First FairPlay, Then the OS: Licenses for Apple to Print Money

With all the press Apple’s been getting lately about the iPod, you’d think the company had only recently introduced it. The real news is that the iTunes online store has taken over the digital music market. According to the BBC, statistics gathered by Nielsen NetRatings shows that traffic to iTunes grew by 241% in 2005. Between December 2004 and 2005 the numbers of people going to the site grew from 6.1 million to 20.7 million. The figures mean that about 14% of the net’s active population are regularly using iTunes. Now with video available, that growth will accelerate even more.

What isn’t mentioned, yet, is how much money consumers have invested in purchased songs from iTunes — an estimated $3 million per day. This music is bought and paid for, backed up and ready to play on iPods (and nothing else).

In an interview with Steven Levy in Newsweek, Steve Jobs talked about what Microsoft could do to “marginalize” the iPod. In short, he garden-pathed Microsoft with some bait: “What’s going to happen is that Microsoft is going to have to get into the hardware business of making MP3 players.” If Microsoft takes this bait, it might make a decent music player, but it would sour the deal for other potential manufacturers who want to compete against the iPod — with Apple and Microsoft in the game, there would be no more room. And then, all Apple would have to do is…

In Want to Marginalize the iPod? Ask Steve Jobs How! on Apple Matters, Chris Seibold makes a significant observation:

Were Microsoft to jump headlong into the digital audio player market there would be strong incentive to Apple to begin licensing FairPlay. Manufacturers would be forced to choose between two mainstream options: A) go with Microsoft or B) Go with Apple. In the past, the no-brainer has been to go with Microsoft. This time the obvious choice is different… The folks who stick with Microsoft get to fight over, roughly, twenty percent of the market. The folks that go with Apple would be aligning themselves with what has become the industry standard.

In other words, the music’s over. Apple can head off any real competition to the iPod by switching its policy and licensing FairPlay. Apple can even thwart any effort to reverse-engineer or “legally crack” the FairPlay protection, as Microsoft has hinted at doing. What would be the point of buying a pseudo-FairPlay device when you could buy a real FairPlay device at around the same price?

So let’s say the iPod remains king of the music and video worlds for at least another year. With these revenues offsetting the reduced revenues from the Mac products, Steve Jobs would be in a better position to consider licensing OS X for Intel, and giving Vista a run for its money on the same hardware platform. Now that would be interesting.

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First FairPlay, Then the OS: Licenses for Apple to Print Money — 1 Comment

  1. Pingback: Get Off Microsoft » Blog Archive » The Last FairPlay Deal Gone Down

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