Products versus Platforms: They're Two Very Different Things

[Jason Dunn]

There's an interesting discussion going on about Microsoft and Apple in this thread, where Felix made an interesting point (http://www.digitalmediathoughts.com/forums/viewtopic.php?p=46033#46033):

...there is a real opportunity there for the second tier vendors to grow the WMA market faster than the market as a whole.

Indeed, that's the key, and ultimately the reason why I think Apple will fall by the wayside over time. Apple is doing what they've always done: they release PRODUCTS. The iPod is a product, and iTunes is a product. They're good products - people like the products. Apple controls them both, end to end.

Microsoft, however, builds PLATFORMS. Dozens of WMA players on the market + 5-10 music stores selling WMA equals a platform. Platforms have many advantages, not the list of which is the ability for many smaller vendors to make a good living - as long as the platform is doing well, there's a thriving ecosystem to grow in. When you're selling a product, you're competing against other products, and it's "them or me". Platforms have their own problems (slow to change), but ultimately they're more long-term.

Apple is riding high right now, as well they should (they've done well with the iPod), but ultimately their refusal to open things up to other players, and their misplaced belief that people will always buy Apple, will ultimately cause them a lot of grief. Apple has always been about products more than platforms - look what happened when they tried becoming a platform: they licensed their OS, other companies went out and built better, cheaper Mac-compatible hardware, and Apple started bleeding money. Why? You can't build a platform on niche - platforms need to be mass market. Digital music is mass market, but Apple will follow the same tactic that has kept them in the single digit market share: they'll try to go it alone, and they won't be able to.

[Suhit Gupta]

I completely agree. And most of Apple's products, while cool with great UI's are not really expandable by anyone else other than Apple. So despite Microsoft having the reputation of being evil and monopolistic, has definitely done things correctly in this regard. I think Apple is going to realize this only if/when competitors reach the popularity of the iPod and iTunes.

Suhit

[James Fee]

I disagree. The iPod has become a platform. Look at all the companies making accessories for it. We even have Bose making a radio that controls it. Apple has made no mistakes yet with the iPod that has hurt them. Sure the iPod mini launch was a disaster, but it doesn't seem to have affected them. iTunes keeps growing and every day there are more things to spend my money on for my iPod. Until WMA hardware companies figure out how to market their players or Apple screws up BIG, there will be no change. MSN Music doesn't add anything to the existing WMA market that they don't already have. iRiver makes some great devices, but I don't see people rushing out to get them and until this changes, there is nothing Microsoft can do about it.

[James Fee]

I completely agree. And most of Apple's products, while cool with great UI's are not really expandable by anyone else other than Apple. Maybe I'm misunderstanding what you are saying here, but there are thousands of options for any iPod. :?:

[Suhit Gupta]

Thousands of options? No, the iPod comes as a unit package. It is a really huge following that has caused people to make tons of accessories. However, it is there is only one player that plays aac. And only one piece of software that plays aac (actually, I am probably wrong here). All of this is completely controlled by Apple. This is unlike WMA and that is the point, I think, Jason was trying to make.

And this has been the case for many many years with Apple. They did it with their computers, are doing it with their laptops and music players, and will probably continue to do it. (Note: this is not my attempt at Apple bashing, in fact I would love to use Apple products. I just don't like being constrined to one device or type of device).

Suhit

[Jason Dunn]

So despite Microsoft having the reputation of being evil and monopolistic, has definitely done things correctly in this regard.

And, ironically enough, Apple did exactly what people are afraid of what Microsoft would do: Apple revoked the OS licenses, effectively putting all the clone makers out of business. Apple is never going to open the iPod up to anyone else, and ultimately that will be their downfall in this market.

[Felix Torres]

I completely agree. And most of Apple's products, while cool with great UI's are not really expandable by anyone else other than Apple. Maybe I'm misunderstanding what you are saying here, but there are thousands of options for any iPod. :?:

It may be a matter of definitions.
A platform is more than just an expandable product.
A socket wrench for example is infinitely expandable but remains a socket wrench. It remains the same product.

