Apple Being Left out in the Cold by Partners

Over the last few weeks Apple has been left increasingly isolated in the music business. First Motorola decided to stop selling an iTunes compatible phone in favour of its own service. Then, this week HP has broken off all ties to the company, replacing iTunes on its PCs with Real’s music service. The latter decision was expected following HP’s decision to stop selling their own branded iPod devices after it showed very disappointing sales.

The question is, what difference will this make in the long run. The less important of the two announcements is HPs. The key to this business as it stands is the iPod and irrespective of what ships on people’s PCs as the default music player iTunes will prevail because ‘iPod people’ will install it themselves. It may make a very minor difference to Apple by preventing people who do not use the iPod discovering iTunes as a way of consuming music. This market is not particularly important though, because the main revenue stream in the business is the iPod itself, not the music sold through iTunes (Apple set it up this way because they know they are the only end to end provider of music services, thereby shafting all the other companies trying to enter the market).

The fact Moto has broken ties is more troubling. I say this because it is impossible to ignore that people will increasingly want to listen to music through their mobile, either because they do not want to carry two devices or because they cannot afford to buy both (think the younger end of the market). However, Apple has the option of making this news irrelevant, should they choose to release their own iPhone (a possible reason for the obviously rocky relationship Moto and Apple have had over the iTunes phone since the outset). The key here would be find a mobile carrier who would work with you on a phone allowing iTunes music to be used as ringtones - admittedly a difficult sell. The second possibility would be for Apple to sell the handset at full cost as part of the iPod family, and make it possible to accept sim cards from any of the networks. The latter would work here in the UK I believe, but I am not sure if this is viable in the US where it seems your mobile networks are very different.

Either way Apple is going to have to be careful that it does not become too isolated, because in the end the risk is Microsoft will win through a war of attrition.

Comments

[qoqfwvgjep]

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[david]

i bought an unlicked slvr and i was wonderng if i can get help on puting itunes cus my slvr didnt come wit itunesplz help thanx

[jbelkin]

The HP thing was a weird fit anyway - though I'm not sure aligning with the hated REAL is much of a solution.

But you're jumping the gun a little. A couple of other phones from Moto introduced at CES has itunes and of course, the latest RAZR features the itunes software, the V3i - many people prefer a folding phone so the new ROKR without itunes is pretty much a non-starter in either case.

[Tim Coughlin]

Thanks for all the great comments I have had. I agree with a lot that has been said, but I am dropping a line to 'melgross' here. I did all my research thank you. I assume you don't agree with what I have said, but I do not see an area where I am incorrect.

HP has left Apple I believe for a number of reasons, but poor sales is one of them. I remember that they were only making up a tiny fraction of sales, yes enough to be number one, but far less than they hoped; probably because they didn't move their iPod into their channels quickly. If they were selling 50% of the iPod being made then do you think they would have dropped the deal. At the time this could have been a realistic expectation.

It is also true that Moto is dropping iTunes. They may have phones coming out including the software for now, though that remains to be seen given the fiasco that went on with the ROKR release. But it is now clear that their eventual aim will be to move into the market themselves, making them a competitor with Apple.

Anyway, thats all for now. Take it easy.

[melgross]

Please do some research BEFORE you write.

[mark]

HP didn't stop selling iPods because of disappointing sales. During that period, they were #2, though way behind Apple.

HP left (after Hurd replaced Fiorina) either because 1) they didn't like Apple's policies regarding price protection and lack of advance new product notification, 2) they didn't make enough profit by simply reselling a competitor's product and accessories, 3) they were upset that Apple was moving into their US sales channels like Walmart and Radio Shack, 4) they had a conflict between iTunes' AAC/Fairplay and Windows Media Center WMA-DRM which they sell as PCs, or 5) they had a brand conflict because they are supposed to be inventors/innovators but their MP3 product is not really theirs. Carly maybe didn't care about it but Hurd seems to be bringing them back to their "invented here" philosophy.

Apple also wasn't happy with HP because 1) HP didn't aggressively move iPods into international channels and 2) HP was slow to get iPods to US stores like Walmart and Radio Shack (partly due to complaining about price protection). Which ultimately led to Apple making their own distribution deals.

Regarding Moto, they are selling the E2 as an additional model and continue to sell the ROKR E1. They are also putting iTunes on the RAZR and SLVR. So this partnership isn't over. Yet.

And Apple seems to be working with Cingular on future music downloads over cell phones, which Cingular has said will be sometime in 2006. This could be just for the Moto phones, or it could be timed for the launch of the rumored Apple iPhone.

I agree that Apple needs partners, but a more interesting discussion could be around what types of partners does it need. Apple has many partners supplying content and accessories for the iPod (home, mobile, car), and software and accessories for the Mac. But Apple is a hardware company, and it seems to me that Apple's culture of building end-to-end-systems will not allow it to partner with another company for a core end-user hardware product. Will that spell its doom? We shall see.

[theoldie]

If you've ever played Go, you'll be familiar with the idea that if in the early stages you are too defensive, you end up with a small, secure territory and lose anyway, and if too aggressive your ambitions crumble to dust. The way to win is maintain control, but only just, until the remaining territory is too small to change the outcome.

Each attempt to compete with ipod/itunes will, eventually, either defeat it or be defeated. Those that are defeated will simply have created territory for the eventual winner. The bigger they are before being defeated, the bigger the free gift to the winner.

With Apple's present market position at this still immature stage of the market, they must surely welcome every competitor to help grow the market. The bigger the play, the better. Those that don't see that entering the market is actually war to the death, will learn (Moto, HP).

What prevents carriers ganging up with music publishers to defeat Apple is P2P and private sharing.

The more adjacent industries eye up Apple's position greedily, the further Apple may be able to eat back into their markets when the dust settles.

Will Apple wither and die, or will Apple end up in consumer electronics, broadcast and telephony as well as boring old PC's?

[Shane]

http://engadget.com/2006/01/04/motorola-slvr-with-itunes-coming-soon-from-cingular/

This link from Engadget shows a new phone from Motorola being shown at CES that includes iTunes.

[william]

A GSM Apple phone would be great in the US. Several of the US carriers are GSM (Cingular and T-Mobile come to mind)and unlocked phones are rather appealing.

An Apple iPhone combining a phone, iPod, and smartphone functionality would be awesome. I think the Sony e710 would be a great form factor. That would be like my imaginary iPhone if it had more memory and a better interface. Put the scroll-wheel right were the circle-shaped set of buttons sits.