C|NET Asks Who Will Win the Online Music Wars?

[Jason Dunn]

<div class='os_post_top_link'><a href='http://news.com.com/Editors%27+Picks%3A+music/2009-1025_3-5345107.html' target='_blank'>http://news.com.com/Editors%27+Picks%3A+music/2009-1025_3-5345107.html</a><br /><br /></div><i>"Napster first knocked the music industry on its rear a few years ago by allowing millions of people to freely "swap" digital music files, a practice the courts frowned on, essentially driving Napster offline. While illegal downloading still occurs, millions of people are paying to acquire music legally from Apple Computer's iTunes, Rhapsody, the re-launched Napster and even sites operated by mega retailers such as Wal-Mart. Now mighty Microsoft has jumped into the game, and its deep pockets, tech savvy and take-no-prisoners management could change the game for consumers and competitors. Who are you betting on?"</i><br /><br />Who do you think will be the major player in this market a year from now - the one with the most market share? Vote in the poll!

[Janak Parekh]

I think the far more interesting question will be two years from now -- if MSN Music is a success, I still think it'll take more than a year because of iPod's marketshare, etc. For one year, I still think it's iTunes. In that case, I think it's an open field, and Microsoft may very well gain an advantage if they market and evolve the tech properly.

--janak

[Suhit Gupta]

I was just talking about this with Janak over lunch (yeah we are geeks and have nothing better to talk about ). IMHO, MSN music will win because of the flexibility of WMA, because Apple is so stringent with the AAC format and because in terms of interface the MSN music store is about as good as the iTunes store.

Suhit

[Neil Enns]

We need another poll option which is "anything based on WMA" :) I don't think that any one music store will really come out ahead, but I do think that all of the WMA-based stores will kick iTunes all over the place.

Neil

[bdegroodt]

Seems like this goes back to the old "Does MSFT want to win this market?" question. If so, watch out in 5 years (3 generations of junk first). For my $.99, Mr. Jobs and company win by a long shot.

[Mojo Jojo]

In regards to Apple and being stringent, I am not sure all the cards are on the table when it comes to what Apple is doing and what we know.

If this article is true...

http://www.pcworld.com/news/article/0,aid,117683,00.asp

...then it would show that Apple is playing the field, just that the ones complaining are the ones not being approached. I think after a year of growth and market leadership for legal downloads it gives iTunes and Apple some clout and strength at the bargaining table.

[Felix Torres]

http://news.com.com/Jobs+offered+to+let+Sony+into+iTunes%2C+report+says/2100-1027_3-5348969.html?tag=nefd.top

The yellow sheet has bit more detail on the nature of the offer.
Turns out, there is less here than meets the eye:

"Apple, it seems, was ready to open up its iTunes Music Store and make the song downloads there compatible with Sony's digital-music players. "

In other words, Apple offered to supply ATRAC3 downloads via itunes, which is to say they ask Sony to shut down Connect in return for a piece of itunes. In other words, they told SONY to their face: "We know how to sell music onlne better than you."

Which is true but not very polite. ;-)

A more meaningful offer would have been to let Sony players play Apple AAC natively, but that would not have been wise considering the specs of the Walkman jukebox.

[Mojo Jojo]

I don't know... the article on C|net says a little more but not much.

At any rate would you agree that the least you can take from this is Apple is indeed trying to make in roads that will make it a less proprietary service? Why jump at your 'enemies' offer when you can at least explore the waters of your 'enemy's enemy' and perhaps make a friend?

[Felix Torres]

Well, it suggest that, public posturing aside, they really are taking MS somewhat seriously.

But in offering to help perpetuate the ATRAC format they:
- inviting Sony to "make peace with the honorable ancestors" by staying with a non-competitive format past the point when it makes any sense
- maintaining the format balkanization that keeps the market divided

Seems to me that Apple's strategy is to ensure that no-universal file format can appear at all; not WMA (fair enough) *or* AAC (which is puzzling, since owning the universal format would seem to be good for Apple).

As for Sony, their choices are limited:
1- They can assume that the only thing wrong with their strategy is that Connect sucks, which is what Apple was trying to convince them of, and try to fix it or replace it, maybe by buying MusicMatch
2- They can accept that it is ATRAC that is killing them and try to do a Real
3- The can go spend oodles of money and buy Apple
4- They can throw so much money at Apple that Jobs will finally license AAC/Fairplay
5- They can swallow their pride and adopt WMA

It says something that the cheapest and simplest solution is to just license WMA and let their hardware engineers run wild.

