David Bertoni

Microsoft's iPod Killer Emerges -- Should Apple be Scared? You Bet! (AAPL, MSFT)

Vicious? Hardly. As far as being "pro-AAPL," that's going a bit too far. The subject has been limited to digital media products and eco-systems, and the premise of the analysis that prompted these responses -- that Apple Computer is about to face a serious challenge from Microsoft's alleged "iPod killer."

Edgar, whatever your humble opinion might be (and it didn't sound very humble to me), vast fortunes have been made in consumer electronics -- and whether or not they remain profitable in the "long run" has more to do with whether a company can (1) transition to new products as technology leaps forward; (2) have a great design sense; and (2) offer something so unique that the public doesn't jump ship when the first competitor offers something slimmer or shinier. What's funny about the iPod is that Apple seems to winning decidedly on all three counts, even though its only real advantage is in (3).

On (1), Apple's transition to new technologies isn't always the fastest, but I've learned from Apple's experience that speed isn't everything -- nor is equipping a consumer device with every bauble a good thing. Onboard radio (satellite or otherwise) is a good example. Apple realized that picking up a radio transmission for music is second-best to making your own radio station--which is what made the iPod attractive in the first place. From the outset, it could hold a huge library in a small (and increasingly smaller) package, and it had all the tools the user needed to program his or her personal station. When you have that, why would you want to introduce poorer quality, advertising laden, soundtracks designed by some media conglomerate owned radio station? Just ask yourself if, when driving, you'd rather listen to FM radio or your own MP3 CD or an iPod. I think the answer's easy -- radio comes in a distant third as a far as music is concerned. Now, talk radio is another matter altogether, but Apple creatively solved that problem with Podcasts ... which are now offered by virtually every popular radio (and sometimes television) talk show.

On (2), it is strikingly funny -- and ironic -- that none of Apple's competitors seem capable of producing an industrial design that comes even close to the iPod. Not even Sony. Walk up to the music player counter at any store and everything else looks bigger, clunkier, more complicated, or just plain uglier than the iPod. Why? I think it's because most technology companies (and Microsoft is a huge example) are run by engineers with little or no design sense, or for whom the design department lies at the bottom of the food chain. They seem to think that squeezing in an extra gigabyte of memory is more important than the package that holds it. And so, Apple wins out on design, an area where it, by all rights, ought to have no monopoly at all. I haven't seen a shred of evidence that Microsoft is even capable of understanding the terms of this battle, let alone winning it.

Of course, (3) is the area where Apple does hold a distinct and perhaps unique advantage. It is useful to compare the situation to Sony's Walkman. For a time, Sony's Walkman dominated the portable music scene. The were stylish to begin with (relatively speaking), got smaller and more elegant over time, and added features relatively slowly. Technology, of course, kept the feature set small. Sounds a lot like the iPod, in fact. But, what Sony didn't have is the music eco-system. Thought of in terms of the late-1970's and 1980's, in order to replicate Apple's system, Sony would have to have had its grip on (a) the furniture where we stored our record albums and tapes (the equivalent of the iTunes library); (b) the cables that connect turntables and tape players to the Walkman (the equivalent, it seems, of the iTunes digital pipe to the iPod); (c) tools for easily and comprehensively deciding, on the fly, what songs will reside on the Walkman; and (d) a record store in every house make it incredibly easy to add to your growing library. As for the last point, commentators often fixate on how consumers like choice and shouldn't be shoe-horned into an audio format that can't be used on other players. The problem with this analysis is that the marketplace shows that, for many consumers, there is no real choice in terms of other music players. They don't like them and aren't buying them. Yes, it gives Apple an additional bulwark against competition, but I think it's a very small one. Most iPod owners have relatively few iTunes store purchases in their libraries. Let's look at the numbers: About 1 billion songs sold as of early 2006 versus a total of about 42 million iPods sold (these numbers weren't released simultaneously, so they could be off): just 23 songs per iPod. And if you factor in a bit of common sense -- that rapid Apple partisans likely have the biggest libaries of purchased songs -- the number 23 likely drops even more for the consumers who might be converted to a competitor.

I have grave doubts about Microsoft being able to take a decisive lead on (1). It can't even get Office and Vista together on time. I have even graver doubts about Microsoft getting its act together on (2). And, as far as (3) is concerned, the odds are even worse for the Redmond giant.

