How Apple's iPod/iTunes Combo Could Demolish Microsoft's 'Play For Sure' Initiative

Apple's iTunes Music Store is a runaway success. Apple has sold over 250 million tracks since the service debuted, creating the number one online music service by a huge margin.

Apple currently owns about 70% of the online music market, facilitated by their free iTunes software and supported by millions upon millions of iPod owners. During the holiday quarter, Apple sold 4.5 million iPods, and there are now over 10 million iPods in use.

Speaking of which, the iPod also owns the hard drive digital music player market and is poised to conquer the flash memory market this quarter with release of the iPod shuffle.

Competition

Although they try to shrug it off, call it a fad, or just hope it will go away, the rest of the digital music industry is scrambling to maintain any traction at all against iTunes and iPods, and they're competing on both the hardware and service fronts.

There are two types of online music services, those that sell tracks and those that rent libraries. Consumers seem to have a preference for buying tracks that they can download, use on their computers, burn to CDs, and download to their iPods, but library services don't seem to understand that.

No, services such as Napster, Yahoo's MusicMatch, Virgin Digital, and Real Networks' Rhapsody now think that the reason people aren't flocking to their $10/month services is because users can't put the music they're renting on MP3 players.

Plays For Sure

Microsoft, digital music player manufacturers, and competitors to the iTunes Music Store are joining forces to launch the "Plays For Sure" initiative, which will handle digital rights management and allow online music buyers and renters to put their music on their MP3 players. (See Gunning for iTunes, Technology Review, for more on Plays For Sure.)

There's only one catch - users have to buy new Plays For Sure music players.

That's going to be a big obstacle. In fact, it could be the downfall of the entire non-Apple music market, which is exactly the opposite of what Plays For Sure supporters hope for.

Who Wins? Who Loses?

There are two big factors here, digital rights management (DRM) and market share. Microsoft's DRM is more restrictive than Apple's, but in either case digitally protected tracks will only play on Microsoft-supported or iPod hardware.

Apple's license allows using a track on up to five computers, any number of iPods, and also to burn several copies of a playlist. (As far as I know, there is no limit to how many times a track may be burned to CD, only on the number of times a playlist can be burned.) That beats Microsoft hands down.

Apple's DRM is more consumer-friendly, but I don't think that's going to be a factor.

Apple's iTunes is being used on millions of Macs and millions of Windows PCs around the world. Millions of iPod owners are using iTunes to manage their music libraries, and millions of iTunes users are buying tracks from the iTunes Music Store.

That's where market share comes into the picture. It's an uphill battle to unseat the dominant technology, whether that's VHS vs. Beta, gasoline powered motor vehicles vs. all the alternatives, or Windows vs. other operating systems. In this case, it's iTunes/iPod vs. Microsoft and their Plays for Sure partners.

Smart. Very Smart

Two of the smartest things Apple has done in recent years were offering a Windows version of the iPod and then porting iTunes to Windows. Supporting Windows grew the iPod market by leaps and bounds. iTunes for Windows not only worked with the iPod, but also showed a better way for Windows users to manage their music collections. It introduced them to the Apple Way and created a broader market for the iTunes Music Store.

People aren't going to turn their back on Apple. If they've paid for iTMS tracks, they aren't likely to move to Microsoft's service and have to buy the tunes all over again. Nor are they likely to ditch their iPods for Plays For Sure players.

Dumb and Dumber

The problem with Plays For Sure is that it doesn't address the real issue. The real issue is that users can't put DRM-protected music on their existing MP3 players. Making them replace their current MP3 players is not the solution. If anything, it will drive them toward the competition, the company that already dominates the market and has supported the same DRM system in their software and hardware for years.

If you have to change trains anyhow, why not take the express?

iTunes/iPod is one place where Apple's ability to integrate things and control the user experience pays off. Instead of having several brands of software, online services, and music players to choose from, there's one known quantity: Apple.

Apple is doing very well with the current system, and while competitors may steal a bit of market share here and there, the entire market is growing, and Apple will continue to dominate for years to come.

A Suggestion

If Apple really wants to do something smart, they'll prepare a new version of iTunes that adds two crucial new features - the ability to export AAC tracks (DRM-protected or not) to MP3 and the ability to sync with non-Apple MP3 players.

I'd love to burn an MP3 CD of all my Christmas music, put it in my stereo, and have it shuffle through 100+ tracks, but almost all of my tracks come from CDs and were ripped using AAC. iTunes doesn't currently support creating an MP3 CD from AAC. It should. [Correction: iTunes will let you create an MP3 CD from AAC tracks you have burned yourself. However, it will not create MP3s from purchased AAC files.]

And once Microsoft and their cronies launch the Plays For Sure (PFS) initiative and ticks off people who own pre-PFS music players, Apple should announce MP3 player support, effectively saying, "We feel your pain, but you don't have to buy new hardware to get what you want."

This would grow the base of iTunes users, and it would make consumers feel more favorable to Apple, which supported their old hardware, than to Microsoft, which told them to shove their old MP3 players.

Of course, most of these people have older MP3 players will less capacity than even the $99 iPod shuffle, and once they discover the joy of iTunes, they may want a player with more capacity. Which brand are they going to choose?

Choice

Apple is reinventing itself as the "choice" company. iTunes works on Macs and Windows. iTunes lets you rip tracks using MP3 or AAC. Apple isn't adding DRM and making people buy new hardware. Apple now lets PC owners buy a Mac without spending a cent on a keyboard, mouse, and monitor - or antivirus software.

Expanding iTunes to support MP3 export of AAC tracks could be the first step in expanding Apple's base, and adding support for current MP3 players would bring a lot more into the fold.

Apple just needs to keep growing their market. That's how you keep a runaway success successful.