A platform, in the IT sense is a system that allows you to build varied solutions to varied problems/needs, resulting in very different products.

Windows Media, as a platform enables both audio and video streaming, as well as static files. This allows for solutions that produce devices as varied as the XBOX, the Media Center Extenders, PMCs, multimedia PDAs, CinemaNOW, Napster, MusicMatch, DVD players, and PCs. Windows Media can produce solutions for digital AM radio or HD-DVDs, or it can provide custom soundtracks for XBOX games. It can deliver theatrical movies into independent movie theaters or to red-laser DVDs.
It can deliver audio to Windows Media player or to a connected DVD. Infinite value from infinite solutions coming from sources other than MS.
And everybody makes money, not just MS.

An iPOD can take multiple hardware add-ons, yes.
And Apple can add features via firmware updates.
But it remains an iPOD; a portable music player.

Windows media can be used to build products that are completely independent of each other yet still interoperable and can be easily integrated.

Not unlike Windows or Office.

Going back to the iPod=socket wrench metaphor, Windows Media Platform is a full toolchest that includes a socket wrench, plus a crescent wrench plus a hammer, a saw and drill among other things.
Yes, it can do everything the socket wrench does, but it also does things the socket wrench can't and has no interest in doing.

Building a quality product is hard.
Building a quality, durable platform is even harder.
It takes longer and it requires partners and sacrifices to profitability that Apple does not seem inclined to make at this point of the game.

So, no, I respectfully disagree; the POD, while flexible and extensible is not a platform. It isn't even a fully modular system, to be honest. (Consider how even the BMW interface does not let the pod display song data on the car head unit.)
Apple has a ways to go to make the Pod a fully modular system, to say nothing of a platform.
Sorry...

[Jason Dunn]

Good post Felix!

I should mention that Apple certainly has the capability to create a platform - one based around iTunes. If then opened it up, allowed other music players to tap into it, they'd become even harder to beat. But they won't do that because they want to protect their profits on the iPod. It's classic protectionist policy, and it's going to cause them problems in the long run. Short-term, yeah, they're kicking ass and taking names - no doubt about it. But products are short-lived - platforms are long-term.

[James Fee]

Sorry...
So where is all this great Windows Media stuff? I see only failures. *shrug* If you compare QuickTime to Windows Media, then maybe, but people have built products around the iPod platform (both software and hardware) and are currently making money off of it. Just because there are hundreds of stores out there doesn't mean anyone is making money off of WMA. If WMA was a successful platform, then MSN wouldn't be starting up their own store.

The assessment that people buy an iPod because it has an Apple name on it is just plain misguided. The iPod is a success because Apple understands the market and what people want. There is no rush to have video in their hands so why bother with a device that does that?

Apple may control both ends of QuickTime right now, but for Microsoft to succeed, they'll need to do the same. First part is making sure everyone uses MSN Music. The second part will be their own player. People don't care who makes their player, but they want it all integrated. Having 10 stores to buy music from just confuses the average user. MSN Music will go a long way to simplifying the integration between the player and the computer.

[James Fee]

If then opened it up, allowed other music players to tap into it, they'd become even harder to beat.
But that would destroy the business model. Its not the stores or the music that makes money, but the players. Maybe we'll see WMA on the iPod one day, but I doubt we'll see it go the other way (AAC on iRiver).

[James Fee]

Great topic BTW... I love these kinds of discussions.

[Felix Torres]

You know, today is a pretty appropriate day to be discussing this.
Aside from the release of WMP10 and MSN Music tomorrow, there have been several other events of note on the WM platform front.
Check these from the industry yellow sheet of record:

"Plays for sure" campaign to promote interoperability of products built on WM tech:

http://news.com.com/%27Plays+for+sure%27+means+Microsoft%27s+inside/2100-1025_3-5324402.html

The Napster CEO doesn't seem to have much heartburn over MSN Music:
http://news.com.com/Betting+it+all+on+Napster/2008-1027_3-5331890.html?tag=nefd.lede

