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The "iPod test" and why the iTunes competition fails it so miserably

by Bill Palmer


Monday, December 22nd, 2003

Alright, pop quiz:

I've just bought a new car that happens to run on unleaded gasoline, and as I'm driving home from the dealership, I pass a station that only sells diesel fuel. Do I:

A) drive on past the diesel station and get my gas from a station that sells the kind of gas my car uses,

B) take my car back to the dealership and trade it in, then proceed to search for a car that uses diesel fuel, or

C) wonder why I just bought a brand new car and I'm already buying gas on the way home from the lot?

I think just about everyone reading will agree that the answer is invariably going to be "A". The car is the major investment here, the item that you've chosen after careful consideration, which you've committed to with a rather large sum of money, and won't be replacing for a few years at least. And with that, you've just taken what I'm going to coin the "iPod test". It's why iTunes downloads are likely to continue growing, and why competitors who rely on other file formats aren't likely to be around for long.

I've read one too many times that the iPod is doomed to failure because it doesn't use the same "Windows Media" format as its competitors. The logic goes that the consumer is going to look at offerings from WalMart, Napster, and BuyMusic, and upon realizing that the iPod isn't capable of playing back songs purchased from those services, will instead opt for some other digital music player. But that theory ignores the "food chain" that exists as far as what drives the sales of what. For instance, Windows came to prominence not because anyone thought it was any good, but because it happened to be the operating system that came with the computers that were the most popular.

There's a definite cause-and-effect pattern that should allow us to see that since everyone wants an iPod and everyone is buying them to the point of worldwide shortages and to the point of making the competition almost non-existent, the only music download services that are going to gain in popularity are the ones that provide music that can be played with the iPod. It would be different if, oh, let's say that half of all popular music was only available in iPod-compatible format, and the other half was only available in Windows Media format. But that's not, and never will be, the case. iPod owners can get their hands on every bit as much music as anyone else, and WalMart's little bare-bones slightly-discounted service notwithstanding, iPod owners can get their music at industry-standard prices.

It comes down to whether it's more important for a user to be able to choose the digital music player he wants (in nearly all cases, the iPod), or to be able to choose which company he downloads his music from. In the case of current iPod owners, the choice has already been made. In the case of prospective iPod buyers, if they've already sampled iTunes and the competition, then they're likely to just be relieved that iTunes exists for their platform. They'll be even more likely to want an iPod when they find out that it's the only hardware that will allow them to continue using iTunes for their downloads. It's a win-win situation for Apple. Purchasing an iPod will steer a user toward using iTunes, and using iTunes will steer a user toward purchasing an iPod.

So what's Microsoft going to do about it? Well, Microsoft generally succeeds when it can cram its own solution so deeply into the user's face that most customers don't realize that there are other choices.To this end, Microsoft is likely to build a music download service into the next version of Windows Media Player, which they can offer for free download, but that merely puts them on equal footing with the Windows version iTunes in terms being in the customer's face. Throw in the fact that iTunes has a head start and has already been installed on millions of Windows PC's, plus the fact that with every iPod purchase comes another automatic iTunes customer, and Microsoft really has no way of tricking Windows users into thinking that the Microsoft download service is the only one out there. The earliest Microsoft will be able to do that is with the shipment of the next version of Windows, which is at least two years away. By that time, it will be way too little, too late.

Well what about Netscape, you say? Didn't Microsoft manage to murder Netscape by bundling Internet Explorer (and not Netscape) with every PC, allowing unwitting users to assume that IE was the only web browser, and allowing lazy users to simply settle for whatever came bundled? Well, that's because while Netscape was a higher-quality browser (at least early on), there was no web content that was Netscape-only, nothing that you had to have Netscape installed in order to do. In other words, there was no iPod test for Internet Explorer to fail. The two browsers did the same thing, if not at the same quality, so users went with the one that was more easily accessible. Luckily for Apple, Microsoft's download service will fail the iPod test just as miserably as the "we sell a third of what iTunes does" Napster service, the "we're not on anyone's map" BuyMusic.com service, or the "we're basically just a list of songs on a webpage" WalMart service.

There's a rather sweet irony in the fact that proprietary file formats, the tactic that Microsoft has used to bring its only two successful products (Windows, Office) to prominence, is precisely what's going to end up locking Microsoft out of the digital music game altogether. There's no trick for Microsoft to play here, no smokescreen to keep other choices hidden out of sight. Windows users only know that they want an iPod, and that they like iTunes. They'll be thrilled when they figure out that those two desires are complimentary. Beyond that, the rest is just details.

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