs they'll pick up an iPod.
Forget about the iPhone. The iPhone as people envision just isn't going to happen. The market is ungodly saturated, and while Apple could theoretically make a bundle with a sleekly designed-pricey offering there's really only so much they can do here. Remember they didn't create the iPod OS, they bought it. They don't do that; and they aren't some independent design firm you call when you want something sleek. In fact most of what's in the iPod wasn't designed by Apple at all, and while they could do much of the same with mythical iPhone as they did with the iPod (cobble a bunch of tech from others into something cool), the growth just isn't there in that market. They're all already eating at each others' share.
You also have the fact that phones, while they can access the internet, by and large are massively dependent upon the subscriber network. If cell phones were using VOIP and plugging into massive 802.11g meshes it might be a different story. But they're not, so in creating an iPhone Apple would have to pick a network and play by their rules; or they'd have to pick several... the entry costs here are just too high. What people are expecting this to look like is just not in the cards.
As for the second one, well, that's a little more complicated, as there are two fascinating things going on with music and mobile phones right now:
* It started with ringtones; some became incredibly popular, and then people started creating their own. The phone companies started selling ringtones and, crazily enough, people started buying them en masse. Back in April we saw the first ringtone-only album released.
* The mobile phone market has gone from a high-growth market into a massive sucking black hole of feature consolidation.
The last is the truly fascinating one, as we're watching cell phones eat up markets from the bottom like Ruben Studdard at a buffet; they're bottomless pits and have become the poster child of convergence.
There are three main things leading to cell phones becoming these feature-vortexes:
* To a certain extent this is always going to happen as technology progresses and the prices get lower for a given tech. When you are buying a $29 webcam, you have to start wondering just how much of that $29 is inherent due to all the crap surrounding the sale. It has to be packaged, shipped around, go through a few distributors... the actual technology is in the sub-$5 range. After a certain point adding in features starts to come 'for free' and products start looking to converge.
* Mobile phone makers are getting squeezed; for the most part, phones are entering commodity status... when your high-tech product is being given away with a service plan, it's a sure sign something is up. By adding in higher-rez screens, games, microphones, cameras, etc., they can keep an elevated price point and higher margins. Without it, the tech would just be priced artificially high (which makes them ripe for a competitor to swoop in) or would drop to a point where they're paying you to buy it. As technology progresses, you start having problems buying a phone that doesn't come with stuff you aren't interested in, but you end up getting it anyways.
* If you take a look at your desk, there are lots of gadgets you want to take with you. Your mobile phone of course, your PDA, your MP3 player, your USB pen-drive, your digital camera. But out of all of these, there's only one that you generally have with you at all times: your phone. Everything else is secondary; if you had to pick one thing, chances are it's going to be your phone. If your phone just happens to also be a serviceable PDA...
I know, convergence products generally suck. It's old news; dedicated devices are easier to use as the interface isn't multifunction, and the components are geared towards the task at hand... a $500 digicam is going to have better DSPs, optics, and a better interface than a $500 phone that happens to include a camera. But the word here is serviceable. If it's "good enough", and you're going to need your phone with you anyways, you at first carry around the extra gadgets and then eventually make what's on the phone work and save some pockets.
Everyone laughed at the comparably monstrous-sized Treo line of hybrid phone/PDAs until they started to sell really, really well. And then companies like Sony, who was arguably one of the more innovative players, started pulling out of the PDA market altogether. Right now people are laughing at not being able to buy a PDA or cell phone without getting a damn camera, but low-end camera makers aren't laughing. There are valid reasons for owning a separate DVD player, but if you hadn't bought one and already had a Playstation 2, the likelihood of you buying one just dropped through the floor.
People aren't giving up their their big fat digital SLR, but they're finding the cameras in their phones and PDAs just keep getting better... and eventually they stop carrying that nice little slim camera with them or never find a need to buy one. And, you guessed it, phones are starting to come with MP3 players...
An iPod Mini is going to make a much better mobile music player than your cell phone. But when your cell phone has 5 gigabytes of storage and bluetooth headphones.... the writing is on the wall here. All that's missing is a little time. Apple is one solid-state storage breakthrough (and the networks getting their act together on 3G) from having the market for the iPod evaporate to a pale shadow of its former glory, and they know it.
That's why they're so freaked out about what RealNetworks is doing, even though it'd sell iPods. At the end of the day it's not going to be about who is selling what end-play device, it's going to be about who is sitting in the middle. And Apple wants to be that benevolent dictator, parsing DRM-protected content to whatever device you're using at the time. It's also why the deal with Motorola is so significant; Apple can live without you buying an iPod, but if you're going to be buying DRM-protected content, Apple damn sure wants it to be through them.
The iPod might only have a few high-growth years left in it, but the iTunes store is the sleeper. Right now, the iTunes Store sells ~2% of the legally purchased music sold in the USA. This is a market that is growing by leaps and bounds; imagine if Apple sold 2% of the legally purchased music world-wide. And then 5%. And then 10%. And everything is DRM'ed, meaning if you want to make a device that plays back the content, you're paying them... let alone their own tailored-to-FairPlay devices like AirTunes, which only works with the Airport Express...
Watch the hands
There's an old adage about magicians; if you want to learn the trick, close your ears and open your eyes. Well it might not go exactly like that, but that's the lesson I took from it.
