Taipanway’s Weblog

I am getting sick of writing about iTunes/iPod – but there is so much to write about.  I am thinking of making this blog Apple only.

At this point, does anyone think there really is a market for $1.99 music videos?  Or $1.99 TV shows?  When Apple launched the iPod with 1000 song capacity no one thought that a consumer would fill up a $300 consumer electronic device with $1000 of content.  This has proved true with the average iPod owner buying about 35 songs through iTunes.

I have recently purchased a digital camera and take about 250 MB of pictures every week (I have a very cute nephew).  I have tones of pictures and yes video.  I have never wanted an iPod (I use an iRiver) for lots of different reasons that are irrelevant for this entry.  However, with the new iPod video I now want it.  I will not buy music videos, I will not buy songs, I will not buy TV shows and I will not buy movies when available.  I will use my iTunes/iPod mix for MY content and I will look for ways to repurpose content I buy to put on my iPod.

Once again, and I say this in a positive way; Apple has grabbed the bull by its horns and have showed a WAY for the content industry to get paid.  The reality is that this will not be a big money maker (at least for sometime for content) but this will continue to grow the usefulness of the iPod and the market share for Apple. 

It will be interesting to see how many companies jump on the video iPod bandwagon – but they better manage their expectations.  iPods will sell regardless of content available.  Content in this equation is NOT king.

So I have been wanting to write this for awhile and it is not nearly as timely as I hoped – but alas, my work gets in the way of my blog.

The itunes phone was launched to both tremendous fanfare and much condemnation.  So what happened?  Here we are, as an industry knowing that music and phones WILL BE combined in some way shape and form (that does not mean convergence is for everyone but at least for some people it will work).  Apple, the leader in digital music and Motorola, a leader in mobile phones (especially with the sexy Razor), team up and they release a device that no-one wants.  Odd or predictable? 

I believe that the outcome of the phone was predictable.  In my last posting about this topic I raised a number of potential red flags on what could go wrong but ultimately a) believed Apple knew better then I do and would deliver a strong product and b) I put off final conclusion to see what the hype was all about.  I am now ready to call the iTunes phone a failure.  Now does this mean that there will not be a converged device? Of course not.  The Apple Newton began the handheld revolution and it sucked also (though some people liked it…).  However, I do believe there is a tremendous learning experience in this product release.

First off I highly recommend the book Innovators Dilemma – a lot of my philosophy comes from basic elements from this book.

Net, net the iTunes phone was built for the carrier, the hardware company and the music industry AND not the consumer.  In The US, cell phone companies do not sell directly to the consumer, rather they sell in bulk directly to the carrier.  I am not aware of a single phone that has ever been ‘successful’ without being sold through the carrier (to be clear, a carrier buys phones and then underwrites a discount to the user and locks them into a contract).  Therefore the carrier carries a lot of weight as to the end product.  Now the carrier, like any company in any industry, has their own needs, wants and expectations.  Without going into too much detail – each constituency has their own red flags that limit the functionality of a given product.

To elaborate briefly:

The music industry/RIAA:  Their focus is on the protection of their content (I would also add to sell more content – but many of their moves belies this fundamental aspect of business).

The carrier: to own the customer, reduce churn and increase ARPU

Handset Company: Sell more phones

Apple: Get iTunes everywhere, sell more iPods/hardware

Consumer: Get everything they want

Using P2P as an example – Napster failed (the first one) because their sole constituency (the music fan) would receive no value if they added the music industry as a 2^nd constituency (see my next blog on the future of P2P).  My hypothesis is that a company/product can only thrive with 1 to 1.9 constituencies making decisions on focus, direction, strategy, tool set, use, etc..  I say 1.9 because if you look at iTunes as an example, they obviously support a model that is acceptable to the music industry.  The difference is that Apple did not have a pow-wow with the music industry and say, “we have a a great idea, etc.. what do you think and how can we work together”.  Rather, Apple said, ‘look at what we have built, look at how elegant and cool it is, sign on the dotted line and you will make X”.  If Apple chose a strategy that was inclusive from a strategic area, it would have failed in my not so humble opinion.