Blu-ray group to require Windows Media compatibility in HD players:
http://news.com.com/Blu-ray+group+gets+behind+Microsoft+tech/2100-1041_3-5330786.html?tag=nefd.top

And a big loss for Windows Media *precisely* because it is a platform:
http://news.com.com/Digitizing+the+multiplex/2100-1025_3-5330706.html

Add in the reports are MSN music will only be about downloads, not subscriptions, and that MS will leave that to its partners and you can see a clear difference in approach to the market: Apple is narrow-focus, music sales and playback, while MS is reaching wide, trying to build a network of products and services that all feed off each other, and all leverage the same set of technology; codec, DRM, sync, streaming, etc.

And, for those prone to gripe about MS "greed" notice they are playing in the 10% profit margin business but leaving the 40% market they created through Janus to their partners?
Or that MS kept XP Media Center Edition out of the hands of White-boxers for two years so the big name-brand vendors could sell premium Media Center PCs? Its called leaving money on the table.

Its one of the ways you build a platform; sacrificing todays revenue in the hopes of a larger payoff tomorrow.

Yes, Apple can still do this.
But the window of opportunity when they can successfully pull it off is starting to close.

And do consider that, of late, Apple has not been very accomodating to its partners that support the one platform they already own; the Macintosh.
So, no, I don't think Mr Jobs intends to leave any crumbs on the table for his wannabe followers.

[James Fee]

Don't get me started on how Adobe has been treated on the OS X platform. Believe me there has been no company in the history of IT that has screwed up as much as Apple (Iomega is a close second), but I see nothing wrong with how they have handled iTunes and the iPod.

Its one of the ways you build a platform; sacrificing todays revenue in the hopes of a larger payoff tomorrow.
Doesn't this sound like what Apple is doing with iTunes?

[Jason Dunn]

But that would destroy the business model. Its not the stores or the music that makes money, but the players. Maybe we'll see WMA on the iPod one day, but I doubt we'll see it go the other way (AAC on iRiver).

Exactly, which is why they won't do it. And the fact that the players make the money is the entire problem - Apple isn't going to allow anyone else to make a player that's compatible with their music, because they would open up the market and allow others to commodotize the iPod...which is exactly what happened with their desktops. But the question is, as everyone else in the world tries to make an iPod killer, and consumers get ticked off at being locked into one player for their music, will it be enough? That's the beauty of making money off the music and subscriptions - it doesn't matter what player the person uses, they keep buying your music because your music works on every player. That's the difference between a product and a platform.

[James Fee]

That's the beauty of making money off the music and subscriptions - it doesn't matter what player the person uses, they keep buying your music because your music works on every player. That's the difference between a product and a platform.Well, I still disagree, just because it isn't open doesn't mean its not a platform. Apple can build on the iPod and iTunes platforms as can some other companies. As for subscriptions, I agree it is the only way to make money selling music, but I don't think people really like it. Even MSN isn't getting into that business.

I totally agree and wish that the iPod was more open, but in the end I would probably still buy my music from iTunes even if they allowed WMA on the iPod.

[Felix Torres]

Its one of the ways you build a platform; sacrificing todays revenue in the hopes of a larger payoff tomorrow.
Doesn't this sound like what Apple is doing with iTunes?

uh, Apple is doing the opposite; sacrificing tomorrow's revenue for today's balance-sheet.

If they were *really* looking to the future they would have listened to Real's proposal and not be trying to squash harmony; cause if, as you say, the money is in the player (I actually disagree with that, but no matter) then Real selling music for the Pod only makes the pod more attractive, right?

Which it does, to customers.
But not to Apple, because the Harmony tech allows folks to buy songs that are not *permanently* tied to the pod, to be songs that will play on today's pod and tomorrow's Rio, for example.

There is a...real...difference between being able to abandon the pod for a Rio, and *wanting* to do it. ;-)
And Apple apparently doesn't trust its customer base or its ability to stay ahead of its competitors enough to allow customers an option.

So rather than risk losing today's customers tomorrow, apple is limiting the number of customers they'll get today and tomorrow, hoping to lock up the ones they do get in a roach-motel closed garden.