When people are talking, you have a natural inclination to look at their eyes, and if they're doing something with one hand chances are you really need to be watching the other if you want to see what they're really up to. In other words, watch the hands. And Apple is particularly adept at misdirection...
Witness the Palm scenario. After the Newton put in grave, PDAs suddenly got really, really hot and Apple was doing lots of neat industrial design things. They were continuously asked about creating their own PDA, but they basically dismissed the entire market as irrelevant. Steve Job's gave the infamous "Why would anyone want to use a little scribbly thing" line... but we now know that around that time Apple was seriously trying to buy Palm. Interesting, that.
They've also gone out of their way to talk about what a loss-leader the iTunes store is, how they make literally nothing from it and how much back-end work it took to make it a reality. Bandwidth, servers, credit-card companies... anyone else would be crazy to do it. Interesting, that.
Speaking of interesting, Steve Jobs gave an interview with Mossberg recently where he was asked about movies:
"The interesting thing about movies though is that movies are in a very different place than music was. When we introduced the iTunes Music Store there were only two ways to listen to music: One was the radio station and the other was you go out and buy the CD.
Let's look at how many ways are there to watch movies. I can go to the theater and pay my 10 bucks. I can buy my DVD for 20 bucks. I can get Netflix to rent my DVD to me for a buck or two and deliver it to my doorstep. I can go to Blockbuster and rent my DVD. I can watch my DVD on pay-per-view. I can wait a little longer and watch it on cable. I can wait a little longer and watch it on free TV. I can maybe watch it on an airplane. There are a lot of ways to watch movies, some for as cheap as a buck or two.
And I don't want to watch my favorite movie a thousand times in my life; I want to watch it five times in my life. But I do want to listen to my favorite song a thousand times in my life."
He went on to mention how there might not be the same "opportunities" for the movie industry as there were for the music industury, but the above is what I'd saved. While the above is perfectly solid logic, to my admittedly paranoid mind what the above says to me is that Apple is in some really hot and heavy talks with the MPAA and movie studios right now; as one thing Apple isn't mentioning is when it came to actually getting legal music online at the time it was cumbersome, laden with heavily-restricted DRM and just a general pain in the ass.
The whole process, until the iTunes Store, was needlessly complex and convoluted. Remember, iTunes wasn't the first online store, it was the first that was successful.
There are some other pieces here; witness H.264/AVC, which I blogged about earlier in my... usual way... which probably means there's no way you got through it all. So to recap some of what we learned that's pertinent:
* Around a 30-40% bitrate (bandwidth) reduction over MPEG-4
* Massively streamlined networking, it's absolutely ideal for various embedded devices
* Intel and others have been talking about working H.264 over home wireless networks since 2003
* It brings the bitrate into line for high-quality video over standard home broadband connections
* Artificial Intelligence will be born of an aberrant and bored ActiveX control.
Hmm... embedded devices. Apple sells one of those now, don't they? That nifty little $150 product called Airport Express, featuring Air-Tunes; plug it in near your really nice stereo, jack in the audio from the Airport Express and wirelessly stream your (encrypted) FairPlay-DRM'ed AACs straight from iTunes.
And people with really nice stereos often have really nice home entertainment systems, and it really wouldn't take a whole lot to add some video out and a beefier chip in a new version. Besides, if you're using it for it's AV functionality, chances are you have no interest in the USB port.
Wouldn't that be nice? If you're going to watch your home movies... why limit yourself to your computer? You could have the same 'living room' button right in iMovie. Sure you could rip them to a DVD, but that takes a surprisingly long amount of time.
And, while the H.264/AVC codec is heavy, we have G5 iMacs coming soon and the computer doesn't have to rip the entire thing to H.264/AVC; it just needs to be able to do ~24fps plus a buffer. Using the Baseline Profile of H.264/AVC and giving up some bitrate, a 1.6-1.8GHz G5 iMac is going to be taxed out but should be able to pull it off at 720x480 (DVD sizes) if Apple really goes all out on the optimization side. Standard-Definition TV sizes (352x288) wouldn't be a problem at all.
Of course that wouldn't really be necessary if you're actually buying something through the iMovie store; then it just needs to be streamed with a suitable buffer... and H.264/AVC is all about streaming. iMovie Store -> Computer -> Airport Express Rev.B -> TV. You may want it to spool to disk while it's streaming for future viewing or other TiVo-ish things, but as Jobs said, how often do you watch a movie? So it's not going to hang around that long, at most we're talking about some fine points changing in the FairPlay DRM scheme.
Now there was another little nugget that Jobs threw out, and that was regarding the actual opportunity in the space due to the variety of ways you can get your movie fix. This is true, but kind of overstates things a bit, and something like the iMovie Store would make a lot of things drastically more streamlined, even if you hardly changed the interface from the iTunes setup at all.
Hell, iTunes has music videos now; which are practically the equivalent of trailers... and really, while Jobs has a very good point about the frequency with which you'll be watching stuff, for the most part that just means you'll rarely want to actually own it forever if the price is right.
A paradigm with legs
When it comes to movies, things have gotten a little over the top in the DVD world. You often can't get 'Extended Edition IV' of something at your local rental shop, which means you have to buy it. Local shops, while having a big selection, don't have everything... which means you have to buy it online. And even then you often don't want to buy it, you've probably already seen the movie three times in its various forms, you might just want access to the special 'making of' features and not 4 copies of the same movie with 5 minutes of extra footage in each edition; you just want the really new stuff, which you can't buy separately.
