Real needs Apple
Apple and Real – A Few Thoughts
By Richard Menta – mp3newswire
Back in the Windows 3.1 days, I sold computers while I attended college. I sold both Windows and Macs at a time when Apple possessed just under 20% of the market. A decade later that number is down to 3% punctuated by an announcement that Apple sold more iPods the last quarter than computers.
I always felt that part of the reason for that drop – and there is a whole laundry list of reasons- had to do with the fact that only one company was marketing Macs where there were 150 marketing Wintel based PCs (and another 1000 or so marketing PC only add-on products). Wintel won and Apple became a nich for the artistic and laptop set.
I think of this when I look at Apple’s iTunes dominance.
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iTunes success, paired with the ever popular iPod started a gold rush among major corporations as disparate as Napster, Coca-Cola, and Walmart looking to repeat the iTunes model and profit online. As Apple will not license the digital rights management application (FairPlay) that wraps every toon sold on iTunes, these competitors all turned to other file formats.
Actually they all turned to one format – Micrsoft’s WMA codec.
They turned to WMA because it was the only codec outside of the non-drm protectd MP3 format that was ubiquitous on MP3 portables. This left other choices like Ogg Vorbis and Real out in the cold.
That’s why Real contacted Apple. Real needs Apple.
Their best shot is to turn to the big leader and work out a deal. Both use the Dolby Advanced Audio Codec (AAC) as their format, but only AAC tunes with Apple’s DRM will play on iPods. Real wants to sell tunes to the market dominant iPod that last quarter sold nearly 900,000 players. This would give them a music store that can compete, but first they have to license FairPlay and it looks like Apple won’t let them.
Maybe they should as Real has something to offer Apple. As Apple continually tells us, iTunes is only there to break even. The real goal is to sell more iPods. If that logic is true, then letting Real sell tunes for the iPod should be a good idea.
But Apple feels they don’t need Real and in the short run that is an accurate statement.
I’m just not sure of the long run.
Sony was the first to introduce the VCR and their beta format was the dominant format for that device’s first several years, when JVC’s rival VHS format took the lead. Several more years later VHS took it all and the beta format disappeared from home electronics. It survives as a professional video format.
Apple’s own computer line similarly shows a proprietary technology relegated to niche status.
In the long run Apple may need Real and other partners to retain their strong presence in digital music distribution. If all the iTunes competitors continue to embrace WMA, in a short time dozens of companies will all spending significant ad revenues to chip away as a group at Apple’s market share. Companies with large bankrolls like Coca-Cola and Walmart.
There are already dozens of MP3 portable manufacturers trying to do the same to the iPod.
iTunes and the iPod retain their market appeal because they are so much better than the competition. The competition continues to dissect both of them the way Microsoft copied Apple’s operating system to produce Windows 95.
Their goal is to make their products and services truly a clone, eliminating at least the major differences that hold them back against Apple. The only semi-surprising thing to date is that they have not done it already. They will.
Then it is Apple’s ad budget against the combined ad budget of many of other companies. Companies who can also afford to buy TV airtime onShows as popular as Friends.
Apple the company can still be the number one company in digital music distribution, albeit with a lower 10% share of the market instead of 65% (or 75% or 50%, everyone has a different number). The problem comes in the guise of the AAC codec that iTunes has propelled. Today it makes up a very high percentage of DRM-laden tracks on the Net. If iTunes drops to 10% of the market it will be 10% AAC, 90% Microsoft.
Then we have MacOS-Windows 95 again. Get the picture? People several years from now could pass on the iPod as a purchase because it DOESN’T play WMA files. A codec is finding its way into auto stereos and home entertainment systems.
What propels iPod sales today could have the reverse effect if FairPlay loses play.
All this is speculation. It is also speculation that I’m sure Steve Jobs himself has considered. I am sure he is aware that the key here is not the online store or the player itself, but the codec underneath.
It may just be that Apple needs to think of the short run as a priority as the iPod presently means so much to the health of the company.
For all the talk of Job’s ego, his biggest concern is Apple. Big successes today may be needed for the company as a whole, even at the expense of extended success several years down the road. Both profits and the stock is way up thanks to the iPod.
As James Dow pointed out in his iPod article for The Scotsman, the iMac was a huge hit when it was first released and then the enthusiasm waned. My viewpoint is not as harsh as his, but his reasoning is quite valid.
That’s why Apple should reconsider Real’s offer. It still may not be the right move, but it does offer long term strategic promise.
April 27th, 2004 at 4:57 am
But what does Real bring to the table? Their store is not as nice as the iTMS, so except for people who avoid Apple just to avoid Apple, why would allowing people to get FairPlay encoded music from real give them any more choice or any real benefit?
Sure this would give another distributer for the iPod but Apple can’t keep up with sales today (before the HP deal goes through).
It would seem to make more sense to license FairPlay to other hardware vendors who do not directly compete with the iPod (flash memory player, DVD players, TiVo, etc…). This would increase the perceived value of iTMS songs without compromising Apple’s position.
April 27th, 2004 at 1:00 pm
Apple needs Real? C’mon. Quicktime and AAC are better than RealMedia any day, although that’s like saying crap is better than a turd.