So what does all this mean?  My take is that with the value network crowded with players AND with a lack of acceptance that ultimately the consumer must get what they want – NOT what ‘we’ want to sell to them, mobile media growth will be hampered.

A quick anecdote:  I was on a panel on mobile music right after the iTunes phone was announced and we were debating if/when it would come out and why the carriers were hesitant to launch the product.  One of the panelists was a VC partner for a carrier’s venture group and he said that the reason the launch was delayed was that the bandwidth in the US could not handle that much data coming across the network.  When I suggested that an iTunes phone does not need an over the air sync he looked at me like I was crazy.  Why would a carrier sell something that embraces side loading?  Why would a Carrier support a model that gives users an option to go around them? 

Now in my world, the way my brain works, the answer is obvious – give users what they want and if does not work within your business model, fix your business model because someone else will.  I think a device like the iTunes phone can only work if I can side-load to my hearts content, with NO restrictions and no limits and THEN the carriers can figure out what additional value they can add rather then what needs to be held back.  Artificial walls collapse very quickly in a fast moving market.

The killer converged device may still come out of Apple but only if it puts the user front and center.

Once again – this blog should have been written about a month ago, my apologies.

Since the MGM vs Grokster decision there has been a lot of movement in the P2P space.  On the legal side a number of P2Ps have shuttered their doors, others have been financed, and still others are re-establishing themselves as legal distribution applications.  The term P2P and the concept of P2P mean two wildly different things and a bit of a reality check must be touched on.

P2P means from a technical perspective that files are not hosted on a central server but rather every machine connected in the peer network works as a server.

P2P is used primarily by people who either don’t want to pay OR for content that is not available elsewhere – like a bootleg. 

Yes – I am making sweeping generalizations – I know – my point is not to flush the psychological reasons behind P2P.  Rather, if I am right as a general rule, which I am, then what does legal P2P accomplish.  To ask the question stronger – what does P2P accomplish that is valuable for the user?  When I ask this question the only reasonable answer I have ever heard was that P2P saves distribution costs and bandwidth.  I agree that this is valid – but again, not valuable to the end user.  The cost of services that provide music has been set by Yahoo as lows as 4.99 a month – so unless this distributed computing will drive this cost down significantly, which it won’t (advertising will), users do not care.

So why all the push into legal P2P?  One answer is that companies do not feel like they have a choice – which is valid, but not enough for a business to exist.  The reality is that legal P2P is being pushed by content owners (music primarily) thinking that they can capture the allure that P2P holds without the benefits that P2P brings to the user community (please note I am not offering an opinion on the legality of P2Ps, OR the moral quandary – rather I am just stating the perceived value of a user who does use P2P). 

Another value that I have heard a legal P2P brings to the table is the ‘community’ and sharing of files.  Again, interesting – but this can be accomplished using streaming services or iTunes with play-lists, etc.. again, where does P2P as a technological implementation really add value?

Let’s look at DRM – which is, at least in its current implementation, a huge aspect of P2Ps ability to distribute and protect content.  DRM does not benefit the user in anyway – it is a technical solution for a technical problem.  It does not solve a user experience issue, it causes one.  Let’s play this little scenario out:  I am a 12 year old boy and I send my friend mike a file that I got off a legal P2P.  I buy the file for $.99 and  I send it to Mike.  Mike listens to the file and after 30 seconds a message pops up and it says buy this track for $.99.  Do we think that Mike will buy this track or will he send a message back to me saying something like; ‘hey jackass, don’t you know hot to strip DRM? Your sending me a song that I can’t even listen too?”.  Of course some people will buy in this P2P world, but once again, this does not need a P2P engine to accomplish this.  There are exceptions in terms of the viral aspect – and some companies doing some cool things like passalong.com – but again, does P2P really do anything.

My take:  P2P has been usurped by the ‘suits’, which I am one of, to mean what they want it to mean.  This will be a tantamount failure and will result in the death of most if not all the companies playing in this space.   I reserve the right to change this analysis IF a company like Apple/iTunes decides to implement a P2P instance to save bandwidth.