If it's local, it also assumes that you haven't been drinking with friends late at night and someone says "Oh, I've never seen that" and it's decided that, for whatever reason, that persons life simply can't continue properly until they've seen The Adventures of Buckaroo Bonzai. You can use NetFlix, but you have to wait until it's in your slot and available, then shipped. Same for ordering online. Remarkably similar to where music was, eh?
And then there's TV, who is starting to develop a love affair with DVD in a big, big way; except it's still kind of a bitch. I can give Farscape as an example, since I'm an unabashed fan but I'll spare you most of that... but it's a great example of how screwed up things are here.
There were four seasons of Farscape, and you have a few options for viewing now:
* Wait and re-watch it on TV
* Buy a 'Complete Season' which includes all the episodes for that season for ~$100-$130. ($130 * 4 = ~$520)
* Buy a 'Season Collection' which includes 4-5 episodes of that season for ~$30... these were generally released first, with around 5 collections per season.
Feel free to substitute your personal TV show of choice in the equation, and of one the above options might very well make sense for you. But for myself it's just annoying as hell.
You see I've already seen a ton of Farscape episodes, and while it's one of the few shows I don't mind re-watching too badly, I don't have a big burning desire to. I want to see the episodes I haven't seen, so awhile back I went to TV Tome and looked through the episode guides and compiled a list of the episodes I hadn't seen. These are a smattering of Season 1, a larger smattering of Season 2, one or two of Season 3, and one of Season 4.
In a few years I might want to watch them all again, but I don't really have the time to just watch the Sci-Fi listings to see when a particular episode might air and hope I'm around. I could buy the Season Collections that contain the episodes I want, but then I'm paying for a bunch of episodes I've already seen. I could just be simple about it and buy the Complete Season collection, but then I'm paying for a ton of episodes I'm not interested in watching right now.
I was in the same boat with Arrested Development (I'm eternally grateful to Jane for turning me onto it) but luckily enough it's early in its run, and they replayed them back to back all the time so I was able to catch the two episodes I'd missed. If I could simply open up the iMovie Store, pull up the episodes (with info and synopsis!) and watch when I had the time I'd be in heaven, even if I had to pay a bit.
My only other option really is to turn to something like Bittorrent or something similarly illegal which, while it's fine and works well enough, pretty much removes all the immediacy from the decision. Again, this is all remarkably similar to where the recording industry was a bit ago; lots of bundling, and everything is a much bigger hassle than it needs to be.
The only real differences are the amount of data involved between an AAC with a bitrate of 128K and an H.264/AVC with a bitrate between 500-1000k and the fact that the a movie is much longer in duration than a music track. Apple has already worked out payment; they've got a big lead on the DRM, and H.264/AVC brings the bitrate into line for what you'd need over a broadband connection. This isn't to trivialize the work that it'd take, just that we're talking an evolutionary leap here; much of the hard stuff has been worked out.
If this sounds too pie-in-the-sky for you, or too reminiscent of the Cable Co's promises in the late 90s of video-on-demand which never materialized... it never really materialized because the technology and the infrastructure was never really there. It was primarily bluffing against the internet hype. Remember that for awhile there the telco's were laying fiber like they'd skipped the chapter in business involving the railroad boom & bust back in the 1850s.
All the pieces are here for this now, and you're going to be seeing it very, very soon. You'll probably see it first with Satellite companies, but what they're doing in places like China and South Korea right now are absolutely amazing... and Apple wants to be the GateKeeper here.
Inching towards the endgame
If I'm even close to right, look for more deals with phone makers as time goes on; the reason why they're partnering with Moto first is that Moto's next generation of phones is the most dangerous to them here (well, in the USA). The companies are really just starting to get their acts together in terms of 3G, mostly due to increasing competition and the increasing demands that come with higher-end features... when your camera phone has a 5 mega-pixel CCD emailing that thing off is a chore.
And there is no real blame here, the iPod's era of growth being stunted short isn't due to any fault of Apple; they aren't the only ones being caught in this squeeze. And there's remarkably little they can really do to save the iPod long term. Instead of letting the phone suck in the iPod, they could 'let the iPod suck in the phone' and add the functionality to it. But when you stop and think about that idea, besides noticing the fact that it's almost buddhist in nature you're left with the problem of everything else the phone is converging with.
But one can take heart that they're recognizing the danger very, very early. It's telling that they're not only licensing the playback of FairPlay-DRM'd tech to Moto, but that they're also building the playback software that will ride on top of it, and that's the long-term endgame they're moving towards, and the iPod, AirTunes and other things to come will be pawns in that game; they'll all reinforce Apples DRM even if it costs some sales.
If you're having trouble picturing that endgame, think of Microsofts ill-fated HailStorm initiative. One part of this involved them holding all of your personal information in escrow, including payment information, and they'd be your gateway towards purchasing anything on the internet, all the while siphoning off pennies here and pennies there.
They've also recently been working hard to incorporate DRM into the BIOS of your motherboard and pervasively through the operating system... much of it in an effort to put a hurt on piracy and the like, but much of it was very much an effort to court the media companies. You see Microsoft makes money when people decide they need (and buy) new computers, and people don't buy new computers to be able to browse the web faster (unless they're using OSX).
