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Sunday, November 14, 2004iPod Success and Microsoft Entertainment Industry Strategy -Part 1NYTimes has come out with a very detailed article titled Gates vs. Jobs: The Rematch , the future of entertainment industry at stake. The article talks about the incredible ipod success and how microsoft is preparing and aligning with other players to compete in the home/individual user entertainment industry. Excerpts -Part I:Late last month, Steven P. Jobs, Apple's chairman, rented an ornate theater here to promote Apple's latest advertisement for its iPod music player - a crisp psychedelic montage of the Irish pop band U2 playing "Vertigo," a song from its next album. Unlike the 1984 commercial, this one is intended to help Apple preserve a big, and growing, lead in the marketplace. Speaking just after the event, Bono, U2's lead singer, said the band was not charging Apple a penny to be in the ad. (The band says it had turned down as much as $23 million to use its music in other commercials.) In its three-year life, the iPod has achieved such "iconic value," Bono said, that U2 gets as much value as Apple does from the commercial, by promoting its music and the new Red and Black U2 edition of the iPod, for which the band gets royalties. The iPod, Mr. Jobs boasted at the event, has become the "Walkman of the 21st century." It dominates its market in a way that no Apple product has done in a generation, raising the possibility that the company is becoming more than just a purveyor of computers with high design and low market share. If Apple continues to ride the wave of digital consumer electronics products, it may become the Sony of the 21st century. For that to happen, however, Mr. Jobs must do what he failed to do last time: prevail over his old nemesis, Bill Gates, who sees entertainment as Microsoft's next great frontier. Microsoft is working hard to make sure that the iPod is less like the Walkman and more like the Betamax, Sony's videocassette format that was defeated in the marketplace by VHS.Microsoft is turning up the volume in the portable music business. And Mr. Gates makes no secret that he expects to beat Mr. Jobs in that market as convincingly as he did in personal computers.In many ways, the story sounds eerily familiar. As was the case in computers, Apple has sprinted ahead in the music market with an innovative product, elegant design and tight links between its hardware and software. Plodding along after it is a vast army, organized by Microsoft, of rivals that may be less skillful than Apple but offer a broader array of options and cheaper prices. IN music, Microsoft has rallied nearly every other manufacturer - like Dell, Samsung and Rio - to support a new version of Windows Media. That audio standard allows their gadgets to play songs bought from most music service companies, including America Online, Napster and RealNetworks, as well as its own new MSN Music store. Microsoft's campaign slogan for the services and players is "plays for sure." The iPod cannot play songs from most other stores, and Apple's iTunes store won't sell songs for other players. Mr. Gates argues that consumers ultimately will want more choices. "There's nothing unique about music in terms of, do people want variety of fashion, do people want low price, do they want many distribution channels?" he said. "This story has played out on the PC and worked very well for the choice approach there."Mr. Jobs rejects the comparison between the music players and computers. The Macintosh had an uphill battle, Apple says, because so many corporate customers already had applications based on Microsoft's operating system that they didn't want to abandon. By contrast, Apple's iTunes Music Store sells pretty much the same songs that the others do, but they cannot be moved onto non-Apple portable devices. Most important, he points out, Apple's market share has actually increased over the last year, despite increasing competition. "We offer customers choice," he said during a news conference after the U2 event, answering a question about Microsoft's strategy. "They don't like the choices our customers are making." Indeed, in the third quarter, some two million iPods were sold - more than all of its competitors combined, and more than double the pace of the second quarter. Market analysts and even rivals expect that Apple will sell more of them this Christmas season and continue to dominate the market into next year. What happens next Christmas and beyond, however, is a matter of considerable debate. Microsoft fans say that other music players will begin to match Apple's features and styling, and with lower prices. They suggest that consumers, meanwhile, will want to buy music from stores other than iTunes."Over time, proprietary standards always lose because industry standards always win because you get more for less," said Michael A. George, the general manager of Dell's consumer business. Dell has just introduced a 5-gigabyte music player, using the Windows standard, for $199, some $50 less than Apple's iPod Mini, which has 4 gigabytes.Microsoft is also betting that a new crop of subscription services, like Napster to Go, which let users fill up a music player with thousands of songs for a flat fee of $10 to $20 a month, will prove attractive to consumers. Mr. Jobs, by contrast, spent months convincing the record labels to allow Apple to sell songs one at a time for 99 cents each, and he argues that consumers prefer owning music to renting it. Still, dethroning the iPod won't be easy. One reason is that none of the rival electronics companies have made a player that is nearly as attractive and easy to use. "It is not an MP3 player; it is just an iPod, and it's only made by Apple," said Frank Sadowski, the head of Amazon.com's consumer electronics department. The proportion of Amazon.com customers who buy iPods continues to increase, he added. Again, Apple is bucking the trend. The classic Silicon Valley playbook calls for the company to try to turn its hit product into a broader "platform." And many people argue that Apple should open up both the iPod and iTunes to rivals, so as to establish itself in the center of the digital music world. | |
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