Thanks (or No Thanks) to Apple: Where We Stand Now With Digital Music

I was listening to The Leonard Lopate Show on NPR’s WYNC affiliate a couple of weeks ago and was rather intrigued by the guest of the day, a British researcher who spent a significant amount of time trying to answer a rather simplistic question: Why do we listen to music? The question itself can be construed in several different ways, but the real goal of his question was NOT to figure out what type of pleasure music brings you or how it stimulates your mind and body, but the scope of this question was more focused on understanding why we listen to the music that we’re listening to today and how we wind up listening to whatever it is that we’re listening to. Truthfully, I found the researcher’s methods attempting to answer this question a bit flawed and I was unimpressed at his proposed results. The question itself, however, is a good one and it got me thinking about how the most recent evolutions of digital music have changed the way in which we listen to, discover and acquire and music.

The timing of these questions is particularly interesting, given some of the very recent industry buzz, which always seems to escalate around the time that Steve Jobs and Apple are about to reveal the latest and greatest results of their wizardry. Although a majority of the Apple zealots were rather under-impressed with the products resulting from last Tuesday’s special event, the introduction of the more media-savvy Intel-based Mac Mini and the Apple Hi-Fi iPod“boom box” are both important and strategic for Apple, as it brings them one step closer to their ultimate goal: the ability to offer the consumer a ubiquitous library of music centered around Apple technologies. Back to Apple and this concept in a moment, however…

Related to the original question that I posed about why we listen to the music we listen to today, it’s clear that the most significant contributor to the transformation that we’ve made in our listening habits over the last twenty-five years was the introduction of digital music and the technologies that surround it. But why is this so and what, exactly, fueled digital music’s success in such a short period of time? To begin answering this question, let’s talk about three obvious key elements that helped digital music’s initial acceptance by the general consumer base, not just the technically savvy. These magic three elements are portability, selection and selectivity. First and foremost, it’s no secret that digital music has made music more portable than it ever was in the past – there is no arguing this and there’s probably no need to expand upon it. Second, with the advent of portable, digital music hardware came the demand for quick, cheap and comprehensive access to on-demand digital music, hence the advent of the iTunes Music Store, Rhaposody, MusicMatch and Napster, among others. These services gave the listener the selection that they desired, eventually to the point that most songs and albums from major-label artists could be purchased in seconds with the click of a mouse. Never before had the music buying consumer had such easy access to this vast collection of music and, as these services matured, the need to physically go to a store, purchase a compact disc and rip it’s contents to the PC eventually went away. The unparalleled selection of music available online, plus it’s ability to be quickly delivered to the consumer was key. Finally, selectivity – not to be confused with selection – allowed the consumer to easily pick and choose the specific content the he wished to hear. This was unparalleled in the fact that music-buying consumers were always “stuck” paying for an entire album’s worth of songs, even though they only wanted to listen to one or two of them. Also, from the practicality side, the listener didn’t have to carry around fifty different CDs if he only wanted to listen to one song from each of those CDs. The age of the “mix tape”, which was often involved and time consuming to produce, was replaced by the simplistic playlist. Bottom line: The paradigm of music portability changed dramatically when music became digital.

But while these key elements helped win the hearts of the music-listening mainstream, people had to make some difficult decisions with their wallets when it came to determining which piece of portable music hardware they should purchase. The most important factor that created a clear division between the different online music store offerings, as well as the hardware supported by each of those offerings, was Digital Rights Management (DRM). The record companies and RIAA, of course, required DRM to be a necessary evil associated with the distribution of music online and the hardware and software manufactures were, of course, quick to comply. It’s no secret that DRM is soar spot for many: Users don’t like the fact that they can’t play protected songs on any device or burn tracks to their liking, while the less-successful online music outfits (read: anyone other than Apple) are upset that Apple’s FairPlay DRM is truly proprietary, allowing iTunes Music Store content to only be played on iPods. Apple, of course, also restricts iPods from playing other DRM schemes, such as the Windows Media DRM used to fuel most of the other services. It’s no surprise that Music Match, Real Networks and others have called for Apple to open up and license their FairPlay DRM scheme, but it’s clear that this is a competitive advantage to Apple, given that they are the overwhelming market leader and have essentially shackled over 1 billion iTunes Music Store downloads to their hardware.

