There’s been a lot of noise recently about how Real Networks has “hacked” the iPods FairPlay DRM so that songs purchased from the Real online store can now be played on an iPod with the release of their new software called Harmony. There are a bunch of different ways this can be handled; law suits, update the iPod firmware to break Harmony, etc.
But let’s look at what Apple has already told us, iTunes doesn’t make much money at all, it’s just a way to get people to buy more iPods. iPods can play any music you buy from iTunes, and songs you rip from your own CDs, and any unprotected MP3s that you know you can find all over the Internet. The problem is playing songs from other online music stores and their DRM protection. I think all of these stores want you to be able to play the songs you buy from them on your iPod, but sadly, that is not the case. Why wouldn’t they, iPod has the majority of the market. I have 2 of them and the things are simply awesome.
But there is a giant about to enter the online music business; Microsoft. By the end of this year Microsoft will have an online music store that will more than likely be good enough for most consumers. Plus, Microsoft owns the desktop in front of 90% of the computers out there. Remember when AOL was the main game in town until Microsoft put the MSN icon on the Windows95 Desktop? Look how big MSN is now. AOL isn’t gone, but MSN is huge.
But Microsoft’s DRM and file format is WMA, which the iPod does not handle today. It is rumored that it really can play WMA files, but Apple has disabled that functionality. Steve Jobs has stated that Apple would only look at adding WMA support when and if they had to. I believe the statement was something like “when Microsoft has 50% of the market, we’ll look at talking to them again.” See, iPod has the biggest share of all the music players out there and the iTunes store has the biggest share of the online music purchasing market. So why should Apple change anything? Look how successful they’ve been so far.
The wild card here is Microsoft here. 50 Billion in cash. They can find a way to make Apple much less relevant if they really want to. There are rumors that the Beatles have been looking for a deal to bring their entire catalog of music online for purchase for the first time ever. Apple Records already has a law suit open against Apple for getting in to the music business, which goes against some existing agreement the two companies already have in place. It would be a major feat for Apple to settle the existing law suit and then blow the online music world away with the exclusive rights to sell the entire Beatles music catalog. After all, who else should sell music from Apple Records than Apple? But I am still wondering if this won’t end up being the big news that Microsoft brings to the table when they announce the opening of their online music store. I can see Bill Gates on stage announcing the MSN Online Music Store and showing all of its features. Just when you think it’s over he sends a major jab back at Steve Jobs and says “Oh, there’s one more thing!” And then he announces an exclusive agreement to sell the Beatles catalog online at Microsoft.
Personally, I think the time has come for Apple to take this to the next level. Apple needs to license FairPlay. This allows Apple to sell even more iPods (the original goal, remember) while giving us, the Consumers, the ability to buy music from anywhere we want. Who knows, it has been stated many times that AAC is a better compression than WMA anyway, so licensing FairPlay could have the additional effect of moving more of the online stores to the AAC format instead of WMA. Now that would shake up the industry again, which Apple is very good at.
It doesn’t “punish” Real for coming up with Harmony, but it is a pretty fair compromise. Upgrade the iPod firmware to break Harmony, make some deal with Real for something that you need instead of suing them, license FairPlay, and see how many more iPods you sell now. Remember, the iPod is one of the highest margin products Apple sells today. Come on Steve, it’s time to take this thing to the next level. Let’s not repeat the mistakes of the past when Apple had the chance to be the number one operating system in the world and egos got in the way. Do the right thing for the Consumers and your share holders as well.