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Monday, April 26, 2004 - Page updated at 12:00 A.M.
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E-conomy / Paul Andrews
Apple's iPod strategy is familiar tune


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To longtime tech watchers, Apple Computer's dilemma over whether to "open up" its wildly successful iPod/iTunes strategy has an amusingly familiar ring.

Having devised the must-have gadget of the early 21st century, Apple now faces intense pressure to allow the iPod to work with multiple music services beyond iTunes.

RealNetworks Chief Executive Rob Glaser seems to be leading the charge with a recent offer to Apple co-founder Steve Jobs. Let iPod users play music from RealNetworks, Glaser proposed, and Real in turn will tailor its music service to promote the iPod as its player of choice.

Nearly two decades ago, Microsoft co-founder Bill Gates and executive Jeff Raikes made a similar suggestion to Apple regarding its then-new Macintosh. Why don't you license Mac technology to other vendors and build in compatibility with Microsoft's DOS operating system, Microsoft suggested. In return, Microsoft would help promote the Macintosh.

Suspicious that Microsoft had ulterior motives, including using Macintosh technology for the still-unreleased Windows, Apple rejected the idea. Technology historians have long noted the blown opportunity in explaining why Apple, with a huge chronological lead in the graphical-user interface, nevertheless became marginalized by Windows in the PC revolution.

Did Apple learn its lesson? While there are seductive similarities in the two scenarios, it seems unlikely that Jobs is in any hurry to "open up" the iPod.

So far, the primary goal in Jobs' music strategy is to sell iPods. And he's doing that spectacularly well, even without opening up his platform. Apple sold 807,000 iPods the first quarter of this year, up 909 percent (not a misprint) over last year. More than two dozen music players glut the market, but who can cite No. 2?

It's unclear that working with Real and other music services would boost iPod sales. Googoo-eyed iPod users, and there are a frightening number of them, do not begin their testimonials by saying, "music downloads changed my life," or "I can't live without my MP3s." What they say is iPod, iPod, iPod.

Moreover, Apple makes next to nothing on song sales, Jobs has said. Whether a partnership with Real would be meaningful financially is problematic. Real declines to specify what, if anything, it makes from song sales, says Al Davis, analyst for McAdams Wright Regan in Seattle.

Glaser also noted that aligning with Apple would keep Real from partnering with Microsoft — a deal that could bring potent competition to the iPod. But the veiled threat also could be seen as an empty one, because Real presumably would have to take its $1 billion antitrust lawsuit against Microsoft off the table as part of the package.

As the music industry continues its glacial slouch toward digital enlightenment, the iPod eventually will face better competition. Sony, having awoken from its MP3 snooze, is talking about doing its own player. Microsoft's failure to come out with a Windows music player is a curiosity that may not last. A shakeout of all those MP3 gewgaws is inevitable.
 
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Apple may never see fit to open up the iPod. But it could benefit from a different historical lesson involving the Mac.

Those old enough to have lived through Apple's late-1980s bungles painfully recall that pricing was a huge impediment to the Mac.

In 1989, I bought a DOS machine for under $3,000 — and a Macintosh IIci for $5,400 (yes, computers cost a lot more back then). The IIci was a better computer, but not (to most buyers) that much better. Apple's early fumbles stemmed as much from overpricing as from failing to license the Mac to outsiders.

If Apple wants to maintain the iPod's hegemony, all it may really have to do is keep lowering the price. Once the "mini" burns through early adopters, its price is sure to fall. And the "papa" iPod should cost less in the future, even as its capacity expands.

Either that, or Apple faces getting lowballed into oblivion once again.

Paul Andrews is a freelance technology writer and co-author of "Gates." He can be reached at pandrews@seattletimes.com.

Copyright © 2004 The Seattle Times Company

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