Edgar, you're very quick to call people dimwitted -- as if anyone who posted here agrees with your strawman observation and "seem thing [sic] think iPods are the only players out there." That's silly. And to call the "masses" who buy iPods "dimwitted" -- well, very few successful businesses hold their customers in such low regard. And while you can't sell 42 million iPods without some of them being sold to people less intelligent than you, Edgar, my guess is that quite a few of them are at least as smart as you. And that's the beauty, in the end, of the iPod. It's easy enough for anyone to run the iPod/iTunes eco-system to cater to their every musical need. And that appeals to plenty of "smart" people, too.

Microsoft's iPod Killer Emerges -- Should Apple be Scared? You Bet! (AAPL, MSFT)

Still no explanation for how you thought the well-known fact of the non-profitability of iTunes music sales was a "dirty little secret."

And no explanation for how replacing iTunes purchased music with copies of the same music "catalyzes" a shift to a new paradigm when most iPod/iTunes users purchase, on average, very few songs from the iTunes music store.

What this author -- and I believe every competitor -- mistakenly believes is that consumers care more about the media than the techological eco-system that allows them to listen to that music very easily and stylishly. The notion that people are looking to move their music to more complicated devices, none of which do anything terribly well, is kind of like the myth of the Holy Grail. These factors led people away from consolidated devices (like a cell-phone that does "everything") to the dedicated "does one thing really well" iPod. While all the pundits were talking about consolidation, iPods flew (and continue to fly, albeit a bit slower now) off the shelves.

Likewise, iTunes is exactly the opposite, in terms of execution and philosophy, of the programs that Microsoft releases: (1) it's simple, and doesn't try to build in every imaginable nuance and feature that might detract from its principle objective; (2) its simplicity is coupled with ease of use -- simple isn't enough if you can't get everything up and running, hardware and software alike; and (3) it evolves new functionality gracefully, working with the consumer to slowly increase its scope (including to video).

What might Apple do to make its next generation of iPod (and iTunes) better? Your guess may be as good as mine, and talk has centered on voice control, blue tooth, cellular phone functionality, and dedicated bigger screen video versions. One thing I do know is that none of those features will mean a damn thing unless they are incorporated into a media ecosystem with a degree of brilliance that we've seen from Apple, but never from Microsoft. I don't expect, in fact, for the next iPod to be an astonishingly different device -- but I do expect it to qualitatively and functionally better in a way that makes sense to user, and keeps things elegant and simple. Against this, I don't think Microsoft stands a chance.

Microsoft's iPod Killer Emerges -- Should Apple be Scared? You Bet! (AAPL, MSFT)

You can tell when an article is intended to create more heat than light when it describes the lack of profitability in Apple's online music sales--something that Apple itself has openly acknowledged and has been a subject of discussion for years--as a "dirty little secret." Either that, or the author of this piece hasn't been paying attention to either the industry or the technology. Whatever the answer might be, the readers are equally disserved.

Turning to the "analysis," the author makes a series of statements of dubious import. First, he states that Microsoft will give away a billion dollars or so worth of music to get users to switch -- allowing them to move their song libraries to an as yet unseen alternative to iTunes and the iPod. I suppose it's believable, but why does it matter? People using the iPod and iTunes do so because of its ease of use, simplicity, and compatibility with the most popular music player in the world. Do some stay in the iTunes/iPod ecosystem because they cannot afford to walk away from a big music investment? Maybe, but the author provides not a shred of evidence to back that up. Couple that with the fact that most iPod users' libraries are filled mainly with their own ripped CDs suggest something that the author has pointedly overlooked -- that, perhaps, iTunes/iPod users like Apple's products and services. Microsoft's plan to execute a billion-dollar "try me" bribe, then, will only be as good as the alternative it proposes. If history is any guide, to say that Microsoft's offering will be underwhelming is, in fact, an understatement.

Frankly, this "article" rests, ultimately, on the dubious presumption that Apple cannot scale the iPod/iTunes service across platforms, and, by as a corrolary, that Microsoft's ability to connect with a wide variety of platforms--none of which, by the way, work very well ... just compare reviews of Apple's media PCs vs. Windows media PCs. As for the latter, may reviews bemoan that they can barely get them to work, let alone reliably.

It would great if Microsoft, with all of its money and personnel, would try something original for once. It has this habit of watching from the sidelines to see what works and then flooding the market with an oftentimes clumsy, but predatorily priced, alternative. None of its schemes--including the X-Box--have yet to make money. Let's see if they can break the trend.