The Palm Pre (PALM) was favorably reviewed relative to the iPhone (NASDAQ:AAPL). But the iPhone has all those great Apps but the Pre does not. And your iTunes account ties you to the iPhone too unless your phone runs it too. And that was what the Pre did till Apple upgraded iTunes and it was no longer compatible with the Pre. Palm is upset and is trying to get Apple to open up iTunes.
Does Apple’s strategy make sense? Allowing Pre to use iTunes increases sales of music but reduces sales of the iPhone. Where do the two effects line up? It seems iPhone margins are almost 60% as AT&T (NYSE:T) is giving Apple a huge subsidy. And the iTunes profit margin is around 10%. Not sure what the sales figures are but you’d have to see a huge number of songs to counterbalance profits from iPhone sales.
If it’s worried about iPhone sales, Apple is making the right call on making iTunes incompatible with the Pre.