The problem is that closed gardens sometimes do more to keep future customers out than to keep current customers in.

And now they've opened themselves up to a two front war: Harmony on one side and "Plays for sure" on the other.

And it was all avoidable.

Now, understand, I'm not saying the Pod business is going to stop growing; this market is not yet a mature, zero-sum market.
But I do think that Apple will no longer grow its share faster than the market is growing.
At best, they'll grow with the market and stay at 29% market share.
At worst, they'll grow slower than the market, losing share but still growing in volume.

And it may very well be that Jobs is comfortable with that.
And since it is his company, the choice is his to make, good bad or indiferent.
In the end, its all a matter of math: do you want 100% of the profits generated by a minority market share or a smaller fraction of the profits generated by a majority market?

We know where MS stands: they'd rather collect 4% from 80% of the market than 100% from 20%.

[James Fee]

uh, Apple is doing the opposite; sacrificing tomorrow's revenue for today's balance-sheet.
Really? I thought they were selling iTunes songs at a loss.

If they were *really* looking to the future they would have listened to Real's proposal and not be trying to squash harmony; cause if, as you say, the money is in the player (I actually disagree with that, but no matter) then Real selling music for the Pod only makes the pod more attractive, right?
I don't consider anything Real does as attractive, but that is just me. I think the argument Apple would make is that the integration between iTunes and the iPod is more important than having another company offer songs. To be honest, does it really matter? What does Real bring to the table that Apple doesn't? If iTunes wasn't so good, then maybe I see the argument, but since iTunes does everything iPod users want, why bring in Real and all their desktop icons?

Which it does, to customers.
But not to Apple, because the Harmony tech allows folks to buy songs that are not *permanently* tied to the pod, to be songs that will play on today's pod and tomorrow's Rio, for example.
But as I said above, I consider Real a "read" competitor. The fact that the iPod can only play Fairplay DRM is not a concern to most people and they have been voting with their dollars.

There is a...real...difference between being able to abandon the pod for a Rio, and *wanting* to do it. ;-)
And Apple apparently doesn't trust its customer base or its ability to stay ahead of its competitors enough to allow customers an option.

I don't really think that this is the major issue (though I'm sure it doesn't hurt). Tech support goes down when Apple doesn't have to deal with supporting other companies software. I think we all learned that from the Musicmatch fiasco. If Musicmatch had actually done their job, I'm sure we would be seeing Musicmatch supporting AAC.

So rather than risk losing today's customers tomorrow, apple is limiting the number of customers they'll get today and tomorrow, hoping to lock up the ones they do get in a roach-motel closed garden.
Limiting consumers? Where do you get that idea? I've seen no concrete evidence that the lack of Napster support is hurting sales.

The problem is that closed gardens sometimes do more to keep future customers out than to keep current customers in.
Except the garden on the other side of the wall is still a mess and I have yet to see anyone trying to clean it up. The hardware and software outside the iTunes/iPod world doesn't always work really well. There are DRM problems, confusing GUIs on the software and hardware and just some plain bad marketing.

And now they've opened themselves up to a two front war: Harmony on one side and "Plays for sure" on the other.

And it was all avoidable.
Real isn't a threat at all. They are only trying to bust into the iPod market because they are afraid of MSN Music and a refocused Napster.

Now, understand, I'm not saying the Pod business is going to stop growing; this market is not yet a mature, zero-sum market.
But I do think that Apple will no longer grow its share faster than the market is growing.
At best, they'll grow with the market and stay at 29% market share.
At worst, they'll grow slower than the market, losing share but still growing in volume.
Oh I don't doubt they'll fall below 50% of the market, but until there is some real hardware that can compete against the iPod that consumers really want, Apple is in the drivers seat. We see all these new devices out on the market, but none of the manufactures can seem to figure out how to market, or they can't afford to market it.

And it may very well be that Jobs is comfortable with that.
And since it is his company, the choice is his to make, good bad or indifferent.
In the end, its all a matter of math: do you want 100% of the profits generated by a minority market share or a smaller fraction of the profits generated by a majority market?