At some point, Sony is going to have to decide if they're in the hardware business or the ATRAC business.

[Mojo Jojo]

Seems to me that Apple's strategy is to ensure that no-universal file format can appear at all; not WMA (fair enough) *or* AAC (which is puzzling, since owning the universal format would seem to be good for Apple).

But which way do you want them to go with AAC? If past history is any example how would Apple keep AAC a money making venture?

Take Quicktime. Apple invested a lot of money, liscensed it to everyone, and then when they were making money MS stepped in and created their own codecs. So was licensing a good option/business plan?

Not dealing with Apple directly but lets look at browsers. Netscape, Mosaic, open standards that all browsers used and wham, along came MS. Did standards (some what equivellent to open licensing) stop them?

MS is a cake and eat it too company, they win out of force even if you play fair to the industry. You can't sleep with them and not expect to get pushed out of the bed. To beat MS you have to cut them out of the market, and even THEN that doesn't stop them. Clone, rebrand, incorporate, push. The beat goes on.

So Apple keeps the AAC format and brand populariaty to themselves, they make money and are now labeled 'the bad guys' for doing so or they are 'not smart and hubris is going to kill them' for not licensing. So tell me why Apple should open its vaults and invite other companies in to take their cash?

It is my opinion that opening AAC to MS is to make a decision on when you want the profit to disappear. Instead they can choose a different path, make some money (the goal of all public companies) and push thier brand recognition into a different direction that has been lacking in the computer industry but appeals to consumers, style AND extreme ease of use.

Will it work? I think so. Computers have grown stagnant. They don't 'fit' into the general publics lifestyle these days. Here is something to chew on, take you and your family a couple branches out on the tree if you will.

How many times have you been called as the computer expert to fix their problems? What is the ratio of computer savy people to not savy people in your family? Now if Apple markets to the percent that is not savy through style and popular culture, and MS has to overcome their own brutish, geek club, and techinically challeneging type of branding... I think Apple has a shot.

No offense to the geeks out there mind you. :D

[Mojo Jojo]

Yeah I know I just posted but I thought of a good way to help explain my thinking. :D

Current Day
Apple sells all AAC formated music.
100% Profit from Sales

Year One with Licensing, best case scenerio
This assumes companies that license AAC make more then the the cost to liscense.

20% MSN + Others Profit from AAC Sales
80% Apple (with about 10% added to bottom line for licensing, about 90% of profit from when they sold alone)

Year Two with Licensing, moderate case scenerio
50% MSN + Others Profit from AAC Sales
50% Apple (with about 10% added to bottom line for licensing, about 60% of profit from when they sold alone)

Year Three with Licensing, worse case scenerio
This describes a mirror image of Windows based machines versus Apple based machines.

97% MSN + Others Profit from AAC Sales
3% Apple (with about 10% added to bottom line for licensing, about 13% of profit from when they sold alone)

Now I made numbers off the top of my head so feel free to dispute and intrepret your own numbers, however the point is if all things being equal, and people can buy AAC through a pre-installed MS player how can Apple keep the 'Browser War' scenerio from happening? They have to keep MS out of the loop, they have to make their own store the easiest way to get music for the most stylish player.

If the player loses consumer appeal, if it is easier to get music from a preinstalled service... Apple has lost.

However Apple has a great and easy to use service to get music, the price is inline with other stores. They also have a very stylish and easy to use player that the people are talking about.

Only the small handful of us here who like the hobby enough to become educated care about DRM's and encoding standards. The boy or girl on the street just wanting to listen to music? They could care less, if it works and works easily, if it meets some sort of popular culture standard.. well you get my idea.

[Felix Torres]

But which way do you want them to go with AAC? If past history is any example how would Apple keep AAC a money making venture?


How does 2 cents for every song downloaded anywhere on the planet sound?

See, Apple's ultimate reason for failing has never had anything to do with MS.
Their problems have always been self-inflicted.
Mostly because they cann't do math straight. ;-)

Its a philosophy/vision blind-spot kind of thing.