Apple is playing towards that exact same endgame, but with a twist: they're creating a new light-DRM platform that is riding on top of everyone else's platform. iMacs, Windows, mobile phones, everything. Google is also creating a platform riding on the backs of other platforms... except its based around becoming the access point for all things internet. Apple wants that, but for DRM content.
They weren't kidding around with their vision of the computer as a hub for your digital life, they just forgot to mention that the hub will come with a lock. And guess who owns the keys?
August 02, 2004
There are some really interesting things going on in iPod land, starting with the fact that RealNetworks announced that after being diss'ed & dismissed by Apple when they approached them to talk about opening up the iPod to Real's competing service, they went ahead and reverse-engineered how the iPod deals with DRM'd media files via their new 'Harmony' software.
My view is going to be a little different than the direction other people are going on this one, as I believe the last few steps are pointing to greater maneuvering as a whole... they've found their Next Big Thing™. I don't really think RealNetworks themselves are significant, they're just the most desperate.
Real confusion
Harmony would allow users of RealNetworks' own music store, which uses a different Digital Rights Management scheme, to sync and use the iPod. Remember, the iPod is able to play a few other unencumbered-by-DRM formats like MP3s, AACs, etc. But the iPod is the only player tthishat can play Apples' FairPlay-DRM'd AACs from the iTunes Music Store, and, until now, none of the other online music services were able to access it for their DRM-encumbered files while keeping their DRM schemes intact.
Apple's response to Harmony was just as interesting as the Harmony announcement itself:
"We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod," Apple said in a release.
Now, besides the fact that Apples' response was decidedly uncool for a company whose products must stay cool at all costs, it's also perplexing because if things Apple has said in the past are true, it shouldn't be that big of a deal.
Remember, Apple has gone to great lengths to talk about how the iTunes store is a loss leader to sell iPods. This makes sense; from each $.99 song sold Apple gets a percentage, but it's not a large percentage and when you factor in all the costs involved what they make is a pittance compared to the margin skimmed off the sale of an iPod. Apple gets them hooked on how easy it is to buy music, they decide they have to have it with them while they're out and about and they pick up an iPod.
At first blush it doesn't seem to make a whole lot of sense for Apple to get too uptight about Real sliding their songs onto the iPod, as theoretically someone who happened to be a user of RealNetworks service now has the option of buying an iPod, whereas before they were limited to other devices. By keeping it closed there might be some RealNetworks users who, for whatever reason, decide they have to have an iPod and dump the service altogether and pick up iTunes for Windows.
But there have to be plenty who have way too much invested in Real's Rhapsody service and pick up an iPod competitor that supports their already-purchased music, and it's not as though Apple is offering a cross-over program whereby if you turn in your Rhapsody music files you get FairPlay'd AACs instead (Feel free to use that one). Either way, they're selling iPods, and that's really where the money is right? Not a few cents actually selling the songs. Keeping it locked in would be more about Apple keeping control over the process and the 'quality of the user experience', but really that's just cream... right?
In fact there are several more stores out there, none of which are doing as well as the iTunes store, but which are making headway. I'll give a nod to Napster, simply because they've been brilliant in getting universities to include subscriptions to their service in their student tuition. They can still use other players for their mobile-Napster needs, but they aren't able to use to use the iPod because, as was mentioned before, the iPod doesn't support their DRM.
Of course Napster isn't alone; Sony, Walmart, even Microsoft have stores in the works, and while none of them have the share of the iTunes Store they have been gaining users. And when Microsofts' store ships, built into the OS and all that, you better believe that even if it sucks it'll get users. It took their various MSN-services years to gain on AOL, and it's still behind, but it's now a valid competitor in its many forms... I know I'm getting real sick of people asking if I have MSN. And these people won't be buying iPods, and eventually that'll add up...
It would make sense to sell to these people, as by Apple themselves have stated they've reached "supply equilibrium" with the traditional iPod, while they still aren't quite able to meet demand with the mini. What this means is that given their current production capacity, they're able to meet all their orders from stores and individuals around the world.
This is good, because it means they're pulling in all the earnings they can in a given quarter for the product. This is not so good because it means if they increased their production capacity there'd be excess inventory in the channel, and the prices of iPods would start to fall.
This isn't completely static, and there are two things of note here:
* The HP deal hasn't really hit yet
Remember, Apple penned a partnership deal with Hewlett-Packard on the iPod, whereby HP will be shipping iPods they manufacture themselves, but co-branded with the Apple & HP logos. While Apple is at supply equilibrium, it simply doesn't have the distribution capability of an HP and a Dell who have their fingers everywhere, both in institutions and worldwide. Remember, there's no China Apple Store... Apple has massive brandwidth at the moment, but the pipes for channeling it are humble compared to the big guys. This deal, and possibly others, are going to give the iPod another shot in the arm.
* Apple is starting to feel the pricing crunch
People can only buy what they can afford. Lots of people want an iPod; they simply can't plunk down a $300 for a digital music player. Some of them might save their pennies, other will buy something cheaper, even if it's not what they really want.
The fact that the MP3 player market is still doubling, but that Apple has reached supply equilibrium points to them pretty much sapping what growth they can get with the iPod at its current price point. The early adopters with the cash have bought in. But drop the price point down into the realm where the masses can afford it and things go boom. The obvious example here would be the CD player or Walkman, but analogies to TV, DVD players or VCRs would be equally appropriate.