We know where MS stands: they'd rather collect 4% from 80% of the market than 100% from 20%.Maybe, its all on the hardware to see if they can get to that 80% share that MS would love to have. The more I see these iPod killers come and go, the more I'm certain that Microsoft must get into the hardware market themselves. iRiver, Creative and Rio have created some very interesting hardware choices, but none of them have become mainstream and in the end they all compete against each other. If any one of the three could hit a homerun and get their product noticed more, then Apple might have something to worry about.

[Felix Torres]

uh, Apple is doing the opposite; sacrificing tomorrow's revenue for today's balance-sheet.
Really? I thought they were selling iTunes songs at a loss.


They would be the only ones, then.
Everybody else selling at 0.99 is making 10 cents per song.
(And I vaguely remember a jobs quote somewhere where he said he had no loss-leaders.)

Think about it: if feeding songs to the Pod cost Apple money, why not let Real do the feeding and take on the losses?
The Real fight is over protecting that extra income as well as protecting the lock-in.

[James Fee]

Think about it: if feeding songs to the Pod cost Apple money, why not let Real do the feeding and take on the losses?
The Real fight is over protecting that extra income as well as protecting the lock-in.Well and the "quality". Real is like the WalMart of digital audio. Frankly there aren't many iPod users unhappy with Apple's decision to not allow Real to sell music for the iPod. Its a non issue these days.

[Felix Torres]

http://www.msnbc.msn.com/id/5888913/

Buried in this article is a telling trait of a platform:

"To help that along, there are a few other announcements accompanying Microsoft's. ATI Technologies, Hauppage Computer Works, NVIDIA, Pinnacle and software maker SnapStream are announcing that this fall they’ll be releasing new tuner cards and programs that will enable Windows OS users to record television content into Windows Media format and make it automatically ready for transfer to a PMC."

MS provides a standard mechanism for preparing and feeding content to PMCs (WMP) but does not object to others supporting the platform with competing products. Whether the customer uses WMP or MUSICMATCH (or MSN AUDIO or NAPSTER) is less important than the fact that they use WMA or WMV; the success of the ms product is secondary to the success of the platform.

[Felix Torres]

Think about it: if feeding songs to the Pod cost Apple money, why not let Real do the feeding and take on the losses?
The Real fight is over protecting that extra income as well as protecting the lock-in.Well and the "quality". Real is like the WalMart of digital audio. Frankly there aren't many iPod users unhappy with Apple's decision to not allow Real to sell music for the iPod. Its a non issue these days.

Can't really say there; AAC being Apple proprietary tech, it is theoretically possible that Apple knows a secret way to make 128kpbs AAC sound better than 192kbps AAC from REAL.

Its not supposed to, but it is posible, I guess... 8O

[James Fee]

MS provides a standard mechanism for preparing and feeding content to PMCs (WMP) but does not object to others supporting the platform with competing products. Whether the customer uses WMP or MUSICMATCH (or MSN AUDIO or NAPSTER) is less important than the fact that they use WMA or WMV; the success of the ms product is secondary to the success of the platform.
But by their movement into selling music themselves they stand to hurt those who are the reason they are an open platform. If in the end MSN Music is the only one standing, then what is the benefit to consumers? We end up with two choices and one of them has better hardware than the other.

[James Fee]

Can't really say there; AAC being Apple proprietary tech, it is theoretically possible that Apple knows a secret way to make 128kpbs AAC sound better than 192kbps AAC from REAL.

Its not supposed to, but it is possible, I guess... 8O
I was talking more the software, rather than the music itself. Frankly I can't see how installing Real and ending up with shortcuts all over the place isn't anything but cheap. A big reason why the iTunes/iPod platform is a success is that it all integrates really well. I've just not seen that on the WMA side yet. I've said many times that 128Kbps isn't enough and am looking forward to Apple increasing that in the future. It hasn't hurt my enjoyment of my iPod at all, but it is a concern as other stores have pretty much all moved to at least 160Kbps.