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“Apple’s iPod digital music player is a cultural phenomenon and a source of huge profits. The company also dominates the market for legal music downloads. However, Apple may be mistaken in preventing songs stored on its iTunes software from playing on other gadgets. A similar strategy nearly killed off the company a decade ago,” Robert Cyran writes for Breakingviews.com via MarketWatch.
Cyran writes, “So far Apple has been relying on its iTunes online music store to push iPod sales. Songs sold on the site can only be played on iPods. This locks customers into buying Apple products. So far the strategy has worked. Sales of iPods are expected to grow about 70% this year. That success lies behind the rise in Apple’s stock which has tripled over the past couple of years.”
“Yet its competitive position is not impregnable. Microsoft’s newly released ‘Zune’ player may become a credible rival. The software giant is also launching a digital music store to compete with iTunes. There’s another risk. Just as smart phones rendered the PDA obsolete, phones with embedded digital music players may one day crush the iPod. Apple could start manufacturing mobile phones. But phones tend to be more complicated to make than digital music players and Apple hasn’t had any success to date,” Cyran writes.
Cyran writes, “The company should take a leaf from its past. In the early 1980s, Apple dominated the personal computer market. Its Macintosh operating system was the best in the business. However, the company refused to license its operating system to other manufacturers. They turned to Microsoft instead. That error nearly killed Apple and led to Steve Jobs’s departure from the company he founded.”
“Apple could fend off competition by opening up its iTunes software to all comers. True, that would hit profits as rivals introduced cut-price versions of the iPod. But Apple’s future as the dominant online source for digital music and videos would be assured. Microsoft has shown that software is a more profitable business than computer manufacturing. Jobs should have learnt this lesson. The future of Apple may depend on his willingness to sacrifice the iPod,” Cyran writes.