Apple recently redesigned the iPod a bit, while lopping off $100 and doubling the battery life. While much of this has to do with competitors fielding increasingly competitive offerings, it also very much has to do with the fact that for millions upon millions of people, $300-$500 is the price of a computer or rent for a month.
So the iPod can still use help, and things are only going to get tougher from here on out due to increased competition... entropy has a way of working its way through marketshare that isn't artificially dominated; and much of the fruit coming out of the deals that have been inked by rivals won't show up right away. But it's coming...
The paper mache trojan horse
Consider that Apple has stated over and over again that the iTunes Store is really a trojan horse for selling iPods due to the margin differences, it would make absolutely perfect sense for them to look the other way while Real allows users of its store to choose iPods for their mobile music needs. This is absolutely well-founded business logic, but methinks thou doth protest too much.
To recap the popular trojan horse meme, remember that when the iPod was first released for Windows, Apple went and incorporated a 3rd party piece of software for Windows to sync and connect. This worked reasonably well, until iTunes for Windows was ready to ship. After using the mac base as beta testers for their software to reassure the music labels giving mac users first crack at the store, iTunes for Windows was released with great fanfare.
The iTunes Store wasn't really aimed at those downloading gigabytes of music from Kaaza, but rather those who were sick of doing it due to the lousy experience it can offer and those who really didn't do it at all. Make it painless... short and sweet, and they'll load up on those FairPlay-DRM'ed AACs. Eventually they'll want to take them with them, and the only thing that plays FairPlay AACs is the iPod. Cha-ching, they're feeding off each other, with the low-margin iTunes store as a loss-leader for the high-margin iPod.
This has been a wildly successful meme; mostly because like all successful lies it has a kernel of truth behind it. It's been picked up everywhere. When Napster released their branded MP3 player, the big thing you heard repeated was: "Smart. Remember Apple only makes pennies on each iTunes song, but a bundle on each iPod. Napsters' business model wouldn't hold up without using their service as a trojan horse."
Again, there is truth to the above, and a whole lot of truth as far as Napster is concerned, but its a short-sighted-do-we-have-a-profit-this-quarter truth. Napster, Real, and WalMart don't have the box of tools to use in tandem that Apple is quietly placing across the chess board.
But again, RealNetworks' Harmony tech (or just opening the iPod) doesn't clash with this meme at all; it only reenforces it and helps sell iPods, and its arguably the only thing keeping their market cap from equaling their cash hoard. Apple could simply be overzealous in wanting to control everything, but considering their screw up over not opening the original MacOS is held as a staple example in Business 101 of what not to do, I really doubt anyone there wants to be the responsible for repeating it with the iPod.
Most people believe that opening up the iPod is going to be in its future due to past history and simple economics, and Apple has even hinted that provided that the other Stores start getting some serious share they'll look at doing it. If things turn really bad with Real, they could simply issue a software fix and make things pretty miserable for them while selling iPods all the way. So why would Apple be so... vehemently... against it?
We're thinking about the iTunes Store, Napster and Rhapsody through trojan horse colored glasses, and not as what it truly is: The Gateway to DRM Content on the Desktop. RealNetworks is stepping on that, and it's the long-term lifeblood of the company.
That's why Apple is freaked about what Real is doing; it knows the iPod is going to be a surprisingly short-term success story, and that its era of growth is going to die out much faster than expected. This might sound stupid at first, due to how little Apple actually makes from the store, and how well the iPod is doing now...
Convergence kills
It's a sad truth, but yes, the iPod is going to go away. Everyone knows it; they just don't know when. This isn't dismissing the fact that it's shot out of the gates on a wildly successful run and become to MP3 players what Kleenex is to tissues, but it's eventually going to start losing share in one form or another. This could be from pricing pressure, from a competitor or two hitting some products out of the park, Apple getting lazy, or just a few missteps.
Given enough time, any number of the things mentioned above would start to erode the iPods' share at a fast rate, but they're all irrelevant really, as the MP3 player isn't going to be around for a whole lot longer.
Witness Exhibit A, whereby Apple and Motorola have agreed to bringing the iTunes Store to the next generation of Motorola phones:
...partnering to enable millions of music lovers to transfer their favorite songs from the iTunes jukebox on their PC or Mac, including songs from the iTunes Music Store, to Motorola’s next-generation 'always with you' mobile handsets, via a USB or Bluetooth connection. Apple will create a new iTunes mobile music player, which Motorola will make the standard music application on all their mass-market music phones, expected to be available in the first half of next year.
"We are thrilled to be working with Motorola to enable millions of music lovers to transfer any of their favorite songs from iTunes on their PC or Mac to Motorola’s next-generation mobile phones," said Steve Jobs, Apple's CEO. “The mobile phone market -- with 1.5 billion subscribers expected worldwide by the end of 2004 -- is a phenomenal opportunity to get iTunes in the hands of even more music lovers around the world and we think Motorola is the ideal partner to kick this off."
The announcement of the deal kicked off two main forms of speculation:
* That Apple and Motorola are partnering to create the long-fabled iPhone
* That this is another trojan horse; many people haven't bought into the iPod MP3 craze yet, but this will give them a taste... and, when they're tired of only being able to store 12 songs they'll pick up an iPod.
Forget about the iPhone. The iPhone as people envision just isn't going to happen. The market is ungodly saturated, and while Apple could theoretically make a bundle with a sleekly designed-pricey offering there's really only so much they can do here. Remember they didn't create the iPod OS, they bought it. They don't do that; and they aren't some independent design firm you call when you want something sleek. In fact most of what's in the iPod wasn't designed by Apple at all, and while they could do much of the same with mythical iPhone as they did with the iPod (cobble a bunch of tech from others into something cool), the growth just isn't there in that market. They're all already eating at each others' share.