Try this:

You ever hear of the infamous "Microsoft tax" so widely decried by the ABM crowd?
It exists.
What you don't hear is how big it is.
Which is too bad cause its generally known to be exactly 4%.
The average selling price of a desktop PC is about $1000.
Of that, MS gets on average $40, or 4%.
Work at a higher level and add up all the money made on Wintel systems; CPUs, drives, video cards, monitors, system software, applications software, everything.
Microsoft's share?
4%.
This horribly scandalizes the ABMers; that Microsoft gets a 4% slice out of everything.
What they don't stop to consider is that this means that 96% of the money made off MS technology ends up going somewhere *other* than MS.

MS is a hyper-competitive company that does not believe in giving suckers an even break, but even they understand that to make money, you have to invest and to have partners, you have to let your partners profit. And there are times when MS will go out of its way to accomodate partners, to live and let live. Not always, but often enough that the partners can survive and often even thrive.

You did hear that the LA group (the consortium managing MPEG4) heard of Microsofts licensing terms for Windows Media they screamed bloody murder, right? Cause MS's rates were, to them, predatory pricing; ridiculously low.
To MS, they are actually nice and juicy and better-than-customary.
They are *used* to living off 3-5% profit margins.
For strategic markets, they'll live on 1-2% royalties if necessary.
Cause MS believes that 4% out of a 100 million PC-a-year market is a hell of a lot better than 100% of an 800,000 PC-a-year market.

And MS is not alone; DELL is a powerhouse in hardware because they know how to live lean.
They can and will prosper on 7-12% profit margins.
And this allows them to keep prices lows, which grows their unit sales, which grows their profits.
Like Microsoft, they nickel-and-dime you to death.
A penny here and a penny there and soon you're looking at ten billion a year after tax profit and 60 billion in the bank.

Now look to the MSN music store; MS if offering downloads, which are known to have a 10% profit margin just off the downloads. Then, they add in advertising. That's a micro-payments business, less than a penny per view. But MSN ads are adding tens and hundreds of millions to the MSN bottom line.

What MS isn't offering (yet) is subscriptions, even though they invented the tech that makes it possible and are encouraging and supporting others who provide them, even though they have a fat and juicy 40% profit margin.
And it just hit me last weekend why: its not charity, although letting Napster and MusicMatch and AOL milk that particular cash cow solidifies their support of Windows Media and keeps them solidly in the MS camp.
There is another reason: the coming "Plays for sure" campaign.
Music downloads play "for sure" on all Windows Media-capable devices; Janus subscription music doesn't. It only plays on the latest players with real-time-clocks that are not user accessible.
So, MS forgoes the 40% profit margin for now to keep the message simple and consistent and grow the total market for Windows Media.

Its long-term thinking.
It is making sure Windows Media endures to bring in those 2-3 cents a song worth of royalties for the next ten-twenty years.
After all, the money spent developing Windows Media is already spent; it was a capital investment just like an Intel fab plant is.
Now comes the time to nurture the platform until it can become a cash cow.

Long-term thinking.
Or strategic thinking as opposed to tactical.

So, how can Apple make money off AAC?
Well, think about it: does Apple make flash-based players?
Does Apple make DVD players?
Does Apple make mini-disk players?
Radios?
Boomboxes?
PDAs?
Those are all products where Apple could licence Fairplay (and charge an arm and a leg! So what if MS charges 1-2%? Get 10% royalties!).
Let others do the work and sit back collecting the royalties.
(It works for ARM!)
Sure, 10% is less than the 40% Apple normally makes off the POD and the MAC.
But for those they have to run manufacturing and advertising and the media hype machine and user support and...
How much money do you think the Frauhauffer institute makes off MP3 IP?
I'd bet its more than Apple makes off their whole product line.
Well, there are a zillion of companies and governments out there that hate MS enough to pay 10% to Apple in order to *not* pay 2% to MS.
That's how you make money off Fairplay.

Pennies add up.
And a thin slice out of a big pie is always better than a tiny pie.
Small-minded thinking leads to small market shares.
Strategic thinking, if properly executed, always leads to huge profits, a penny at a time.
History tell us that.

In the broader business market, there is a very common phenomenon: the successful small business that fails to go public at the right time.
They owners create something wonderful and then kill it by not knowing when to let go so it can grow. As a company grows, the time comes when it should go public so it can become independent of its founders even though it means that at some point the founder will lose control of his creation.
Some owners can get past that loss of total control.
They hang on to their creation with a deathgrip that eventually strangles the company.

