Apple's Build or Buy Quandary
Just when you thought the Apple hype could reach no higher, the buzz machine leaves you with vertigo. Not satisfied with having launched the only successful legal music service or spawning gossip of a possible major label acquisition, Apple is now reportedly contemplating buying out the competition, starting with Roxio/pressplay/Napster.
At least this makes more sense than UMG. Roxio would give Apple some important inroads in the Windows world - you know, the other 95% of the consumer PC market - especially in key sectors, including Roxio's digital media software suite (a longstanding Apple strength), pressplay's digital music distribution infrastructure, and most importantly, rights to a far more extensive catalogue than its current 200,000 titles.
Nor is Roxio/pressplay/Napster the only threat facing the nascent iTunes Music Store. AOL is planning on launching an upgraded version of MusicNet, pressplay's prior alter-ego, while online portals from Microsoft's MSN to Yahoo, as well as heavyweight e-tailer Amazon.com, are considering their own forays in digital music. Apple's 4% market shares is its real Achille's Heal as it risks becoming marginalized in the digital music stampede.
So the question is not whether Apple will become a player in the Windows music market, but whether it will build or buy. My ¢2 is to stick to the Apple formula. Napster/pressplay is far from being ready-for-market as Roxio is investing an additional $20 million on top of the $40 million pressplay price tag to launch the service. Then there is the Napster brand name, which Roxio staked so much on, that is really a double edge sword as I believe it cannot be disassociated from its "free music" origins in the consumers' mind. Apple has, on the other hand, invested significantly over the last years expanding the Mac brand name well beyond its niche loyalist base.
But the real challenge for Apple is to replicate iTunes' success on the Windows platform. Its current success, like almost everything Apple, is a fluke based on the uniqueness of the Mac market: its vertical integration, brand aura, leadership in innovation, and its users propensity to spend, upgrade & invest in Apple products. Gateway has tried to copycat Apple on so many levels, but to no avail. The upshot is if it can replicate its success on Windows, it won't be 1M downloads in the first week but more like 10M.