Given the fact that Apple won’t be licensing it’s DRM technology anytime soon, one can assume the diversity of online music store offerings, as well as the diversity in hardware associated with them, are here to stay. And along with the different offerings come very different business models associated with each. Apple, for example, employs a pay-per-click model, where the consumer must pay for every downloaded song – still $0.99, as it’s been since the inception of the iTunes Music Store. Napster and Yahoo, for example, also offer “all you can eat” music download offerings, where a consumer can download as many songs as they’d like to their computer, or a compatible device, for a relatively small flat monthly fee. The catch with the “all you can eat” offerings: the music can never leave the compatible, or “locked”, device without paying a per-song fee similar to what Apple charges. Theoretically, Yahoo! and Napster’s services appear to be much more attractive when compared to Apple’s offering. And, although the iPod line is diverse and has become somewhat of a chic status symbol, many of it’s competitors portable music hardware products are similar to, or surpass, the iPod’s features, capacity, quality and physical size – typically at a lower price point. So why would consumers purchase Apple’s hardware when they have the ability to download whatever songs they’d like from Apple’s competitors for a small monthly cost that is about half of what a single album costs on iTunes?

This is a difficult question to answer, and is surprising in a world of $5.99 all-you-can-eat dinner buffets and talk-all-you-want free nights and weekends. I think what we’ve seen, however, tells a very interesting story about what’s important to music consumers: music consumers are more than willing to pay a premium for the songs that they want to listen to, rather than paying less for the ability to listen to anything that’s available on the market. In addition, consumers find a certain appeal and comfort in the apparent universal acceptance of the higher-priced Apple hardware. Apple has persuaded consumers to purchase a higher priced device, which will also cost them more money down the road if they choose to purchase songs online. It’s fascinating to think that the music-buying public is essentially standing up and saying that cooler hardware and the 200, 300, or 500-plus songs that they’ve purchased is more appealing when compared to lesser-attractive hardware and all the music that they could possibly ever want to listen to for a small fixed price. Essentially saying, “The 1000 songs on my iPod are what I care about, and the 2 million other songs offered by Napster don’t really matter.”

This has confused Apple’s competitors. Surely, the public would prefer their lower-cost devices and flat-rate, unlimited music plans – but, surprisingly not. This has led to some recent frustration, as demonstrated last week by Napster’s CEO, Chris Grolog, when he blamed Microsoft for his own company’s inability to take a chunk out of Apple’s 80 percent-plus market share. As the CEO of the company with, perhaps, the best and most notorious name recognition among Apple’s competitors, this type of public sobbing doesn’t bode well for Mr. Grolog or his company for a few reasons. First, there is a well-documented history of former CEOs who became former CEOs because they blamed other companies for their own company’s failure. Second, and perhaps most importantly, Mr. Grolog has yet to acknowledge that, just perhaps, the all-you-can eat monthly music plan his company offers is not as attractive to consumers as they originally thought – at least not attractive enough to lure them away from Apple. At this stage in the game, the failure to even question his own company’s business model should be alarming to everyone who works at Napster, or who has invested in technologies that are compatible with their service.

So where does all of this leave us? Will Apple reign supreme by simply sitting on its laurels? And are consumers content with the benefits of portability, selection and selectivity that I wrote about earlier. The answers to these questions, of course, are obvious: No, Apple is not resting on their laurels and No, consumers are never satisfied with what they have in this evolving digital music market. And while it’s difficult to predict what the next hot thing will be, Apple appears to have a vision to help them address the fast-growing concept that consumers are beginning to show substantial interest in: music ubiquity, or the ability to have your music available anywhere and everywhere you are.

Main Entry: ubiq·ui·ty
Pronunciation: -kw&-tE
Function: noun
: presence everywhere or in many places especially simultaneously : OMNIPRESENCE

It’s important not to get the concept of music ubiquity confused with the concept of music portability, which I wrote about earlier. True music ubiquity is essentially the ability to seamlessly access your music in any environment, without the need of complex methods to replicate your library. There are two key words I want to stress in what I just wrote: First, the music I refer to is only ubiquities if it’s your music that’s available everywhere you go. As I discussed earlier, one of the things that we are learning from the failing Napster and Yahoo! Music models is that users really don’t care about the other 2 million songs available out there – they only want the thousand or so songs that they took the time to download, rip, arrange in playlists, etc. Second, ubiquitous music is only achieved if the “transfer” of your music from one environment to another is seamless and simple. You don’t want to think about having to copy files from one environment to another or using different music delivery technologies that may have various limitations or features between each environment. One can argue that Apple, as well as some of its competitors, has done a fairly good job up to this point, as people are carrying their portable music players from their home to their car to their office. But it’s the seamlessness of integration between these different environments, as well as the ability to offer a comprehensive ubiquitous music experience in all environments, that make Apple the current frontrunner in this category.