Bill Gates is the richest man alive, give or a take a Sultan or three.
He founded MS, grew it for ten years then took it public.
Over time, his ownership share has declined to about 15%.
Over time, he has offloaded operational control of the company.
Over time, he has devoted less and less of his work time to MS and more to other ventures.
MS has not collapsed.
It has grown.
It has to if it is to survive the loss of Mr Gates.

Could you see Apple surviving without Mr Jobs?
I can't.
Its a one man show there.
He has to be in control.
Its not about economics or business models, ultimately; it is about control and trust.
I don't read minds; I don't know what Jobs is thinking.
But what he is doing, well that suggests he just doesn't think he can operate without total control.
The he doesn't think he can keep the pod ahead of what others could build if they could be compatible.
He has a cool hot product today.
And he wants to keep every last one of those customers.
He does not want to give a single one away.
Not to friends.
Not to partners.
HP wants to play?
Let them put a stick on the Apple POD.
Sony? give them a place at the online table as a junior partner. But they have to bring in their own customers.
Real? Ignore them. Maybe they'll go away if you threaten to sue.
Divide and conquer is the way to survive instead of cooperate and grow in his world, apparently.

Plenty of outfits make money licensing tech.
They just don't insist on controlling every last aspect of the business.
Apple still has an (ahem) window of opportunity here.
But its not very big and it is starting to close.

I think they have about 18 months to turn their 29% market share into a long-term business.

Apple hit a jackpot with the Pod.
They can now cash in those chips, invest their winnings, or hang on to what they have and watch the share percentage wither away as the market grows faster than them, away from them.

[Jason Dunn]

I think you should be an analyst for a living Felix - razor-sharp thinking as per usual. 8)

[Mojo Jojo]

Good points but there is one thing still missing...

Why would MS pay 1 penny out of its 2 penny margin to license? Why would they throw out WMA from its long term goals? For MS the long term is WMA, they are heavily invested, the forged partnerships, pushed stanards across the industry, what incentive do they have to develop an AAC brand and continue licensing from another company on a 'free' software player?

That puts them in the negative. To give away a player, license codecs from another company and have to competively price their own sales.

Perhaps I am missing something but I still see a wolf, not some generious group who wants to license out of the goodness of thier hearts.

Dilute the brand, remove power from the leading company, and persue WMA long term. As you put it divide and conquer.

[Jason Dunn]

Why would MS pay 1 penny out of its 2 penny margin to license? Why would they throw out WMA from its long term goals? For MS the long term is WMA, they are heavily invested, the forged partnerships, pushed stanards across the industry, what incentive do they have to develop an AAC brand and continue licensing from another company on a 'free' software player?

What are you talking about? MS would not promote AAC, they'd promote WMA. The iPod would still play AAC, but if Apple had it play WMA, MS would certain promote it as a player that was compatible with any WMA store...but who said anything about MS paying for AAC support? I'm confused. 8O

[James Fee]

I think Felix, Apple makes money off of AAC by selling iPods. I don't think, right or wrong, that Apple cares about AAC on PDAs or other devices. It's all about iPod sales and unless those fall, Apple isn't going to change its "tune" (ok bad pun)....

[Mojo Jojo]

Sorry about that... :D

Let me try to clear it up (without making a page response)

The thread is about who will be the market leader in 2005. A lot of the arguments against Apple succedding is that Apple does not license the FairPlay AAC DRM to companies such as MS/Real/Napster. That being a closed or 'walled garden' will limit their success.

My position is that opening the 'garden' by licensing FairPlay will in fact bring about the reverse of success for Apple. I believe that MS is the next big player compared to Apple.

So, if Apple licensed Fairplay to MS (so that MS Media store could play FairPlay songs) the preinstalled base with Windows will erode the lead that Apple currently enjoys. Why install iTunes if you already have a player (much like browsers)?

This reduces the money potential iTunes music store brings to Apple. Felix pointed out they could possibly make more money on licensing then keeping it to themselves.

I am challenging that thought by asking how that would work out long term. MS made the Windows media player at a loss so that they COULD push their own WMA and WMV standards and in turn sell their OWN licensing fees. I do not see how MS could make the player and the Media store and be profitable while paying Apple a license fee in a slim market, it does not make sense to me.

If they did, MS would be disrupting their own WMA efforts. The only gain I see is to slowly remove the market share from Apple and weaking their position. Once the store is removed because of preloaded players Apple only has iPod sales left and the licensing fee. Over time players will begin (already has) to clone iPod design and functionality, thus removing iPod as well from the market and the need for Fairplay licensing.