You also have the fact that phones, while they can access the internet, by and large are massively dependent upon the subscriber network. If cell phones were using VOIP and plugging into massive 802.11g meshes it might be a different story. But they're not, so in creating an iPhone Apple would have to pick a network and play by their rules; or they'd have to pick several... the entry costs here are just too high. What people are expecting this to look like is just not in the cards.
As for the second one, well, that's a little more complicated, as there are two fascinating things going on with music and mobile phones right now:
* It started with ringtones; some became incredibly popular, and then people started creating their own. The phone companies started selling ringtones and, crazily enough, people started buying them en masse. Back in April we saw the first ringtone-only album released.
* The mobile phone market has gone from a high-growth market into a massive sucking black hole of feature consolidation.
The last is the truly fascinating one, as we're watching cell phones eat up markets from the bottom like Ruben Studdard at a buffet; they're bottomless pits and have become the poster child of convergence.
There are three main things leading to cell phones becoming these feature-vortexes:
* To a certain extent this is always going to happen as technology progresses and the prices get lower for a given tech. When you are buying a $29 webcam, you have to start wondering just how much of that $29 is inherent due to all the crap surrounding the sale. It has to be packaged, shipped around, go through a few distributors... the actual technology is in the sub-$5 range. After a certain point adding in features starts to come 'for free' and products start looking to converge.
* Mobile phone makers are getting squeezed; for the most part, phones are entering commodity status... when your high-tech product is being given away with a service plan, it's a sure sign something is up. By adding in higher-rez screens, games, microphones, cameras, etc., they can keep an elevated price point and higher margins. Without it, the tech would just be priced artificially high (which makes them ripe for a competitor to swoop in) or would drop to a point where they're paying you to buy it. As technology progresses, you start having problems buying a phone that doesn't come with stuff you aren't interested in, but you end up getting it anyways.
* If you take a look at your desk, there are lots of gadgets you want to take with you. Your mobile phone of course, your PDA, your MP3 player, your USB pen-drive, your digital camera. But out of all of these, there's only one that you generally have with you at all times: your phone. Everything else is secondary; if you had to pick one thing, chances are it's going to be your phone. If your phone just happens to also be a serviceable PDA...
I know, convergence products generally suck. It's old news; dedicated devices are easier to use as the interface isn't multifunction, and the components are geared towards the task at hand... a $500 digicam is going to have better DSPs, optics, and a better interface than a $500 phone that happens to include a camera. But the word here is serviceable. If it's "good enough", and you're going to need your phone with you anyways, you at first carry around the extra gadgets and then eventually make what's on the phone work and save some pockets.
Everyone laughed at the comparably monstrous-sized Treo line of hybrid phone/PDAs until they started to sell really, really well. And then companies like Sony, who was arguably one of the more innovative players, started pulling out of the PDA market altogether. Right now people are laughing at not being able to buy a PDA or cell phone without getting a damn camera, but low-end camera makers aren't laughing. There are valid reasons for owning a separate DVD player, but if you hadn't bought one and already had a Playstation 2, the likelihood of you buying one just dropped through the floor.
People aren't giving up their their big fat digital SLR, but they're finding the cameras in their phones and PDAs just keep getting better... and eventually they stop carrying that nice little slim camera with them or never find a need to buy one. And, you guessed it, phones are starting to come with MP3 players...
An iPod Mini is going to make a much better mobile music player than your cell phone. But when your cell phone has 5 gigabytes of storage and bluetooth headphones.... the writing is on the wall here. All that's missing is a little time. Apple is one solid-state storage breakthrough (and the networks getting their act together on 3G) from having the market for the iPod evaporate to a pale shadow of its former glory, and they know it.
That's why they're so freaked out about what RealNetworks is doing, even though it'd sell iPods. At the end of the day it's not going to be about who is selling what end-play device, it's going to be about who is sitting in the middle. And Apple wants to be that benevolent dictator, parsing DRM-protected content to whatever device you're using at the time. It's also why the deal with Motorola is so significant; Apple can live without you buying an iPod, but if you're going to be buying DRM-protected content, Apple damn sure wants it to be through them.
The iPod might only have a few high-growth years left in it, but the iTunes store is the sleeper. Right now, the iTunes Store sells ~2% of the legally purchased music sold in the USA. This is a market that is growing by leaps and bounds; imagine if Apple sold 2% of the legally purchased music world-wide. And then 5%. And then 10%. And everything is DRM'ed, meaning if you want to make a device that plays back the content, you're paying them... let alone their own tailored-to-FairPlay devices like AirTunes, which only works with the Airport Express...
Watch the hands
There's an old adage about magicians; if you want to learn the trick, close your ears and open your eyes. Well it might not go exactly like that, but that's the lesson I took from it.
When people are talking, you have a natural inclination to look at their eyes, and if they're doing something with one hand chances are you really need to be watching the other if you want to see what they're really up to. In other words, watch the hands. And Apple is particularly adept at misdirection...
