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Is Apple Leading Us to the Slaughterhouse
By Eric de Fontenay (Founder & Publisher)
(more articles from this author)
2003-06-04
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Over the last 20+ years, Apple has had the uncanny ability of shaping the computer industry, from the look and feel of your operating system, desktop, laptop,... Call it AppleMania. It's therefore no surprise, at least to this Machead, that Steve Jobs has once again succeeded where so many others have failed. And just as Windows continues to mimic Mac OS while PC manufacturers increasingly focus on product design versus just processor speed, the queue for iTunes-like retailing is quickly rounding the corner and going international with Moontaxi Media's Puretracks initiative. But is digital music nirvana really as simple as slapping a 99 price tag on a digital music file? The truth is that Apple's success is a function of various factors unique to that company.

* The Mac Buyer: When I had previously said that Mac was beating the pants off other online music services with just 4% of the PC market that could actually use it, I was wrong. It's more like 1% since one requires Mac OSX to run the iTunes software. Apple's success, though, has never been a function of quantity, but quality. Mac users spend more money on computer-related equipment, are more likely to have the latest operating system installed, spend more time online,... and nearly unanimously worship to one extent or another the Apple brand. I personally know several Mac colleagues who purchased their first digital music through the iTunes store just because they had to try out the latest Apple offering. And like most Mac users, they're hooked! This level of brand loyalty is not common in the non-mac computer world, whether towards Microsoft or the various PC manufacturers.

* Vertical Integration: Apple's blessing & curse has always been Steve Jobs obsession with vertical integration, controlling the entire production/distribution chain for its products. In fact, one of the first things he did when returning to Apple was to give the boot to Mac-licensed manufacturers such as UMAX. The downside is that Mac will probably always remain a 'luxury' good, relegated to single digit market share. The upsell, however, is the ability to offer a fully converged digital experience under one trusted brand. Apple has the unique ability to actually fulfill on Jean-Marie Messiers vision of converging content and technology into one seamless experience.

* Keep It Simple Stupid: Another hallmark of Apple's success is the above statement. The Mac OS was clearly designed for people who related better to pictures than archain DOS commands and a 2 year old can figure out an iPod. Same goes with the iTunes Music Store: no fancy radio/subscription/whatever... find a track & buy it for 99. That's it! This marvel of simplicity is a key factor attributed by analyst under the buzzword of 'micropayments' to the iTunes success. I just call it sticking to the 'KISS' rule.

There are other factors contributing to Apple's success such as marketing savvy, longstanding investment in digital media, superior security combined with DRM-light,... My point is not to say that the pay-per-download model is not an important tool in the selling of digital music, nor that it's success is exclusive to Apple. Rather, existing and potential competitors contemplating the Apple model need to understand the underlying factors of this particular success and what that means for their own business.

Who knows? Maybe Apple is simply leading the sheep to an eventual slaughterhouse of cutthroat price wars and razor-thin margins.

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» Re: Is Apple Leading Us to the Slaughterhouse (2003-06-12)


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