... I think that catches us up to where we are now.

I think some activites we have seen put in place by Apple are trying to counter this action. Sign with HP and have iTunes preinstalled on the (number 2 computer seller? Right?) and the market shifts a little more in favor of Apple.

At a certain part this all becomes speculation of course (thats why this is a discussion board) but I think Apple is playing the game differently and won't trust MS as far as they could throw them.

[Jason Dunn]

So, if Apple licensed Fairplay to MS (so that MS Media store could play FairPlay songs) the preinstalled base with Windows will erode the lead that Apple currently enjoys. Why install iTunes if you already have a player (much like browsers)?

Hmm. I've never looked at it that way. I always thought that the complaints about FairPlay being iPod only were coming from the hardware manufacturers who want to be able to compete with the iPod. Microsoft's FAQ response was more about how to get an AAC-based song onto a WMA-compatible device, wasn't it? I think Microsoft is perfectly content leaving AAC to Apple...

[Felix Torres]

Good points but there is one thing still missing...

Why would MS pay 1 penny out of its 2 penny margin to license? Why would they throw out WMA from its long term goals? For MS the long term is WMA, they are heavily invested, the forged partnerships, pushed stanards across the industry, what incentive do they have to develop an AAC brand and continue licensing from another company on a 'free' software player?

That puts them in the negative. To give away a player, license codecs from another company and have to competively price their own sales.

Perhaps I am missing something but I still see a wolf, not some generious group who wants to license out of the goodness of thier hearts.

Dilute the brand, remove power from the leading company, and persue WMA long term. As you put it divide and conquer.

Are you sure you're accounting for overall market growth as well as Apple's *share*?

The digital music business is not a mature market so zero-sum game theory doesn't apply.
In other words, MS gains do *not* have to come at Apple's expense or vice versa.

And the issue isn't necessarily Apple licensing to MS; MS policy is to be a licensor not a licensee. That why, until now, WMP needed plug-ins to encode MP3s; they didn't want to pay the Frauhauffer institute.
The issue is Apple licensing to Sony or HTC, or Sonic, or Dell.
The issue is extending the reach of Fairplay solution beyond the products Apple can design and sell.

MS doesn't license out of the goodness of their heart; they just understand that they can't be all things to all people.
Apple can't either; that's why they only make two PODs.
They don't do flash-based players or CD-based players or media extender boxes.
So if you want to listen to Fairplay-wrapped music you either need a computer or a POD.

WMA, on the other hand, goes everywhere.
And MS doesn't have to lift a finger to make it happen.
In fact, they are hardware neutral.

Are you familiar with the theory of network effects?
Its the idea that one telephone, alone, is useless.
Two telephones, however, have *some* value.
But a million telephones that can interoperate and communicate with each other are priceless.
You get the same thing with credit cards; a card that only works at one store or chain has some value, but a VISA card that is accepted everywhere is more valuable precisely because it is universal.

The same with music; the Sony mini-disc got nowhere because the music only played on a very small number of players.
You get the same effect with the Memory stick; whatever the virtues of the spec, it pales in comparison to products like SD cards and even xD cards because they are more useful; you are not limited to the product design expertise and solutions of one company.
Apple doesn't do flash players.
Apple doesn't believe in subscription.
Apple doesn't believe in video.
(Or so they say today.)
If *you* need one of those features you mustm by definition, go to somebody else.
And that somebody else is likely supporting WMA...

Ubiquity is an asset.
Its not a matter of raw numbers or of market share or of hype and posturing; it either exists or it doesn't.

Remember the Apple/Pepsi giveaway?
Why do you think so few songs got redeemed, even though there were tons of folks looking to cheat or trying to get the codes from those that had no use for them?
The answer is that out of the total set of Pepsi consumers, there was only a very small sub-set that had any use for AAC music. So they literally couldn't give the stuff away.
It was useless to most buyers.

There is value in being able to take your music from a PC to a flash-player or a PDA.
There is even value in knowing you *could* if you needed it.
My current player is a Rio.
I like the current version, too, the Karma, but I don't need a new player now.
When I do need a new player, though, Rio may not be the best fit for my needs.
Maybe Samsung will be the one.
Maybe Philips.
With WMA *I* decide.

With the Fairplay/AAC combo it is the Pod or nothing.