Apple has been laying the ground for creating a completely ubiquitous music offering for about the past two years and, with the recent product announcements made last week, they are very close to closing the loop on many of the necessary channels required to offer this. The Apple solution, to no surprise, revolves around iTunes and the iPod. At the most basic level, Apple has done an excellent job in making iTunes the digital music “hub” or “dashboard” for most users, expanding it far beyond just a piece of software used to transfer music to ones iPod. And when the Airport Express with Airtunes was introduced in 2004, it gave iTunes users the first opportunity to expand the reach of their music library, allowing them to seamless make their music library portable via the iPod, available locally on the PC and now available in any room of the house via the fully digital and wireless Airtunes. An update to iTunes and the Airport Express after MacWorld Expo 2006 was subtle, but quite important, as it now gave users the ability to simultaneous stream digital audio to multiple Airport Express devices, allowing you to essentially “wire” your home for audio – ummm, wirelessly – for a little over $100 per room. Although Apple’s marketing push for the Airport Express was limited, it provided a good foundation for their musical foray beyond the home office computer and iPod.

Fast forward about 18 months to Apple’s most recent product event. With rumors awry about the potential announcement of a true Video iPod (it didn’t happen) and a Mac Mini Media Center (it sort of didn’t happen), the religious Mac followers were left somewhat disappointed by the introduction of the iPod-integrated Apple Hi-Fi “boom box” and the improved Intel-based Mac Mini. Perhaps these were not the sexiest introductions in the recent string of sexy Apple products, but the products are key to Apple’s expansion into the living room, as well as their march forward to create a truly ubiquitous, Apple-centric music offering. The updated Mac Mini is significantly better suited as a media-center PC compared to its predecessor and early reviews are quite positive regarding its very HD-capable video chipset (albeit of the shared video variety). Its enhanced version of Front Row with Bonjour sharing support further helps make the music library more available beyond the PC that it’s stored on.

So, again, I ask, where does this leave us? There isn’t a question that Apple has much more work to do in regards to strengthening their line of products that are more centered on delivering entertainment to the living room. However, the foundation is now laid for the ubiquitous music concept. Start with iTunes as the hub for all digital music, with the ability to offer users fairly-inexpensive access to over 2 million tracks of music in seconds. You have the ability to play the music directly on your PC or, of course, take it with you via your iPod, which happens to be neatly and tightly integrated with your iTunes library. You can then expand the reach of your iTunes music library using the Airport Express to your digital stereo receiver or, if you choose, use your iPod or Airport Express to play end-to-end digital music via the your Apple Hi-Fi. Alternatively, you can attach your Mac Mini to your television and home theater system for access to your entire iTunes library remotely via Bonjour-enabled Front Row. You can then, of course, use any one of the many iPod automobile integration products (FM tuners, factory integration kits, etc.) to transport your music with you when you’re on the road. (It’s worth noting that 13 major auto manufacturers now offer direct integration kits on their 2006 and 2007 models.) In the scenario I’ve described above, you’ve accessed your music library in several different environments without the complex or time consuming replication of data between devices or environments. Your music is available to you nearly everywhere.

So as the end of this week approaches, there have been a few winners and losers over the past month in the digital music world. Despite the fact that many critics found Steve Jobs’ most recent product announcements fairly mediocre, Steve is still a winner – these products certainly begin to pave the way for a more complete music offering from Apple, which can only better their current market share. And this is why Napster, Yahoo! Music, Real Networks, and MusicMatch fall into the “losers” category this month. Each of them might see their mission as competing with 4 other companies for 100% of the market, but it has become more apparent that they are actually competing with 3 other companies for the remaining 20% of the market. One of them needs to re-invent something quickly to begin gaining any type of significant market share. Finally, while they’re not big losers, other companies that should show some concern are the iPod accessory manufacturers, as Apple has shown that they are not afraid to venture into that market space on their own, given the introduction of the Hi-Fi and leather iPod cases. Watch out Belkin, watch out Griffin.

I think you’d be a fool to bet on how the digital music market will evolve in the next year, but it will be interesting to see if Apple continues its movement towards the living room and its expansion of the technologies and products peripheral to the iPod and iTunes. I’m also quite keen on seeing which of Apples competitors is first to flinch and begin exploring alternative pricing or service models, although I’m not convinced that this will happen prior to this year’s holiday season.

One thing is for sure in this sector, however: change.

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