Hopefully, Real will just go away. That would probably be best for everyone, and then we won’t be subjected to Real’s bad video at low speed delivery system.
April 27th, 2004 at 3:44 pm
If at some point the need for WMA becomes a demand of consumers, Apple will enable it on the iPod. For right now, nobody cares what format their music is in. 99% of people don’t even know. Unless Real’s store has songs that iTunes Music Store lacks, why would anyone with an ipod want to use Real? This isn’t like Windows vs Mac OS at all. Music is easily converted and distributed in multiple formats where as software is OS-specific and needs major investment to support multiple OSes.
The only thing opening up to real would do is complicate the experience for the user. What happens when you sync on Realplayer and iTunes with the same device? Will it duplicate the songs? Now you have your library split between two desktop apps, which sucks. Nobody wants that. Consumers like the appliance-like function of iTunes + iPod. Plug it in and it works. No drive mounting, no PC-like wizards, no dialog boxes asking you questions you don’t know the answer to, or anything else that people hate about using their computers (particularly PCs). Adding Realplayer sync would break all of that.
So long as Apple can offer the same library as everyone else, continue to provide a superior or competitive store interface and search function and compete on price, there is no reason to fear. Since prices are more a function of the Labels, I don’t see that being much of a differentiator. The the most popular store wields the most power of negotiation for exclusives, which continues to be iTunes.
iTunes has little to fear.
April 27th, 2004 at 4:52 pm
How smart these others are to use the windoze media format. They’ll build so-so businesses and all but one or two will eventually fail. Then Microsoft will target the survivors and “integrate” its own competing business into its OS and services, all but guaranteeing it the lion’s share of the market. Investors will lose money, people will be thrown out of work, managers will suffer untold stress and drop a few years of their lifespan.
Glaser will have none of this — that’s why he’s using AAC. But Real has a pathetic product and corporate image, not to mention being unfriendly towards consumers in general, including Apple users. Real is not worth partnering with. In fact, if Real goes under, we’ll see more sites with windows media AND QuickTime instead of Real. Now that would be of some benefit to Apple users. But I expect Gates will throw Glaser a lifeline (cash) because he’d rather not have that happen. Cash-strapped Glaser will take it, return to his office and throw up in the rest room. Then he’ll rationalize it by buying a property in the Hamptons.
Plus ca change, plus c’est la meme chose.
April 27th, 2004 at 10:17 pm
Apple has already partnered with HP/Compaq. It is not going it alone with just it’s advert budget. If you must have DRM Apple’s DRM is by far the least obnoxious. Microsoft’s DRM is way too restrictive and uneven and will not win out. People will try it for a while and abandon it in disgust. The choices are Apple’s DRM or illegal downloads, Microsoft is not even in the picture.
April 27th, 2004 at 11:56 pm
… and the VHS vs. Beta format comparison of the past has absolutely no relevance to the digital music format comparison today. Although Beta might have been the better technology, and even though it was first, it never, ever had any semblance of a commanding presence in the marketplace.
April 28th, 2004 at 1:40 am
the DRM aspect of the ipod is only a small part of the ways that you can put music on your ipod. remember the ipod supports the most popular formats of all: mp3s, and ripped CDs.
if itunes loses market share, then apple could easily just add wma support to the ipod.
it would not be harmful to apple at all to license its DRM. unless the other music services botched the ease of use factor. but remember, DRM is not an OS, it’s just a part of the ipod. ipod already works on windows and mac, and on the most popular music downloading services. all the services are the same, they all provide the same music for the same price. the only different services are subscription ones, which don’t apply as of now.
April 28th, 2004 at 1:48 am
“but only AAC tunes with Apple’s DRM will play on iPods.”
not quite.
iPod can play WAV, AIFF, MP3 and any AAC files so long as it can play the DRM used.
iTunes has the option to rip to AAC, and that’s what it uses by default now (IIRC). AAC tracks you rip from your CDs don’t have any DRM in place.
What iPod can’t do, is play tracks with Real’s DRM solution.
Real could quite easily release non protected AAC tracks and they would play fine with iPod, but obviously Satan and all his little wizards at the record companies wouldn’t approve of that.
April 28th, 2004 at 5:14 am
Well, your analogies are corrext only in the most vaguest business sense. The real issues are much more complex but just because similiar companies faced circumstances that to you are similiar – the reality is not necesary that history repeats itself – if in fact, it’s even history repeating itself … whether that’s inexperience on your part or something more, this is not the place to discuss in great detail.
Any real examination would note that Mp3 has already won as the consumer format of choice. If there were no AAC or any other choice, would 90% of the market be MP3 or WMA?
MP3 has already won. Nothing WMA can do will change that? Other than people in Redmond, who actually willingly encodes their store bought CD’s in WMA? A very small number.
Notice that the ipod and hundreds of other payers are called MP# PLAYERS not AAC players or WNA players.
MS can open 1,000 stores – but consumers have already chosen.
Even if Apple decides not to sell AAC tunes, the market for WMA will never cross 5% versus Mp3’s.