Its called lock-in.
After pod people buy enough music, their choice will be dictated more by the need to play their thousand dollars worth of music than the capabilities of the $200 player they'll be buying.

In absolute terms there is more value to more buyers in a multi-vendor solution because of the network effects.

So the question comes down to maximizing customer value and growing the overall market faster than you caould grow your own sales so that the licensing doesn't reduce your profitability.
If your profit margin is 40% and you license it at 10% you need to make sure that the market is growing fast enough to absorb the new licensees.
When Apple licensed MacOS it wasn't.
Plus Apple engineers were getting beat by the Power Computing crew.
So Apple Mac sales declined as the clones expanded.

The music market today is supposed to be different.
It *should* be possible to license Fairplay and not have all sales of the compatible products come at the expense of the pod.
If that were true, then the long-term game is already lost, because Apple's share is at 29% and not going to get much bigger.
If that were true, WMA has already won.
And Microsoft isn't acting as if it had won.
So, I'll take the word of Microsoft and its partners and assume there is room to grow and Fairplay/AAC still has a chance to be *the* dominant format, long term.
But the chance is shrinking every day.

18 months is my guess; I'm standing by it.

[Felix Torres]

The thread is about who will be the market leader in 2005. A lot of the arguments against Apple succedding is that Apple does not license the FairPlay AAC DRM to companies such as MS/Real/Napster. That being a closed or 'walled garden' will limit their success.

My position is that opening the 'garden' by licensing FairPlay will in fact bring about the reverse of success for Apple. I believe that MS is the next big player compared to Apple.

So, if Apple licensed Fairplay to MS (so that MS Media store could play FairPlay songs) the preinstalled base with Windows will erode the lead that Apple currently enjoys. Why install iTunes if you already have a player (much like browsers)?

Ah, but why install itunes if you don't have a pod to start with?
Right now, the Pod is the only thing driving customers to itunes.
On the other hand, if Apple licensed to other hardware vendors, *their* customers would be going to itunes.

Microsoft's beef is that they offer products that are not offered by Apple (subscriptions, for one) and that by Apple not supporting WMA or matching those features, they are depriving Pod customers of something they might want.

Thing is, if you only look at this as an Apple vs MS thing you forget that the ultimate issue is the customer needs. The more Apple plays it as Apple vs MS, the more competing hardware vendors will find themselves lining up with MS because MS doesn't compete with them as Apple does.

This isn't a chicken-n-egg scenario; here hardware sales drives content sales.
That's why Rio existed long before anybody provided online music and why Apple sold the pod for years before starting itunes.

The way to hearts and minds of the customers is through the hardware.
If you want to stave off MSN Music, you'll need more than just pod owners; you'll need Rio and iRiver and China inc.

And right now, their hardware supports WMA.

[Mojo Jojo]

here hardware sales drives content sales.

I couldn't agree more with this statement. iTunes does exsist because the iPod *IS* selling well. However I think it is now a symbotic relationship. If you license FairPlay out to other hardware vendors wouldn't you just be eating into your iPod sales?

(side note: when the name 'iTunes' is the first word in a sentence should you capitalize the 'i'?)

If Apple did nothing and everything stayed the same as now. I'll give in and say their days as 'Leader' are marked. I am not sold completely that they should market FairPlay to 'personal type' hardware vendors at this time.

My two dollar bet is they will try for the trifecta, the iPod range will grow to meet the solid state 256meg players - low end price personal players, a high end that does video, and to continue a music only iPod line.

They should however open it up to DVD type players, Car stereo makers and other markets outside personal computing. That I will agree on.

[Felix Torres]

If Apple did nothing and everything stayed the same as now. I'll give in and say their days as 'Leader' are marked. I am not sold completely that they should market FairPlay to 'personal type' hardware vendors at this time.



If they don't do it now it'll be a moot point when they get around to it.

Its not that they need alternative hard drive players (although a second-source wouldn't hurt), but they do need flash players and software-based support outside the desktop.
And they desperately need after-market car players, an area where MS has been for ages.
To say nothing of a standalone home entertainment center solution that is more than just remote speakers for a computer.
A tall list, I understand, but that is the reason for licensing the codec; to get the technology everywhere.
And the clock is ticking...

As for Apple doing a flash-based player, I doubt it; the Apple-sized profit margins aren't there.
I think the next iteration is a color-screen pod, possibly with a touchscreen interface.