Witness the Palm scenario. After the Newton put in grave, PDAs suddenly got really, really hot and Apple was doing lots of neat industrial design things. They were continuously asked about creating their own PDA, but they basically dismissed the entire market as irrelevant. Steve Job's gave the infamous "Why would anyone want to use a little scribbly thing" line... but we now know that around that time Apple was seriously trying to buy Palm. Interesting, that.
They've also gone out of their way to talk about what a loss-leader the iTunes store is, how they make literally nothing from it and how much back-end work it took to make it a reality. Bandwidth, servers, credit-card companies... anyone else would be crazy to do it. Interesting, that.
Speaking of interesting, Steve Jobs gave an interview with Mossberg recently where he was asked about movies:
"The interesting thing about movies though is that movies are in a very different place than music was. When we introduced the iTunes Music Store there were only two ways to listen to music: One was the radio station and the other was you go out and buy the CD.
Let's look at how many ways are there to watch movies. I can go to the theater and pay my 10 bucks. I can buy my DVD for 20 bucks. I can get Netflix to rent my DVD to me for a buck or two and deliver it to my doorstep. I can go to Blockbuster and rent my DVD. I can watch my DVD on pay-per-view. I can wait a little longer and watch it on cable. I can wait a little longer and watch it on free TV. I can maybe watch it on an airplane. There are a lot of ways to watch movies, some for as cheap as a buck or two.
And I don't want to watch my favorite movie a thousand times in my life; I want to watch it five times in my life. But I do want to listen to my favorite song a thousand times in my life."
He went on to mention how there might not be the same "opportunities" for the movie industry as there were for the music industury, but the above is what I'd saved. While the above is perfectly solid logic, to my admittedly paranoid mind what the above says to me is that Apple is in some really hot and heavy talks with the MPAA and movie studios right now; as one thing Apple isn't mentioning is when it came to actually getting legal music online at the time it was cumbersome, laden with heavily-restricted DRM and just a general pain in the ass.
The whole process, until the iTunes Store, was needlessly complex and convoluted. Remember, iTunes wasn't the first online store, it was the first that was successful.
There are some other pieces here; witness H.264/AVC, which I blogged about earlier in my... usual way... which probably means there's no way you got through it all. So to recap some of what we learned that's pertinent:
* Around a 30-40% bitrate (bandwidth) reduction over MPEG-4
* Massively streamlined networking, it's absolutely ideal for various embedded devices
* Intel and others have been talking about working H.264 over home wireless networks since 2003
* It brings the bitrate into line for high-quality video over standard home broadband connections
* Artificial Intelligence will be born of an aberrant and bored ActiveX control.
Hmm... embedded devices. Apple sells one of those now, don't they? That nifty little $150 product called Airport Express, featuring Air-Tunes; plug it in near your really nice stereo, jack in the audio from the Airport Express and wirelessly stream your (encrypted) FairPlay-DRM'ed AACs straight from iTunes.
And people with really nice stereos often have really nice home entertainment systems, and it really wouldn't take a whole lot to add some video out and a beefier chip in a new version. Besides, if you're using it for it's AV functionality, chances are you have no interest in the USB port.
Wouldn't that be nice? If you're going to watch your home movies... why limit yourself to your computer? You could have the same 'living room' button right in iMovie. Sure you could rip them to a DVD, but that takes a surprisingly long amount of time.
And, while the H.264/AVC codec is heavy, we have G5 iMacs coming soon and the computer doesn't have to rip the entire thing to H.264/AVC; it just needs to be able to do ~24fps plus a buffer. Using the Baseline Profile of H.264/AVC and giving up some bitrate, a 1.6-1.8GHz G5 iMac is going to be taxed out but should be able to pull it off at 720x480 (DVD sizes) if Apple really goes all out on the optimization side. Standard-Definition TV sizes (352x288) wouldn't be a problem at all.
Of course that wouldn't really be necessary if you're actually buying something through the iMovie store; then it just needs to be streamed with a suitable buffer... and H.264/AVC is all about streaming. iMovie Store -> Computer -> Airport Express Rev.B -> TV. You may want it to spool to disk while it's streaming for future viewing or other TiVo-ish things, but as Jobs said, how often do you watch a movie? So it's not going to hang around that long, at most we're talking about some fine points changing in the FairPlay DRM scheme.
Now there was another little nugget that Jobs threw out, and that was regarding the actual opportunity in the space due to the variety of ways you can get your movie fix. This is true, but kind of overstates things a bit, and something like the iMovie Store would make a lot of things drastically more streamlined, even if you hardly changed the interface from the iTunes setup at all.
Hell, iTunes has music videos now; which are practically the equivalent of trailers... and really, while Jobs has a very good point about the frequency with which you'll be watching stuff, for the most part that just means you'll rarely want to actually own it forever if the price is right.
A paradigm with legs
When it comes to movies, things have gotten a little over the top in the DVD world. You often can't get 'Extended Edition IV' of something at your local rental shop, which means you have to buy it. Local shops, while having a big selection, don't have everything... which means you have to buy it online. And even then you often don't want to buy it, you've probably already seen the movie three times in its various forms, you might just want access to the special 'making of' features and not 4 copies of the same movie with 5 minutes of extra footage in each edition; you just want the really new stuff, which you can't buy separately.
If it's local, it also assumes that you haven't been drinking with friends late at night and someone says "Oh, I've never seen that" and it's decided that, for whatever reason, that persons life simply can't continue properly until they've seen The Adventures of Buckaroo Bonzai. You can use NetFlix, but you have to wait until it's in your slot and available, then shipped. Same for ordering online. Remarkably similar to where music was, eh?
