Analysis of IT news

Friday, February 09, 2007

News item: Steve Jobs praises the use of MP3 sales

News item: Steve Jobs praises the use of MP3 sales, and urges music majors to let them sell unprotected songs.

Analysis: this move has certainly surprised several people, considering Apple's notorious taste for proprietary formats. What could have made Steve Jobs change his mind?
  • Try to grow your market rather than your market share: the fact that songs which are purchased online are protected is a big hurdle to the growth of online song purchases. Users don't like the idea of buying songs tied to a particular MP3 player. Allowing to sell MP3 would reassure a lot of users.
  • MP3 sales is getting momentum. Small recording companies started to do this. A Russian site is doing this (illegally) and is very popular. Amazon is rumored to try this approach soon. Europe wants to force Apple to break its proprietary approach. This, and the fact that online song sales are flatter might have explained Job's timing for his 180 degree turnaround.
  • This is unlikely to hurt iPod sales anyway. Apple makes most of its money with the iPod, so here iTunes is the razor, not the blade. One of the big factor Apple likes its proprietary format is that it's seen as a way to lock in iPod users. If they want to switch to another player, they have to say bye-bye to the songs they purchased. However, several arguments smash this myth:
    • It is possible (although cumbersome) to convert songs purchased on iTunes into MP3s: burn a CD and rip the songs back.
    • iPod users have on average purchased 20 songs on iTunes. Probably not a deal blocker.
    • The best iPod lock-in isn't its protected songs but its accessories. Over time, iPod users have been spending way more dollars in iPod accessories than on iTunes. And these accessories cannot be used with other MP3 players. Nor can a lot of them be purchased for other players anyway. With 70% of the market, the iPod has by far the highest range of accessories.
Not surprisingly, the music major execs didn't like Job's stand. It is likely they will eventually allow companies like iTunes to sell MP3s of their songs, but they won't do it without a fight.