And then there's TV, who is starting to develop a love affair with DVD in a big, big way; except it's still kind of a bitch. I can give Farscape as an example, since I'm an unabashed fan but I'll spare you most of that... but it's a great example of how screwed up things are here.
There were four seasons of Farscape, and you have a few options for viewing now:
* Wait and re-watch it on TV
* Buy a 'Complete Season' which includes all the episodes for that season for ~$100-$130. ($130 * 4 = ~$520)
* Buy a 'Season Collection' which includes 4-5 episodes of that season for ~$30... these were generally released first, with around 5 collections per season.
Feel free to substitute your personal TV show of choice in the equation, and of one the above options might very well make sense for you. But for myself it's just annoying as hell.
You see I've already seen a ton of Farscape episodes, and while it's one of the few shows I don't mind re-watching too badly, I don't have a big burning desire to. I want to see the episodes I haven't seen, so awhile back I went to TV Tome and looked through the episode guides and compiled a list of the episodes I hadn't seen. These are a smattering of Season 1, a larger smattering of Season 2, one or two of Season 3, and one of Season 4.
In a few years I might want to watch them all again, but I don't really have the time to just watch the Sci-Fi listings to see when a particular episode might air and hope I'm around. I could buy the Season Collections that contain the episodes I want, but then I'm paying for a bunch of episodes I've already seen. I could just be simple about it and buy the Complete Season collection, but then I'm paying for a ton of episodes I'm not interested in watching right now.
I was in the same boat with Arrested Development (I'm eternally grateful to Jane for turning me onto it) but luckily enough it's early in its run, and they replayed them back to back all the time so I was able to catch the two episodes I'd missed. If I could simply open up the iMovie Store, pull up the episodes (with info and synopsis!) and watch when I had the time I'd be in heaven, even if I had to pay a bit.
My only other option really is to turn to something like Bittorrent or something similarly illegal which, while it's fine and works well enough, pretty much removes all the immediacy from the decision. Again, this is all remarkably similar to where the recording industry was a bit ago; lots of bundling, and everything is a much bigger hassle than it needs to be.
The only real differences are the amount of data involved between an AAC with a bitrate of 128K and an H.264/AVC with a bitrate between 500-1000k and the fact that the a movie is much longer in duration than a music track. Apple has already worked out payment; they've got a big lead on the DRM, and H.264/AVC brings the bitrate into line for what you'd need over a broadband connection. This isn't to trivialize the work that it'd take, just that we're talking an evolutionary leap here; much of the hard stuff has been worked out.
If this sounds too pie-in-the-sky for you, or too reminiscent of the Cable Co's promises in the late 90s of video-on-demand which never materialized... it never really materialized because the technology and the infrastructure was never really there. It was primarily bluffing against the internet hype. Remember that for awhile there the telco's were laying fiber like they'd skipped the chapter in business involving the railroad boom & bust back in the 1850s.
All the pieces are here for this now, and you're going to be seeing it very, very soon. You'll probably see it first with Satellite companies, but what they're doing in places like China and South Korea right now are absolutely amazing... and Apple wants to be the GateKeeper here.
Inching towards the endgame
If I'm even close to right, look for more deals with phone makers as time goes on; the reason why they're partnering with Moto first is that Moto's next generation of phones is the most dangerous to them here (well, in the USA). The companies are really just starting to get their acts together in terms of 3G, mostly due to increasing competition and the increasing demands that come with higher-end features... when your camera phone has a 5 mega-pixel CCD emailing that thing off is a chore.
And there is no real blame here, the iPod's era of growth being stunted short isn't due to any fault of Apple; they aren't the only ones being caught in this squeeze. And there's remarkably little they can really do to save the iPod long term. Instead of letting the phone suck in the iPod, they could 'let the iPod suck in the phone' and add the functionality to it. But when you stop and think about that idea, besides noticing the fact that it's almost buddhist in nature you're left with the problem of everything else the phone is converging with.
But one can take heart that they're recognizing the danger very, very early. It's telling that they're not only licensing the playback of FairPlay-DRM'd tech to Moto, but that they're also building the playback software that will ride on top of it, and that's the long-term endgame they're moving towards, and the iPod, AirTunes and other things to come will be pawns in that game; they'll all reinforce Apples DRM even if it costs some sales.
If you're having trouble picturing that endgame, think of Microsofts ill-fated HailStorm initiative. One part of this involved them holding all of your personal information in escrow, including payment information, and they'd be your gateway towards purchasing anything on the internet, all the while siphoning off pennies here and pennies there.
They've also recently been working hard to incorporate DRM into the BIOS of your motherboard and pervasively through the operating system... much of it in an effort to put a hurt on piracy and the like, but much of it was very much an effort to court the media companies. You see Microsoft makes money when people decide they need (and buy) new computers, and people don't buy new computers to be able to browse the web faster (unless they're using OSX).
Apple is playing towards that exact same endgame, but with a twist: they're creating a new light-DRM platform that is riding on top of everyone else's platform. iMacs, Windows, mobile phones, everything. Google is also creating a platform riding on the backs of other platforms... except its based around becoming the access point for all things internet. Apple wants that, but for DRM content.
They weren't kidding around with their vision of the computer as a hub for your digital life, they just forgot to mention that the hub will come with a lock. And guess who owns the keys?
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